Establishing a Family Office in Cyprus: Benefits

Establishing a Family Office in Cyprus: Benefits

A Family Office could be defined on general terms as a dedicated structure designed to manage, preserve, and grow the wealth of affluent families across generations.

High-Net-Worth Individuals (HNWIs) and multi-generational families are increasingly establishing
single-family offices to address the wealth management, investment strategies, and administrative
needs of their family businesses, ensuring control, confidentiality and long-term financial
sustainability. Although there are many forms of family office, the most common types that we see
are investment offices, staffed by investment professionals, or professional offices, staffed by
lawyers, accountants and administrators or the full-service family office, which combines all of the
above. Family Offices must be designed according to the unique needs, circumstances, and
concerns of the families they serve. Setting up and operating a Family Office involves multiple
technical areas and can take months or even years to achieve full operational efficiency. A key
function is supporting the creation of effective corporate and family governance frameworks, which
address both emotional and financial aspects of family business management, aligning family and
business interests, mitigating conflicts, and protecting the family’s legacy.

Cyprus has attracted Family Offices from both Western and Eastern regions. While some come from
the US, UK, and Europe, the majority are from the Middle East, Israel, Russia, and Asia, especially
China and India. Cyprus offers various advantages, including EU membership, an English-based
legal system, stability, strategic location, favorable taxation, and a broad network of international
treaties. The country also provides investor-friendly immigration rules and high-quality professional
services. Many families consider Cyprus a safe and appealing place for family members to live,
benefiting from its sunny climate, excellent infrastructure, education and leisure facilities, and low
crime rate.

Selecting the appropriate family holding structure is based on a thorough analysis of legal, asset
protection, succession, and tax planning considerations, as well as the family’s desired level of
involvement. Common structures include trusts and family-owned companies:

Option 1: Cyprus Company as the family holding structure

Generally speaking, there are many advantages to HNWIs / entrepreneurs having a Cyprus company
structure created and benefiting from key features of the Cyprus tax system, with only some of them
being:

Compliance with EU and OECD practices
Full adoption of relevant tax EU Directives;
12.5% Cyprus corporate tax rate (set to increase to 15% by late 2025);
VAT standard rate 19%;
Comparative cost advantage in establishing proper business and economic substance in
Cyprus;
Cyprus has signed a large number of Double Taxation Treaties all over the world;
Profits from permanent establishments situated outside of Cyprus are exempt from corporation
tax (subject to conditions);
A Cyprus company under the IP Box Regime can have an effective tax rate of up to 2.5% on
income derived from intellectual property;
Eligible companies (the so-called companies of foreign interest), which enter the fast-tack
mechanism are able to hire non-EU staff and obtain work permits for their employees;

In addition to the above, foreign individuals, whether family members or non-family members, who
relocate their tax residency to Cyprus, will automatically be classified as a Cyprus Non-Domiciled
(“Cy Non-Dom”) individual for tax purposes and can maintain this status for a maximum of 17 years.
These individuals will be eligible to enjoy several other benefits apart from the ones mentioned
above, including, but not limited to:

Full exemption from the Special Defence Contribution (SDC) tax on investment income
generated globally. This is one of the key benefts, as non-Doms do not pay the SDC tax on their
global income from dividends, interest, or rental income.
Full exemption from personal income tax on income earned from dividends and interest (except
for a minimal GeSY – General Health System – contribution of 2.65%).
Full Exemption from Cyprus taxation of proft from the sale of shares and other qualifying titles,
if the underlying assets do not include immovable property located in Cyprus.
Non-doms who earn over €55,000 annually from employment exercised in Cyprus (provided they
were resident outside Cyprus before the commencement of their employment), can also enjoy a
50% exemption for those earnings, applicable for 17 years commencing from the year of
employment.
Pensions received in respect of past employment abroad are taxed in Cyprus at a ﬂat rate of 5%
for amounts exceeding €3,420 per year.
No inheritance tax.
No wealth tax.
No gift taxation.
In case these individuals are benefciaries to a Cyprus International Trust (see Option 2 below),
only the income and gains of the trust derived, or deemed to be derived, within Cyprus are
subject to taxation in Cyprus, noting that dividends or interest received from Cyprus sources (e.g.
a Cyprus company) are not taxable or subject to withholding tax. Also, capital gains that occur
after the disposal of assets of a Cyprus International Trust are not subject to capital gains tax in
Cyprus.

