Nicky Xenofontos: There is growing demand for Cyprus trusts from Middle Eastern, Israeli, Asian, and African clients

There is a growing demand for Cyprus International Trusts (CIT) from Middle Eastern, Israeli, Asian and African clients, according to Nicky Xenofontos, STEP Cyprus Branch Chair, who adds that the focus is now shifting from traditional asset sheltering toward legitimate wealth structuring, estate planning, and family governance.

She also reveals how STEP Cyprus is actively engaging with the UK market following the country's decision to significantly change the status of non-domiciled residents, and that Cyprus will be hosting the STEP Europe Conference that will take place on 23-24 October in Limassol, a bid the Cyprus branch won during the 2024 Conference.

As the Chairwoman of STEP Cyprus, can you describe the current local trusts industry? Has it been affected by the latest geopolitical tension?

Cyprus continues to be a notable jurisdiction for trusts, primarily due to the flexibility of the Cyprus International Trusts Law and the country’s common law heritage.

Admittedly, recent geopolitical developments have had a notable impact on the Cypriot trust industry, particularly in the reduction of trust activity due to EU sanctions and de-risking by Cypriot banks and service providers; there has been a significant decline in Russian and Belarusian clients considering using trusts for their succession planning. Some existing trusts had to be re-domiciled or terminated due to sanctions and or revocation of trust services. Adding to this, there is now much stricter due diligence and KYC/AML compliance, especially when settlors or beneficiaries come from high-risk countries, while beneficial ownership registers under EU AML directives are being updated and more closely monitored. Due to the misconception that trusts are high risk structures and treated as such, they are increasingly being scrutinised not just for legality, but for economic substance and purpose. Family office structures and private trust companies are becoming more popular to meet transparency expectations while maintaining asset protection.

That said, though, there has been an increase in interest from other jurisdictions, such as continental Europe. This declination has actually provided opportunities for diversification, and Cyprus is seeing increased interest from Middle Eastern, Israeli, and Asian clients seeking a politically neutral and legally stable trust jurisdiction in the EU. Some high net worth individuals (HNWIs) from unstable regions view Cyprus as a safer alternative than more offshore or opaque jurisdictions.

The key features of Cyprus trusts that remain attractive include:

Asset protection

• Cyprus trusts offer strong protection against future claims or creditors (provided the trust was not set up with the intent to defraud). The law provides for a 2-year limitation period “firewall provision”.
• Assets settled into a trust are legally separated from the settlor’s personal estate, helping safeguard wealth. Succession laws of other countries do not capture assets held under a Cyprus International Trusts (CIT).

Tax neutrality

• CITs benefit from a favourable tax regime:

1. No taxation on income or gains derived from sources outside Cyprus for non-tax resident beneficiaries.
2. No capital gains tax, wealth tax, or estate/inheritance taxes in Cyprus.
3. Income may be accumulated or distributed with flexibility.

Confidentiality

• Trust deeds are not publicly registered, and trustee identities are kept private.
• Only limited disclosure may be required to competent authorities under AML or tax information exchange rules (CRS, FATCA).

Flexible settlor control

• The settlor may retain significant powers (e.g., veto powers, powers of investment, powers to remove trustees) without invalidating the trust.
• Can provide for reserved powers or protector arrangements.

Perpetuity and duration

• Cyprus trusts can have an indefinite duration (previously capped at 100 years), allowing long-term planning for family wealth or charitable purposes.

Use in structuring and succession planning

• Commonly used in estate planning, succession without probate, and holding family wealth through investment structures.
• Can help bypass forced heirship rules in other jurisdictions

Recognition of foreign trusts

• Cyprus is a signatory to the Hague Convention on the Law Applicable to Trusts and on their Recognition, meaning foreign trusts are recognised.

Cyprus is generally a popular jurisdiction for trusts, particularly for high-net-worth individuals. Why is this and do you expect it to continue?

Yes, it is indeed likely to remain attractive. Cyprus is actively adapting to global transparency and compliance expectations (e.g., beneficial ownership registers, FATCA/CRS reporting). As already mentioned there is growing demand from Middle East, Israeli, Asian, and African clients, especially those looking for EU-based but cost-effective structures in combination with the increasing use of family office structures and private trust companies, which adds value and trust longevity.

This attractiveness comes with some challenges such as increased regulatory scrutiny (AML, sanctions, DAC6, CRS), which makes it harder to accommodate clients from higher-risk jurisdictions. Clients now demand substance, transparency, and professional governance so it is imperative that professional, expert and experienced practitioners undertake the provision of trust services.

Cyprus will continue to be a preferred jurisdiction for trusts, especially among clients seeking a robust, EU-compliant, yet flexible legal environment. However, the focus is clearly shifting from traditional asset sheltering toward legitimate wealth structuring, estate planning, and family governance.

What does Cyprus offer non-domiciled individuals, wishing to establish a Cyprus International Trust (CIT)?

