Cyprus trusts and U.S. reporting requirements

Trust arrangements and registration

CySEC describes registration obligations for trusts governed by Cyprus law, including trusts whose trustees do not require administrative services licences. Its guidance places registration with the competent authority associated with the trustee.^[2]

Registration can apply when the trustee company belongs entirely to the settlor or beneficiary. CySEC also states that the identity of a trustee company's director does not change the registration obligation.^[2]

Where one trustee is an accountant and another is a lawyer, either relevant professional authority can receive the registration. CySEC identifies these authorities through the abbreviations ICPAC and CBA.^[2]

The registration treatment differs for nominee shareholding deeds falling within article 4(1)(b)(iii). CySEC states that those deeds fall outside the Trust Register.^[2]

Fiduciary licensing and the provider register

CySEC licenses administrative services providers through a company-based authorisation system. Its guidance requires an ASP to be a registered company and excludes applications by natural persons.^[2]

Authorisation in another jurisdiction does not itself satisfy the CySEC licensing requirement for services provided in Cyprus. This applies to providers authorised in other member states and in third countries.^[2]

CySEC's licensed-person register identifies the administrative services covered by each licence and includes the provider's subsidiaries. The services follow the categories used in the application form.^[2]

The wholly owned subsidiary exemption requires complete ownership by the licensed provider. Common ownership by the same individual does not qualify.^[2]

The guidance also distinguishes bank introductions from account management services within the licensing framework. Introducing clients alone falls outside the ASP Law, while signing for account opening or management falls within it.^[2]

At least two people exercise management of a licensed provider, and non-executive directors do not count toward that management requirement. Where management exceeds two people, CySEC may permit nonresidents, while retaining a Cyprus-resident majority.^[2]

FATCA and beneficial ownership information

Treasury's jurisdiction table records Cyprus as having an in-force Model 1 FATCA agreement.^[7]

Treasury describes FATCA as requiring foreign financial institutions to report information about accounts held by U.S. taxpayers. Its description also covers accounts held by foreign entities in which U.S. taxpayers have substantial ownership interests.^[7]

For ASP authorisation, CySEC requires information identifying direct and indirect shareholders and the applicant's beneficial owners. Where ownership involves legal persons, the information extends through the ownership structure to the final natural persons.^[2]

U.S. tax treatment and foreign trust reporting

The IRS includes U.S. citizens within its definition of U.S. persons for foreign trust reporting. Its published guidance connects reporting obligations to ownership and transactions involving foreign trusts.^[9]

The Form 3520 instructions define foreign status by reference to the requirements for a domestic trust. Domestic status requires both U.S. judicial supervision over administration and U.S. persons' control over all substantial decisions.^[10]

A U.S. person treated as an owner under the grantor trust rules generally pays tax on the trust's income. The IRS describes separate treatment for a U.S. beneficiary receiving a foreign nongrantor trust distribution.^[9]

That beneficiary generally reports the beneficiary's share of distributable net income. The IRS also identifies gain recognition under section 684 for certain transfers of appreciated property to foreign nongrantor trusts.^[9]

Form 3520 generally applies when a U.S. person establishes a foreign trust or transfers property to one. The IRS also lists loans to foreign trusts among the filing triggers.^[9]

Receiving a distribution can also create a Form 3520 filing obligation. The IRS includes receipt of a foreign trust loan and uncompensated use of trust property within its reporting description.^[9]

Form 3520 ownership reporting continues even during a tax year without trust transactions. The instructions require a separate Form 3520 for each foreign trust.^[10]

U.S. owners have responsibility for ensuring that the foreign trust files a complete and accurate Form 3520-A. The annual process also includes statements furnished to U.S. owners and beneficiaries.^[9]

If the trust does not file Form 3520-A, the U.S. owner files a substitute attached to Form 3520. The instructions give that substitute the same filing deadline as the owner's Form 3520.^[9][10]

Form 8938 can apply when specified foreign financial assets exceed the applicable reporting thresholds. The thresholds apply to the total value of specified foreign financial assets in which the person has an interest.^[9]

FBAR reporting may apply to a financial interest in, or signature authority over, a foreign financial account. The IRS identifies FinCEN Form 114 as the account reporting form.^[9]

Certain foreign benefit trusts can qualify for exceptions from Forms 3520 and 3520-A when the specified conditions are met. Those exceptions leave possible Form 8938 and FBAR obligations intact.^[9]

Judicial structure

Cyprus's judicial structure has first-instance courts below an intermediate appellate level and two supreme courts. The Supreme Constitutional Court and Supreme Court occupy the highest level.^[5]

