SEYCHELLES INTERNATIONAL TRUSTS
Trusts in Seychelles are governed by the Seychelles International Trusts Act of 1994. Amendments to the original act were made in 2011 by the International Trusts (Amendment) Act of 2011, which served to increase the desirability of Seychelles as an international trust jurisdiction by introducing greater flexibility into Seychelles International Trusts.
The government of Seychelles drafted the Act after a thorough study of best practices in other top trust jurisdictions, and incorporated all of the best features of other trust legislation, while also including various modifications and innovations that allowed for greater flexibility and stronger asset protection. As a result, Seychelles law is an exemplar of premier asset protection trust legislation.
Seychelles International Trusts are commonly used in conjunction with the Seychelles International Business Companies. By using a trust to hold shares in the IBC, an additional layer of legal protection is provided for the owner. Moreover, this can enable beneficiaries to defer or avoid any possible tax on the profits of the IBC for an indefinite period.
GENERAL DEFINITION AND HISTORY OF THE TRUST
A Trust is not an entity, but a specific legal relationship, which is widely recognized in Common law jurisdictions. By means of a Trust, the owner of certain assets ("Settlor") transfers these assets to an independent third party ("Trustee"). The Trustee, in turn, is legally bound to maintain and manage these assets for the benefit of another person or group of persons ("Beneficiaries").
The core principle of Trusts lies in the separation of legal title (ownership) to an asset from the benefits (equitable title) derived from that asset. Because legal title is severed from benefits, the control over the asset (right to dispose with) is also separated from the benefits derived from that asset.
As a legal instrument, the Trust dates back to Middle Ages or even earlier. It continues to be widely used in all jurisdictions whose legislation has been developed on the basis of the British Common law.
The modern Civil law, as currently adopted in many countries of the world (notably, most of continental Europe), has a more concentrated concept of "property", which is largely incompatible with the concept of the Trust relationship. Nevertheless, Trusts continue to serve well as an asset protection and estate planning instrument for millions of individuals all over the world, regardless of their country of residence.
Definition - A Trust is defined in part I, section 2 of the International Trusts Act as follows:
A Trust “means a legal relationship which arises where property is vested or deemed to be vested in, or is held by or deemed to be held by, but does not form part of the estate of, a person known as a trustee -
- for the benefit of another person known as a beneficiary, whether or not yet ascertained or in existence
- for a charitable purpose or for any other purpose which is not for the benefit only of the settlor or the trustee, including for the purpose of –
- trading (commercial trust):
- dealing with life insurance (life insurance trust):
- managing cash deposits (cash deposit trust):
- managing provident funds, pension funds, employee end of service benefit scheme, and employee stock option plans.
TYPES OF SEYCHELLES INTERNATIONAL TRUSTS
Seychelles international trusts are deemed to be irrevocable by default, but revocable trusts are also permitted. The majority of Seychelles international trusts are established as discretionary trusts, which allows for greater flexibility in dealing with changes in the needs and situations of beneficiaries.
The Act specifically provides for the following types of trusts:
- international trusts
- charitable international trusts
- purpose international trusts, and
- other trusts – these are referred to in the Act and include commercial (trading) trusts, life insurance trusts, cash deposit trusts and trusts resulting from acts of the Court.
This list, however, is not exclusive, and alternative trust varieties tailored to client specific needs are also available.
PARTIES TO A TRUST
is the person who “provides trust property or makes a testamentary disposition on trust or to a trust.” In essence, the settlor creates the Trust by placing certain property that s/he owns into the Trust, i.e. by transferring that asset to another person (Trustee) along with clear instructions that the asset be held for the benefit of a third party. The Settlor may be either an individual or a legal entity.
is an individual or legal entity to which the Settlor transfers legal title to the Trust asset(s). Trustees must also agree to manage the trust and its assets for the benefit of the beneficiaries in accordance with the terms of the trust deed. While being the holder of legal title means the trustee is in full control of the trust assets, the Trustee is nevertheless under a legal obligation to exercise a heightened fiduciary duty of care - trustees must maintain trust property in the best possible manner for the benefit of the Beneficiaries. Trustees are required to act with due diligence, care and prudence, and to the best ability and skill of the person. Moreover, the Trustee is legally precluded from using the trust assets for his own ends, as the beneficial ownership resides with the beneficiary. Trustees are also subject to demanding professional licensing standards. All Seychelles Trust Service Providers must comply with stringent regulation and strict requirements. All practitioners in the offshore industry, including Trustees, must be licensed by the Commission before engaging into any of the international financial services. The regulatory authorities in Seychelles pay particular attention that Trust firms prove a high standard of staff competence and integrity, have adequate internal system of controls and procedures and are substantially capitalized.
