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Starting and Managing a Business in Cyprus CREATION OF A FAMILY TRUST IN CYPRUS

Taras Miroshnychenko

Head of International Corporate Law and Fintech Practice

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miroshnychenko@prikhodko.com.ua

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Expert in fintech, crypto, and international corporate law with over 20 years of experience. Specializes in crypto licensing (VASP/CASP), iGaming business support, and international structuring, asset protection, and OSINT analytics for risk assessment and due diligence.

CREATION OF A FAMILY TRUST IN CYPRUS

Why is Cyprus an attractive jurisdiction for setting up a family trust?

Cyprus is an attractive jurisdiction for doing business in Europe due to its low-income tax rate (12.5%), as well as the availability of various tax benefits: income received outside the country is not taxed in Cyprus; no tax on dividends and interest; low tax rates on personal income; there is no tax on profit from the sale of shares and securities; there is no tax on the profit from the sale of property abroad.

The jurisdiction also has numerous double-taxation agreements with other countries, making it even more attractive to international investors.

In addition, Cyprus has a convenient system of company registration and administration, which allows you to quickly and easily create a business in the country. The island develops technological spheres, attracts various qualified specialists, develops the financial sector, and also promotes the growth of startups and IT projects.

Most of the representative offices and offices of global corporations are concentrated here. Also, one of the advantages is the creation of family trusts.

The creation of trusts is governed by the International Trusts Act 1992. According to this law, a trust is a legal agreement whereby one party (the settlor) transfers to another party (the trustee) to manage for the benefit of a third party (the beneficiary).

What is the structure of a family trust?

The main goal is to preserve assets, especially real estate in Ukraine, the LLC is valued at approximately $500,000, as well as potentially liquid assets.

The trust structure should include a trustee who will carry out the instructions of the settler (asset owner) and beneficiaries, offering the flexibility to close the trust or liquidate assets as needed.

It will also be useful: ESTABLISHMENT OF FUNDS AND TRUSTS

What documents are required to create a trust and the time frame for its opening

The opening date of the trust depends on the completion of the necessary procedures and the submission of accurate documentation. Estimated maintenance costs will depend on various factors such as court fees, administrative costs and any current regulatory requirements.

Please note that compliance with Know Your Customer (KUC) procedures is important for all beneficiaries and the settlor.

In addition, a detailed list of all properties to be included in the trust will be required to ensure comprehensive asset protection.

What are the advantages of creating a family trust in Cyprus?

Protection of assets from creditors, probate rules or lawsuits;
It is difficult to appeal because the only reason it can be appealed is in circumstances where creditors are defrauded. The burden of proof in this case is on the creditors;
Privacy (to the extent permitted by applicable law)
Preservation of family welfare and gradual distribution of income and capital among Beneficiaries;
Flexibility regarding the powers of the Trustee;
Tax benefits for the parties;
Capital gains tax is not payable on the disposal of Cyprus trust assets
There is no estate or inheritance tax
Income derived from local or foreign sources is taxed in Cyprus if the beneficiary is a tax resident of Cyprus. If the beneficiaries are not tax residents of Cyprus, only Cypriot sources of income are taxable under Cyprus income tax laws.

What exactly are the tax consequences and related costs?

As part of our comprehensive service, we will conduct a thorough analysis of the potential tax consequences associated with a trust structure.

Costs may include registration fees, legal fees, trustee services, and any applicable taxes or fees which will be detailed during our consultation.

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The corporate tax rate in Cyprus was raised to 15%. Doesn't this create problems for Ukrainian business?

On the contrary, it is a strategic advantage. The Tax Code of Ukraine provides for exemption from CFC taxation if the effective rate in the foreign jurisdiction is at least 13%. The 15% rate in Cyprus automatically allows legally exempting the profit of a Cyprus company from additional taxation in Ukraine.

How does the updated IP Box regime for IT companies work?

The Cyprus IP Box applies the Modified Nexus Approach, where the benefit depends on actual development costs. If a company develops software locally, 80% of qualifying profit is exempt from taxes. The 15% corporate tax applies only to the remaining 20% of profit, giving an effective tax rate of 3%.

Is it necessary to pay tax on undistributed profit and the annual company levy?

No. The Deemed Dividend Distribution (DDD) rule was completely abolished for profits generated from January 1, 2026. The annual fixed Annual Levy of €350 was also abolished starting in 2024.

Can I get Cyprus tax residency as a business founder?

Yes, the “60-day rule” applies to business founders. It allows you to obtain tax resident status by staying in Cyprus for only 60 days a year if you own or rent housing, have business ties to the country, and are not a tax resident of another state.

What is Notional Interest Deduction (NID) and who is it suitable for?

NID is a powerful incentive for capital-intensive businesses (e.g., industrial or investment holdings). It allows deducting notional interest on the amount of new equity capital introduced from the taxable base. The deduction amount equals the yield of 10-year government bonds of the country of investment plus 5%. This tool can reduce taxable profit by up to 80%.

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