George Savvides, Fiducentre examines why Cyprus International Trusts are proving so popular with Russian Investors.
The use of Cyprus International Trusts in international business planning is becoming as widespread as ever before, but is becoming even more popular with investors from Russia and other Eastern European countries. The most important reasons for this popularity are examined below.
Characteristics of a Cyprus International Trust
In brief a trust exists in relation to identified assets whereby the owner of these assets (the “settlor”) creates a trust by appointing a trustee to hold and manage these assets in its name for the benefit of certain other persons (the “beneficiaries”). The settlor may also appoint a person (the “protector”) to act as a guardian to ensure that the trustee will exercise its discretion with the prior consent of the protector.
Cyprus International Trust is characterized by the following:
Benefits of using a Cyprus International Trust
Uses of a Cyprus International Trust
In practice: Cyprus International Trusts and Russia
Applying the above mentioned benefits and uses of a Cyprus International Trust to the case of Russia, and as per opinions publicly expressed by various Russian experts with regards to the tax and legal implications in Russia for the use of Trusts in general, the following can be highlighted as the main drivers of their popularity.
Protection of wealth and asset protection: a Cyprus International Trust provides a robust protection against not only creditor claims but also matrimonial claims. If spouses have segregated property in accordance with pre or post-nuptial agreements, they can transfer their individual assets to a Trust without too many technical formalities.
Inheritance/estate planning: due to the fact that the Russian law does not include any rights or duties inseparably connected with the personality of the deceased, if a Russian individual makes a bona fide transfer of all of his/her assets to a trust, he/she will cease to own these assets and they will cease to be part of the inheritance as defined by the Russian law. This means that any “forced heirship” provisions (obliging the settlor to distribute his/her assets in accordance with set rules with regards to the identity of beneficiaries and the portion of the fortune assigned to each of them) are bypassed, enabling the investors to dispose their assets as they wish.
Tax optimization: this is better understood if the whole process is split up in three stages, as follows:
Due to the personal nature of the Trust relationship, the great powers which can be conferred to the Trustees, the significance of the assets settled and the importance of the purposes for which such a vehicle is created, the need to get the structure right before implementation as well as to express this properly in the Trust Deed and related documentation is vital. Especially in the case of Russia, where the common law concept of trust is alien, the suitability of a Trust to the specific circumstances of an investor as well as the understanding and application of the concept by the Russian authorities at the time of inception, should always be checked with a qualified local professional.
George Savvides, Partner
George Savvides, Partner, Fiducenter, Cypus