is the third party for whose benefit and profit the trust asset is held and managed by the Trustee. The Beneficiary or Beneficiaries may be either specifically named in the Trust Deed or may be a sufficiently defined group of persons (for example "all children and grandchildren"). As a particular twist, the Settlor of a Trust may also be named as the Beneficiary, but may not be the sole beneficiary. Seychelles also supports trust for charitable purposes, and general purpose trusts.
is not a mandatory party to all Trusts, but may be chosen by the Settlor. The function of the Protector is to supervise the Trustee, thus providing additional assurances to the Settlor that the trust assets are properly managed. Essentially, a Protector is a person whose prior consent is legally required ahead of the Trustee taking specified actions. For example, Trustees may require permission from the Protector before:
- adding or excluding Beneficiaries;
- making new, or changing previous arrangements for payments of trust income;
- adding or revoking Trustee/s
In extreme circumstances, the Protector may even remove or replace the Trustee. The function of the Protector may be undertaken by the Settlor or the Beneficiary, although usually it is vested in a trusted friend or advisor of the Settlor.
The Seychelles International Trusts Act does not specifically refer to protectors or guardians, but does expressly provide for the establishment of Trusts, which require the trustee to consult or obtain the consent of another person before exercising a particular function. As such, there is no impediment to the appointment of a protector or guardian. However, the appointment terms and the powers of the protector should be explicitly set forth in the the trust deed or other appointment instrument in order to maintain the formalities required by the International Trust Act.
CIVIL PROPERTY RIGHTS VS THE TRUST
The continental Civil law presumes that all the main component rights associated with property ownership must ultimately reside in one person – the owner. In Civil law the owner of property alone holds the formal legal title to the property, can defend, dispose of, control and use the property, as well as enjoy all the profits and benefits from the property. He may delegate any of those rights temporarily to other persons, but ultimately all these rights reside with the owner. If a person lacks one or several of these characteristics in respect to a certain asset, s/he will not be considered a true owner of that asset.
The Common law concept of Trust is something entirely different! In a Trust relationship, there is a clear and permanent separation between the primary components of a property. The most distinct feature of a Trust is the clear separation of the legal ownership (legal title) of the asset from the beneficial ownership (equitable title) of the asset. While the Trustee is the holder of the legal title to a Trust, the rights to the benefits and gains (equitable title) from the trust assets lie with the Beneficiary. The Trustee has formal rights to control and dispose of the asset, but these rights are pre-determined by the Settlor in the terms set forth by the Trust Deed. In a Trust relationship the settlor CANNOT be the holder of the legal title to the Trust, but with careful drafting of the trust deed he can prescribe how the Trust assets shall be used, and who shall receive the gains and benefits from the Trust property. To confuse things further, the Settlor may be (but not always is) a Beneficiary of Seychelles International Trusts, but may never be the sole Beneficiary.
ADVANTAGES AND APPLICATIONS OF THE TRUST
The primary benefits of Seychelles International Trusts are the opportunities for tax minimization, financial planning, and succession planning and financial privacy. The trust act was drafted to specifically include strong asset protection provisions in order to emphasize such benefits.
These trust benefits arise from the formal, legal separation of ownership of an asset from the enforceable rights of beneficial use and enjoyment of that asset. This particular characteristic of trusts has led to their widespread use in asset protection, estate planning, and the preservation of family wealth.
An "offshore trust" (a Trust established in an international financial center, or tax haven – like the Seychelles International Trust) provides the additional benefit of no domestic taxation, as Seychelles International Trusts are exempt from Taxation in Seychelles. Furthermore the tax benefits of Seychelles International Trusts are very attractive when the trust is used as holding vehicle deployed to hold shares in an IBC. Such a setup enables the would be beneficiaries to defer or avoid any applicable international taxes on the profits of the IBC for an indefinite period.
