The economic and business instability of recent years, stemming from the worldwide economic crisis as well as widespread uncertainty and increased national scrutiny, have changed the rules of the business game dramatically. The international investor is faced with the need to seek additional safeguards towards business assets, as well as the need to provide a stable and unimpeded environment against any internal or external threats.
While traditionally used as an estate planning vehicle, the revamped CIT is increasingly used as a mechanism through which business operations can be carried out. What is more, the CIT provides for the highest possible degree of asset protection internationally, along with tax benefits and strong confidentiality capabilities.
DOING BUSINESS THROUGH A CIT
A CIT is an instrument of considerable flexibility. It can be drafted in such a way and without any legal limitations, to allow for effective operation of business activities. In other words, the trust deed can be a dynamic instrument able to provide for complex business arrangements, such as profit-sharing agreements, investment committees, reserved powers of the settlor and diversification policies. In certain circumstances, a CIT can even be a more suitable alternative to a corporate vehicle. While certain procedures such as reduction of capital, changing of proper law and jurisdiction are restrictive for corporate entities and might involve timeconsuming procedures, the same limitations do not apply for CITs.
Further, the trust deed can be designed to provide sufficient and efficient oversight of the functions of the trustees or other decision makers.
It is worth mentioning that the CIT law allows for the possibility of changing the proper law of the CIT and thus the benefit of a fast exit route is given to the trustees in case the business or tax environment becomes adverse. In order to gain the most, great care must be exercised in the drafting of the trust deed in order to allow for amendments without the need of court approval, enabling the trust to progress through an evolving business environment.
ASSET PROTECTION
For any matters relating to the interpretation and validity of the provisions of a CIT, Cyprus courts enjoy exclusive jurisdiction. Any foreign judgment breaching the exclusive jurisdiction of Cyprus courts is non-enforceable in Cyprus by reason of it being contrary to public policy. This position is safeguarded by local legislation, case law, the constitution and EU law. This is very important, since it renders the CIT a stable vehicle, not liable to external attacks in foreign jurisdictions. Therefore, a CIT is not only to be used for succession purposes and asset protection, but also as a vehicle for protection of business operations even in cases of sanctions or other similar attacks, as will be explained below.
At this point, it is useful to point out that in the case of a CIT settlement, ie the creation of a CIT, any succession laws applicable to the settlor or beneficiaries will simply not apply. This gives infinite possibilities for the protection of minors or unborn children, as well as the possibility to manage shari'ah law provisions.
A CIT is also effectively used as an asset protection vehicle against any creditor attack. Since no claim can be filed in relation to the assets of the CIT upon the bankruptcy or liquidation of the settlor or beneficiary, the assets contributed to the CIT are safeguarded.
What is most interesting, is the increased usage of a CIT as a way to safeguard the continuity of business operations in the event of a settlor or beneficiary attack by authorities. Specifically, CITs may cater for the possibility of removal or disqualification of beneficiaries in cases where the beneficiaries are found guilty of tax-related crimes or are under investigation, or in cases where beneficiaries are classified as sanctioned persons. This disqualification enables the CIT to continue its operations unimpeded and guarantees asset security.
Finally, it is worth mentioning the significant tax advantages enjoyed by CITs. Since there is no taxation of income and no inheritance tax or wealth tax in Cyprus, there are significant tax planning possibilities available to the international investor when setting up a CIT; the strict confidentiality provisions, high protection mechanisms and unparalleled flexibility have been recognised by the international investor, thus rendering the CIT an important instrument in international operations and tax planning.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
