Cyprus international trusts enjoy significant tax advantages which can be used as part of a wider tax planning strategy.
A Trust is not a separate legal person and therefore has no tax obligations on its own merit. Where the assets held by the Trustee under the terms of the Trust generate income, that income is taxed as per the tax status of the beneficiary. Thus the tax residency test for the imposition of tax on various types of income of Cyprus International Trust is at the level of beneficiaries and not at the level of the trustees.
If the beneficiary of the trust is a resident of Cyprus then the income or profits of such trust, which arise in and out of Cyprus, will be taxed according to the Cyprus tax code. If the Beneficiary is not a tax resident of Cyprus, then only the income or profits of the trust that arise solely from sources in Cyprus are taxed.
In the case of a mixture of beneficiaries in a Cyprus international trust (Cyprus residents and non-residents), the Cyprus Tax Department will consider the percentage of beneficiaries who are Cyprus tax residents and will decide whether to treat the trust as a local or international trust.
DIVIDEND INCOME: Dividends, interest and other income received by a trust from a Cyprus company are not taxable or subject to withholding tax. Foreign-source dividends received by a Cyprus international trust are also not taxable.
GENERAL INCOME: General income (profit) received by Cyprus international trust from sources located outside Cyprus is not taxable in Cyprus if the beneficiary is not a Cyprus tax resident. Local-source income is taxable at Cyprus domestic rates (which at 12.5% are also rather modest.)
CAPITAL GAINS: Cyprus international trusts are not subject to any tax on capital gains achieved on the disposal of its assets. There can be exceptions in respect to gains derived from sale of Cyprus real estate.
Cyprus international trusts are routinely used to hold assets in foreign countries which allows their beneficiaries to avoid capital gains tax in their countries of residence.
ESTATE TAXES: A Cyprus international trust is not subject to any estate duty and there is also no inheritance tax or wealth tax in Cyprus.
PAYMENTS TO BENEFICIARIES: Non-resident beneficiaries are not subject to tax on the payments that they receive from a Cyprus trust.
NO EXCHANGE CONTROLS: There are no currency exchange controls or restrictions on the transfer of funds into or out of Cyprus International trust.