The Law, which was passed by the House of Representatives on July 10, 1992, aims to enhance further the reputation of Cyprus as an International Financial Centre by creating the infrastructure for Cyprus to emerge also as a major trust jurisdiction.

The International Trust Law is not a self contained Law but it complements the existing Trustees Law, Chapter 193, which is based on the English Trustees Act 1925 so as to bring it in line with laws of other offshore jurisdictions. The main provisions the International Trust Law are summarised below:

The International Trust Law is applicable to non-residents only. However, there is a requirement that at least one of the Trustees is a Cypriot be resident (individual or corporation).

"International trust" means a trust in respect of which:

1. the settlor is not a permanent resident in the Republic,

2. at least one of the trustees for the time being is, during the whole duration of the trust, a permanent resident in the Republic,

3. the trust property does not include any immovable property situated in the Republic:

Provided that a trust shall not fail to qualify as an international trust by reason only that either the settlor or the trustee mentioned in paragraph (b)or any one or more of the beneficiaries is a partnership or company qualifying under Section 8 Y and Section 28 A respectively of the Income Tax Laws;

A trust set up under the International Trust Law can change its proper law from the law of the Republic of Cyprus to any other jurisdiction. This provision makes it possible to incorporate into the International trust instrument springing and fleeing clauses.

Notwithstanding the provisions of any bankruptcy or liquidation Law in Cyprus or in any other country and notwithstanding the fact that the trust is voluntary and without consideration or is made for the benefit of the settlor and/or of the spouse of the settlor, it shall not be void or voidable unless creditors can prove that it was made with the intention to defraud them and an action is brought by them within two years from the date of the transfer of the trust assets to the trustees.

The trust period may be fixed for a period of up to one hundred years. The trust period for charitable and purpose trusts is unlimited.

Subject to the provisions of the Constitution of the Republic of Cyprus and notwithstanding the existence of any contrary legal provision of the law of the Republic or any other country an international trust shall be deemed to be charitable where the trust has as its main purpose the achievement of tne or more of the following:

1. the relief of poverty;

2. the advancement of education;

3. the advancement of religion;

4. other purposes beneficial to the public in general.

An international trust established for one or more of the objects or purposes set out above shall be deemed to be charitable notwithstanding:

1. that the object or purposes may not be of a public nature or for the benefit of the public, but may benefit a section of the public, or that it may benefit particularly one or more persons or objects or persons within a class of persons or

2. that the international trust is liable to be modified or terminated whether by the exercise of a power of appointment or the disposition of assets or

3. that the trustee has the power to defer the distribution of the benefits to any charity of the trust for a period not exceeding the period of the trust or

4. that the international trust is or is considered to be in the category of discretionary trusts.

Notwithstanding the existence of any contrary legal provision of the law of the Republic or of any other country, an international trust shall not be void or voidable by reason only that it is a purpose trust provided that in the cases when the trust is not a perpetual trust or when it may be terminated, the instrument creating the trust shall specify the event or the events upon which the trust terminates and shall provide for the disposition of its net assets upon its termination. An international trust so created shall be enforceable by the settlor or his personal representatives or by the person or persons named in the instrument establishing the trust as the person or persons appointed to enforce the trust and the trust shall be enforceable at the instance of the person or persons so named notwithstanding that such person or persons are not beneficiaries under the trust.

A settlor is deemed to have ability to dispose of his assets to an international trust if at the time of such transfer he is of full age and of sound mind under the law of the country in which he is permanently resident. The inheritance law of the Republic of Cyprus or of any other country shall in no way affect any transfer or disposition made to a Cyprus international trust and the validity of such transfer shall not be challenged.

Confidentially is enshrined in the new law and it is imposed on the trustees and on any other persons not authorised by law to have knowledge of information or documents which disclose the settlor, the beneficiaries or the business of the trust.

Disclosure of the reason for the exercise of a power or discretion, or performance of a duty is also prohibited unless the court is satisfied that such a disclosure is of paramount importance to the outcome of the case.

Subject to the provisions of the instrument creating an international trust, a trustee may at any time invest the whole or any part of the trust funds in any kind of investment:

1. wherever the investment is situate and

2. whether or not the funds have already been invested.

The trustee may vary the investment or retain it in its original state, as long as he exercises the diligence and the prudence which a reasonable person would be expected to exercise when he makes investments.

If the terms of an international trust so provide, the applicable law of the international trust may be changed to or from the law of the Republic, provided that:

1. in the case of a change from the law of the Republic to another law, the new applicable law would recognise the validity of the trust and the respective interests of the beneficiaries

2. in the case of a change from another law to the law of the Republic such change is recognised by the applicable law of the trust previously in effect.

However, the laws which regulate investments within Cyprus, by non-residents, apply to investments made by an international trust.

There is no requirement for registration of an international trust with any government or other authority.

Subject to the provisions of subsection (2),of the International Trusts Law 1992 the Court may on application if it thinks fit, by order approve any arrangement which varies or enlarges or modifies the powers of management or administration of trustees, on behalf of the persons referred to below, irrespective of whether there is another beneficiary capable of assenting to the arrangement or not, and who are:

1. any person incapacitated at law having directly or indirectly, an interest, whether vested or contingent, under an international trust or

2. any person, whether ascertained or not, who may become entitled, directly or indirectly, to an interest under an international trust as being the person who at a future date or who on the happening of a future event will be a person of any specified description or a member of any specified class of persons referred to in the instrument creating the international trust or

3. any person unborn or

4. any person in respect of any interest of his that may arise to him by reason of any discretionary power given to any one the failure or determination of any existing interest that has not failed or determined.