Some of the most common applications of offshore trusts are as follows:
Assets transferred by the Settlor to a Trust no longer form part of the estate owned by the Settlor. Potential creditors of the Settlor have no access to Trust assets, as the trust assets are not considered to be the property of the Settlor. Additionally, A Settlor cannot be indicted for not reporting or declaring such assets, as they are not legally considered part of the Settlor’s estate. For asset protection purposes it is important that the Trust is established well in advance, ideally at a time when the Settlor could not even anticipate the existence of the future creditors, otherwise the trust may not be upheld as valid. Trust established with a purpose of avoiding the claims existing creditors are frequently found to be fraudulent and, therefore, invalid. Hence, early planning for Trusts is essential.
As trust assets are not deemed to be the property of the Settlor, trusts are often used to hold assets that would otherwise have to be reported or declared by the Settlor in his country or residence. In particular, trusts are widely used to hold shares in an IBC or in other offshore assets where the true ownership must be kept away from public scrutiny. This way, a legal additional level of confidentiality is provided for any offshore-based business. Seychelles International Trusts are particularly well-designed for this purpose. Although Seychelles International Trusts are officially registered with the regulatory agency in Seychelles, there is no formal requirement that the trust deed itself be filed with the registry. Additionally the Trust Act has no requirements for filing details about the Settlor or Beneficiaries, unless there are Seychellois beneficiaries.
Trust assets are not considered to be property of the Settlor. Hence, all profits and capital gains earned by the Trust would normally be taxable according to the laws regulating the Trust. These would usually be the laws of the country where the Trust is established. Seychelles International Trusts are expressly exempted by law from all income and corporate taxation. No estate, inheritance, succession or gift tax, nor any stamp duty is applicable to Seychelles International Trusts as long as all trust income is derived from outside of the Seychelles. As such, a Trust can clearly be a tax-free instrument for wealth preservation and accumulation. However, the beneficiaries of a trust should be aware that any income or benefit they receive from trust (even from an international or exempt trust), may still be taxable "in their hands", at receipt of such income. In this respect, professional tax advice should be sought at home by any individual receiving income from a trust.
Estate planning and probate avoidance.
In most jurisdictions the estate of a deceased must go through a probate procedure. This may be a lengthy and costly process, also involving undesired publicity during the distribution of the estate. By establishing a trust, the probate can largely be avoided, because the ownership to the trust assets has been transferred during the life of the Settlor. Hence, the death of the Settlor does not influence the Trust assets in any meaningful way and the Trust continues an uninterrupted operation for the benefit of the beneficiaries after and beyond the demise of the Settlor. Through a Trust, a person may lay precise plans for providing a source of income for his remaining family, make provisions for the education of children or for emergency situations in the family. A trust is arguably the most appropriate and flexible instrument for making arrangements of this kind.
Avoidance of forced heirship.
For various reasons, an individual may not wish his property to pass outright to his heirs, and may wish instead to make some other arrangements. However, in many countries the law does not permit a person to freely dispose of his property in the event of his death. More typically, especially in Civil Law jurisdictions, the law prescribes that certain heirs (usually, the closest blood-relatives) may not be excluded from inheritance and must receive a predetermined minimum share of the estate – even if the deceased would not have wished them to receive anything. As trust property will not be deemed to constitute part of the Settlors´ estate, such property will be exempt from any such forced heirship rules. In essence, a Trust may largely fulfil the function of a Last Will and Testament, without being subject to the lengthy and expensive probate process and other burdensome regulations.
Estate planning and long-term preservation of assets.
An individual may wish to ensure that the business built, or the wealth accumulated over a lifetime is not divided up among heirs and consumed irresponsibly, but retained to accumulate further, with provision for payments to members of the immediate family as the need arises. Along the same lines, if shares in a business are transferred to the Trustees prior to death of the Settlor, the Trust can be used to prevent the unnecessary liquidation of a family company. The terms of the Trust Deed may then include detailed provisions for support payments to be made to members of the family from dividend income received by the Trustees but that the Trustees retain the shares and keep the company running save in special circumstances justifying sale or liquidation. This approach may be particularly advantageous where the remaining family may have little business experience of their own or where they are unlikely to agree on the way forward for the business.