The intermediate level contains the Administrative Court of Appeal and the Court of Appeal. District Courts sit at the first-instance level, alongside Assize Courts and courts with special jurisdiction.^[5]

Investor immigration residence

The Migration Department describes an investment-based immigration permit for third-country applicants who meet its investment and quality criteria. Its policy sets a minimum qualifying investment of EUR 300,000.^[6]

The policy describes residential property and other real estate as separate investment categories. It also includes company share capital and units in qualifying collective investment organisations.^[6]

The applicant's annual income requirement starts at EUR 50,000 and increases for a spouse and dependent minor children. The stated additions are EUR 15,000 for a spouse and EUR 10,000 for each dependent minor child.^[6]

The department describes the residence right for holders and adult dependants as unlimited in duration. The residence card nevertheless expires after ten years and requires replacement.^[6]

The policy accepts a tax return from the declared country of tax residence or official certificates from an independent certified accountant as evidence of income.^[6]

Beneficiary and trustee residence

Beneficiary taxation

In principle, Cyprus tax-resident beneficiaries of a trust are subject to tax in Cyprus on their worldwide income.^[11]

Non-Cyprus tax-resident beneficiaries are, in principle, subject to tax in Cyprus only on income arising from sources in Cyprus.^[11]

Settlor and trustee residence

Under the Cyprus International Trusts Law 69(I)/1992, as amended (including by Law 20(I)/2012), the settlor must not have been resident for tax purposes in Cyprus during the year preceding the year in which the trust is formed.^[11]

At least one trustee must be resident for tax purposes in Cyprus.^[11]

More on Cyprus

Cyprus investor immigration permit overview

The investor immigration permit is issued under Regulation 6(2) of the Aliens and Immigration Regulations. The Minister of Interior decided to issue permits after notifying the Council of Ministers. The Migration Department handles applications and submits them for decision to the Deputy Minister of Migration and International Protection. The procedure applies to third-country applicants who meet one investment category and the quality criteria.^[6]

The minimum investment is €300,000 in one of four categories. A house or apartment must be a first sale from a development company and cost at least €300,000 plus VAT. Other real estate, including offices, shops, hotels or related developments, may be purchased as a resale for €300,000. The Cyprus company route requires €300,000 invested or added as capital to a company based and operating in Cyprus, with physical presence and at least five employees. The fund route requires €300,000 in units of a Cyprus Investment Organization of Collective Investments, with investments held in Cyprus.^[6]

Applicants must show secure annual personal income of at least €50,000, increased by €15,000 for a spouse and €10,000 for each dependent minor child. Income source rules vary by investment category, and spouse income may count toward the total. For housing or other real estate, applicants provide a title deed or filed sale contract in the applicant's or spouse's name and official payment receipts. The investment market value must be at least €300,000 plus VAT if applicable, with receipts showing at least €300,000 paid excluding VAT.^[6]

The applicant's permit covers a spouse and children under 18 as dependents; spouses may instead apply separately and pay the relevant fee. Unmarried children aged 18 to 25 who prove that they are tertiary students abroad at the application submission date and financially dependent on the applicant may submit separate immigration permit applications upon payment of the relevant fee, with one or both parents showing an additional annual income of €10,000 for each such child. Adult children who are not financially dependent may qualify with higher investment amounts: €600,000 for one adult child or €900,000 for two. Each adult child must show the applicable secured annual income threshold. Separate student residence arrangements apply to children studying in Cyprus.^[6]

Applicants and spouses submit clean criminal record certificates from their country of origin and, if different, country of residence. Applicants and dependent family members need health insurance covering inpatient and outpatient care. The applicant and spouse confirm they do not intend to work in Cyprus, except as directors in the investment company. In other investment categories, they may be shareholders in Cyprus companies and hold unpaid directorships. Routes other than the house or apartment category require evidence of accommodation in Cyprus. The residence right has unlimited validity for the holder and adult dependents.^[6]

Questions and answers

Related resources

Related glossary terms

• Trust register: A trust register is an official record of trusts, their parties or trustees, such as the UK Trust Registration Service and EU beneficial-ownership registers.
• Section 679: Section 679 addresses certain transfers by U.S. persons to foreign trusts. It treats some property transfers as ownership when the trust has a U.S. beneficiary.
• Adverse party: Section 672 defines an adverse party by reference to a substantial beneficial interest in a trust and the effect of a power held over it in the trust.

Related articles and guides

• Nevis reporting and information exchange: CRS and FATCA information exchange for Nevis and St. Kitts and Nevis, with the IRS reporting rules for U.S. persons who own or benefit from a Nevis trust.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.