Cyprus offers a highly attractive legal, tax, and regulatory environment for non-domiciled individuals who wish to establish a CIT. These benefits are particularly valuable for high-net-worth individuals seeking asset protection, estate planning, and tax efficiency in a well-regarded EU jurisdiction.

The non-domicile regime offers significant tax advantages such as no special Defence Contribution (SDC) tax on dividends inter alia. An important feature is that there is no inheritance tax in Cyprus.

We are proud to state that STEP Cyprus has actively been involved in the imminent tax reform, having provided guidance on how and why the current tax treatment of CITs should remain untouched, and the status quo retained.

Following the UK’s decision to significantly change non-dom status in April 2025, there seems to be significant potential here in particular. Is STEP Cyprus actively trying to tap the UK market?

Yes, STEP Cyprus (Society of Trust and Estate Practitioners – Cyprus branch) has identified the UK reforms to non-domiciled taxation (effective April 2025) as a strategic opportunity to attract interest from UK-based advisors, HNWIs, and family offices seeking alternative jurisdictions.

While official public campaigns are limited for the time being, STEP Cyprus and related professional bodies are indeed actively engaging the UK market. STEP Cyprus members and affiliated firms (lawyers, fiduciaries, tax advisors) attend UK-based private wealth conferences and STEP UK events, promoting Cyprus as an EU-based, tax-efficient, common law alternative for trust structuring and relocation.

What is your own personal vision for the local trusts industry? What are your main priorities?

My vision is for the Cyprus trusts industry to evolve into a globally respected, transparent, and innovative wealth structuring hub, known not only for its legal flexibility and tax efficiency, but also for its credibility, professionalism, and ethical standards.

Cyprus has the foundation: a modern legal framework, EU membership, and a common law tradition. But it must now take bold steps to position itself as a premier trust jurisdiction, especially as global dynamics shift—such as the UK's non-dom reform and increasing scrutiny of offshore financial centres. What i would personally want to see happening is the imposition of stricter rules on the provision of trust–fiduciary services, perhaps by adding a specified, professional certificate to be obtained by professionals in this specific industry before being allowed to offer such services. This will also help in reinstating Cyprus’ professional services industry reputation.

STEP Cyprus has been very active in recent years, lobbying with local authorities to improve the professional industry. What have been the key achievements from this? And will this effort be ongoing?

It has indeed and we are particularly proud of this. The Branch is one of the most active ones in Europe and played a proactive and constructive role in recent years in shaping the development of the trusts and wider professional services industry in Cyprus. Its lobbying efforts, educational activities, and policy engagement have helped modernise the sector and raise its profile both locally and internationally. Some key achievements include working with the Cyprus Bar Association, ICPAC, CYFA and CySEC to clarify AML obligations for trustees and service providers, promoting best practices in KYC, trust documentation, and client due diligence, helping local professionals meet FATF, CRS, and EU requirements, pushing for proportionate and practical regulation that protects the industry’s credibility without overburdening practitioners, playing a central role in discussions with regulators on the implementation of EU rules on trust beneficial ownership registers, advocating for confidentiality safeguards and appropriate access thresholds to balance transparency and privacy. Apart from the above, we believe that giving something back to our members is important and that’s why we offer educational and professional development seminars/webinars to our members, not only for completing their CPD points but also to stay informed, ahead of the curve on legal and regulatory developments.

Notably, the Branch is currently working on a draft bill of a law to protect mentally incapacitated people which it endeavours to present to the House of Representatives for discussion, and, if successful, pass it into law. This would make Cyprus one of the first countries, if not the first one, to pass such legislation - Global Representative Power of Attorney.

Introducing this pioneering option of a Lasting Power of Attorney (LPA) into local law in line with the above objectives would provide clear social benefits for Cyprus’ residents. Having an LPA in place means people can trust in a legal framework that effectively works to safeguard them from financial abuse. It is a useful tool for our ageing population but also for people with other forms of mental incapacity.

Most likely, incorporating the LPA into local law would potentially also see increased confidence in Cyprus as a jurisdiction from those that do not engage in other available structures, such as international trusts and estate planning whether in Cyprus or abroad. By extension, this would increase private client business.

Finally, do you think Cyprus’ trust industry is properly regulated?

That’s a very relevant and nuanced question. The short answer is: Cyprus' trust industry is regulated, but it faces ongoing challenges in ensuring that regulation is consistently applied, effectively enforced, and proportionate to international expectations, especially in light of the island’s damaged reputation, which stemmed from a perfect storm of high-risk clients, lax oversight, and high-profile global scrutiny.

Cyprus is getting there, but work is still needed. Cyprus does have a functioning and improving regulatory framework for trusts. If Cyprus wants to position itself as a premier, EU-compliant trust jurisdiction, strengthening and harmonising trust regulation should be a top priority, and our Branch is actively working towards this.

One last mention, the Europe Conference will take place in Cyprus this year, on 23-24 October in Limassol, a bid we won during the last Europe Conference in 2024, something we are extremely proud of!