TAX ADVANTAGES OF THE SEYCHELLES INTERNATIONAL TRUST
As long as all Trust income is derived from outside of the Seychelles, then Seychelles International Trusts, and the respective trust property is permanently exempt from income and business tax, estate, inheritance, succession or gift tax and all instruments relating to the trust property or to transactions carried out by the trustee on behalf of the trust are exempt from stamp duty.
QUALIFICATION FOR A SEYCHELLES INTERNATIONAL TRUST
Seychelles International Trusts may be created orally, in writing, by will, or in a codicil. At least one trustee must be a Seychelles resident licensed under the International Corporate Services Providers (Amendment) Act. The trustee is under an obligation to file a trust declaration with the Financial Services Authority.As defined by the International Trust Act, an international trust is a trust or a constructive trust where:
- the settlor is not at any time during the duration of the trust a resident of Seychelles;
- at all times at least one trustee is:
- a resident of Seychelles;
- an International Business Company authorised by the Authority to act as trustee; or
- a financial institution;
- the trust property does not… include:
- any property situated in Seychelles;
- any shares, debentures, or any interests in any body corporate other than a corporate body incorporated under the law of a country other than Seychelles or an International Business Company or another international trust.
Given that a Seychelles International Business Company is for legal purposes not a resident of Seychelles, it may act as a Settlor in a Seychelles International Trust.
The International Trust Act also provides for a number of exemptions to the restrictions on property ownership by International Trusts in the Seychelles.
“A trustee of an international trust may, with the approval of the Authority and subject to any other written law:”
- own such immovable property as may be required for the office accommodation of the trustee;
- invest in securities and hold other investments in Seychelles…
- may open and maintain with a financial institution an account out of which all payments required for the administration and operation of the international trust may be effected.
Seychelles International Trusts provide additional degree of flexibility by allowing Settlors to choose whichever law suits them best to be the applicable law of the trust. The law governing and International Trust is the law chosen by the settlor to be the proper law, and this choice may be expressly stated in the trust deed, or implied by the terms of the trust.
An International Trust is registered in the Seychelles by means of the Trust Agent filing a declaration of trust, and a specific application form and affidavit. The International Trust is then issued with a numbered certificate of registration.
The following information is registered and maintained by the Seychelles Registrar of International Trusts in respect to every International Trust:
- a declaration that:
- the settlor of the trust is not a resident of Seychelles;
- the trust property does not include any immovable property situated in Seychelles;
- the trust the trustee holds qualifies as an international trust.
Although a Seychelles International Trust is "registered" and a registration number allocated, this in no way compromises the confidentiality of International Trusts, as the International Trusts Act forbids the declaration from disclosing:
- the name of any settlor;
- the name of any beneficiary, unless the beneficiary is a Seychellois or a body corporate resident in Seychelles.
While remaining sufficiently confidential and simple, the procedure of mandatory registration of International Trusts in the Seychelles ensures that the interests of the settlors and beneficiaries of the trust are best served by providing them with a written confirmation that their International Trust has been properly established in accordance with a certain set of legal standards. This way, the official registration basically provides an additional assurance of the enforceability and integrity of the International Trust.
The Seychelles International Trusts Act provides for substantial confidentiality provisions in respect to all trusts registered or created in the Seychelles. At the same time the Act sets forth a number of provisions under which the settlor, the beneficiaries and the protector of the trust may obtain sufficient information as regards the state of affairs of their Trust.
Generally, the trustee of a trust has a duty of confidentiality. Subject to limited exceptions as provided in the Trusts Act and subject to the terms of the trust, the trustee of a trust shall keep confidential all information regarding the state and amount of the trust property or the conduct of the trust administration.
Notably, the Trust Deed is not publicly filed. Disclosure of any information or document relating to an International Trust is strictly prohibited by law, except under an injunction granted by the Seychelles Supreme Court on application made by the Seychelles Attorney General and only for the purpose of an inquiry or trial into or relating to the trafficking of narcotics and dangerous drugs, arms trafficking or money laundering. In other words no information as regards the trust assets, the names of the settlors, beneficiaries or other parties to the trust (except for the Trustee) or any other substantial financial or personal information as regards of any International Trust is registered or held with any public authority in the Seychelles – hence, such information cannot be obtained from the Registrar, even if requested by a regulatory authority. All such information is only held on file by the Trustee, and subject to stringent confidentiality provisions as described above.