The Court shall not approve an arrangement on behalf of any person referred to in paragraphs (a), (b), or (c) or subsection (1), unless it is satisfied that the proposed arrangement shall be for the benefit of that person without materially adversely affecting the rights of other interested parties.

Where in the management or administration of an international trust any sale, lease, pledge, charge, surrender, release or in any other way disposition, or the purchase, investment, acquisition, or the purchase, investment, acquisition, expenditure or other transaction is in the opinion of the Court expedient but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee either by the terms of the international trust or by law, the Court may confer on the trustee, either generally or in any particular circumstance, the relevant power under such terms and conditions as it thinks fit, and may direct in what manner and the asset from which the authorised expenditure and the costs of any transaction are to be borne.

An application to the Court may be made by the trustee or by or on behalf of any beneficiary.

Subject to the terms of the instrument creating an international trust and where the court has not issued an order for disclosure the trustee or any other person, including government officials and officers of the Central Bank of Cyprus, shall not disclose to any person not legally entitled thereto any information or documents:

1. which disclose the name of the settlor or any of the beneficiaries;

2. which disclose the trustee's deliberations as to the manner in which a power or discretion was exercised or a duty conferred or imposed by law or by the terms of the international trust was performed;

3. which disclose the reason for any particular exercise of power or discretion or performance of duty or the material upon which such reason had been or might have been based;

4. which relate to the exercise or proposed exercise of such power or discretion or the performance or proposed performances of such duty;

5. which relate to or form part of the accounts of the international trust:

Provided that where a request is submitted by a beneficiary for the disclosure of any document or information relating to or forming part of the accounts of the international trust or, in the case of a charitable trust, is submitted by a charity which is referred to by name in the instrument creating the trust as a beneficiary, the trustee shall be obliged to disclose the document or the information requested.

Notwithstanding the provisions of any other law and subject to the provisions of subsection (3) of the International Trusts Law 1992 a Court in any civil or criminal proceedings may by an order allow the disclosure of information or documents referred to in subsection (1) on application by a litigant or by a party in the above civil or criminal proceedings depending on the circumstances.

The court shall issue an order in accordance with sub-section (2) if it is satisfied that the disclosure of the information or the document referred to in subsection (1) is of paramount importance to the outcome of the case.

"Information or document" includes information or documents stored in a computer and in such a case an order for disclosure is executed with the disclosure or the supply of the information or the document in a visible, legible and portable form.

Cypriot offshore trusts, i.e. trusts whose property and income are outside Cyprus and the settlor and beneficiaries, with the exception of charities, are not permanent residents of Cyprus, enjoy important tax and other advantages which may be summarised as follows:

• The income and gains of an International trust derived or deemed to be derived from sources outside Cyprus are not subject to tax in Cyprus.

• An alien, beneficiary or not, who creates an offshore irrevocable trust in Cyprus and retires in Cyprus is exempt from tax if all the property settled and the income earned is abroad.

• The availability of tax treaties between Cyprus and a number of other countries, together with the favourable tax status of trusts in Cyprus, provide the international tax planner with a valuable tool and are often useful in minimising the tax burden of a trust and its beneficiaries. In the case where "trusts" do not come under the definition of "persons" in a tax treaty, it may be advisable for a trust to establish a Cyprus offshore trust company for trading, investment and other activities, thereby taking full advantage of the treaties. Such a company would, of course, be liable to tax on its profits at the rate of 4.25%.

• An offshore trust would not be subject to estate duty in Cyprus, since the settlor is not domiciled in Cyprus, and the trust has not property in Cyprus. Whether the settlor and the beneficiaries are to avoid the estate duty in their own country, this will depend on that country's legislation.

• Cyprus offshore trusts are not subject to exchange control and may hold and manage assets and liabilities in any foreign currency and in any foreign country, including freely convertible and transferable balances with banks on the island.

• The stamp duty on the instrument creating the trust is a nominal fee amounting to Cyprus Pounds CYP. 250.00 (approx. US$550).

The choice of type of trust will depend on the circumstances of the settlor and the objectives he is trying to achieve in creating the trust. The types available are:

1. A trust which gives the trustees discretion to exercise their own judgement as to the manner and amount by which the beneficiaries might benefit.

2. The trustees do not have any discretion when distributing the trust assets to the beneficiaries.

The trustees may have discretion as to the distribution of income for a period of time, but are ultimately required to distribute the income to a specified person or persons in fixed proportions but may have discretion as to how to distribute the capital amongst a class of beneficiaries.

A protective trust may be created under which a beneficiary may be given a life interest which may become discretionary on certain defined events such as the bankruptcy of the beneficiary.

The settlor is not named in the trust deed and the trustees declare that they hold the assets which were transferred to them on trust. In this case, the trustees accept a letter of wishes.

Under a trading trust the trustee is usually a limited liability company which has powers to carry on business and the trust has trading functions and has employees to manage its business. Third parties are not aware of the existence of the trust as all documentation used is in the name of the trustee company.

WHY CHOOSE CYPRUS

Cyprus trust possibilities are available and may be useful:

• To an individual who whishes to divert his overseas income to a discretionary trust instead of remitting it to his country of residence.

• To an individual who whishes to divest himself of personal assets for fiscal or other reasons.

• To an individual who wishes to keep the ownership of his trading company anonymous and confidential. The shares may be held by a discretionary trust and the company may carry out trading and financial activities without disclosing the beneficial owners of the company.

• To any foreigh trust company or trust in order to avail themselves of the unique Cyprus tax advantages.

Therefore, considering the location of Cy