The following tax benefts apply to both residents and non-Dom individuals

Capital sums derived from approved life insurance policies and provident funds are not subject
to income tax.
Income received from a qualifying scholarship, exhibition, bursary or other educational grants is
not subject to income tax.
Salaries of oﬀicers and crew of ships owned by a Cyprus shipping company sailing under the
Cyprus ﬂag and function in international waters are not subject to income tax.
Income earned from providing employment services abroad to a non-resident employer or to a
foreign permanent establishment of a resident employer, for a duration of more than 90 days but
less than 183 days within the tax year is not subject to income tax.
A 20% deduction from rental income received is allowed. Individuals may also claim capital
allowances on the cost of acquiring the rental property (subject to certain conditions) as well as
on any interest paid on loans taken specifcally for the acquisition of the property

Option 2: Cyprus International Trust as the family holding structure

For a trust to qualify as a Cyprus International Trust (CIT) and be governed by the favorable provisions
of the CIT Law, the following conditions must be met in their entirety:

The Settlor must not have been a Cyprus tax resident during the calendar year preceding the
establishment of the trust; and
None of the Beneficiaries may have been Cyprus tax residents during the calendar year
preceding the establishment of the trust; and
At least one of the trustees must be a tax resident of Cyprus.

However, it should be stressed that the Cyprus International Trusts Law allows the settlor and/or the
beneficiaries to relocate to Cyprus and become tax residents of Cyprus after the creation of the
Cyprus International Trust. Such relocation will not affect the validity or status of the trust.

Apart from tax efficiency (see analysis under Option 1 above), Cyprus International Trusts provide a
wide range of other advantages, with the main being:

Succession Planning

Individuals can ensure that their wealth is passed on to beneficiaries according to their wishes,
without the complexities and delays associated with probate or inheritance procedures. This is
particularly valuable for international clients with assets in multiple jurisdictions.

Wealth Management

In addition, a Cyprus International Trust facilitates the long-term management and preservation of
family wealth by ensuring, for example, a gradual distribution of income and capital to children and
grandchildren by the trustees, without burdening them with the responsibility of managing the family
wealth directly.

Confidentiality

Subject to the provisions of the trust deed and unless a court orders the disclosure of information in
specific circumstances, the trustee, protector, enforcer, or any other person cannot disclose
documents or information (including electronically stored data) related to the trust, its trustees, or
beneficiaries. This includes details about the exercise of trustees’ powers or the trust’s accounts. A
court may order disclosure only if it deems such information crucial to the outcome of a pending civil
or criminal proceeding.

Asset Protection

Assets held within a Cyprus International Trust are protected from claims in the event of the settlor’s
subsequent bankruptcy, liquidation, or legal actions by creditors. This protection applies even if the
trust was established for the benefit of the settlor, their spouse, children, or any other beneficiary,
unless it can be proven in court that the trust was created with the intent to defraud creditors at the
time of transferring assets into the trust. Such legal actions must be filed within two years of the
asset transfer, and the burden of proof lies entirely with the creditors.

How can the Cyprus Tax-Residency be obtained?

There are two primary routes to obtain the Cyprus tax residency:

(1) The 183-Day Rule: To qualify as a Cyprus tax resident under this rule, the individual must
physically reside in Cyprus for at least 183 days within a calendar year. These days do not need
to be consecutive

(2) The 60-Day Rule: To qualify under this rule, the individual must physically reside in Cyprus for at
least 60 days during a calendar year and meet all of the following conditions:

Not reside in any other single country for more than 183 days in the same year.
Not be a tax resident of any other country.
Own or rent a permanent residence in Cyprus.
Engage in business activities, employment, or hold an office in Cyprus (with a legal or natural
person resident in Cyprus) at any time during the tax year, provided that such activities are
not terminated during that year.

Establishing a Family Office in Cyprus allows families to leverage the country’s unique advantages,
ensuring a legacy of wealth for generations to come. Simultaneously, it is essential for private wealth
professionals to possess a deep understanding of their client’s cultural backgrounds and
sensitivities in order to foster a trusted advisor relationship.

How we can assist

As a law frm with extensive experience of working closely with family oﬀices and family members,
we are well-positioned to assist individuals in establishing their own family oﬀices. We oﬀer
comprehensive guidance at every step of the process, with a genuine commitment to understanding
our clients’ unique cultural backgrounds, needs, and sensitivities.

Our comprehensive suite of services includes:

Creation of Family Offices, including continuous Legal Advice and Support
Family & Corporate Governance Advisory
Creating and administrating a Cyprus company, including:
- Secretarial services
- Nominee director services
- Nominee shareholder services
- Registered Office
- Compliance services
- Bank account administration services
- Redomiciliations
Establishing and administrating a Cyprus International Trust, including:
- Professional Trustee services
- Professional Protector services
- Legal Advice on Cyprus Trusts
Immigration & Relocation services
Property & Real Estate services