At the same time, a Trustee, upon request from a beneficiary under a trust, or in the case of a charitable trust, the charity named in the charitable international trust, is bound to provide full and accurate information as regards the state and amount of the trust property and the conduct of the trust administration to the extent permissible under the terms of the trust (Part 2, Paragraph 8. of the Act.)
LEGAL PROTECTION OF ASSETS
The Seychelles International Trusts Act was designed to highlight the Seychelles as a premier Tax Haven and Asset Protection Jurisdiction. As such, the language of the act includes very strong asset protection and trust defence provisions.
Seychelles Law provides that neither a Trust nor any transfer or disposition of property to a Trust can be invalidated by any foreign rule of forced heirship, nor because the trust concept is unknown to or not admitted by the laws of a foreign jurisdiction. This provision is a strong guarantee against the cumbersome and expensive probate and intestacy processes in place in Civil Law jurisdictions, and many of the Common Law jurisdictions. . (Part 2, Paragraph 10. subsection (2)(a) of the Act.)
Additionally, Seychelles International Trusts shall not be void or voidable because of the settlor’s bankruptcy or liquidation of the settlor’s property or in any legal action against the settlor by the settlor’s creditors. The only exception is, if the Seychelles Supreme Court should find beyond reasonable doubt that the International Trust was made with the intent to defraud creditors of the settlor or the settlor was insolvent at the time when the property was vested in the trustee. The heightened requirements of the “beyond a reasonable doubt” standard are substantially more difficult to demonstrate than the common preponderance of the evidence standard required in other civil suits. Moreover, the International Trusts Act explicitly states that this heightened burden of proof is on the creditor claimants bringing suit, meaning those seeking to get at Trust Property face a very difficult uphill battle. (Part 2, Paragraph 9. subsection (2) – (4) of the Act.)
Lastly, the short statute of limitations for legal claims by creditors of the settlors against trustees offers an additional layer of protection. The Act provides that such claims shall not be permitted against a trustee of a Trust after 2 years from the date of transfer of assets into the Trust. (Part 2, Paragraph 9. subsection (5) of the Act.)
REGULATION OF TRUST FIRMS IN SEYCHELLES
Trust Service Providers are subject to stringent regulation and strict requirements. All practitioners in the offshore industry, including Trustees, must be licensed by the Commission before engaging into any of the international financial services. All Trust service providers, and their Trustee employees, are licensed, and governed by the International Truts Act, the International Corporate Services Providers Act 2003 and Anti-Money Laundering Act 2008 (as amended). Before licenses are issued to trust service providers, all employees and trustees are thoroughly vetted as regards competence, integrity and financial standing. In particular, any Trust firm must prove a high standard of staff competence and integrity, have adequate internal system of controls and procedures and must be substantially capitalized.
ESTABLISHMENT PROCEDURE FOR AN INTERNATIONAL TRUST IN SEYCHELLES
Establishing a Seychelles International Trust is a relatively straightforward process.
The first step is drafting the Trust Deed.
The Trust Deed is the primary document for the establishment of a Trust. The Trust Deed (or "Deed of Settlement") is a written instrument or contractual agreement which sets out the fact that a Trustee is holding certain property for the benefit of others (ie the Beneficiaries), and also describes in detail the duties of the trustee, the names of the beneficiaries and the assets which are the subject of the trust.
Trust Deeds also usually sets out the arrangements by which the Trustee is to hold and deal with the Trust Property. It is like a contract between the Trustee and the Settlor/Beneficiaries. Within the document the Trustee declares that he/she/it holds particular property on certain conditions. These conditions are called the “terms of the Trust”. These terms may contain all the necessary detail of confidential provisions regarding how the trust assets must be maintained and managed, and how any of the trust benefits must be distributed, invested or administered. In principle, the Trust Deed is a unique legal document, custom-made for each individual trust situation, although certain standard wordings are usually available and often employed.
The Seychelles International Trusts Act allows for Trust Deeds to be drawn up in a very flexible way so that they can reflect the particular needs and circumstances of the Settlor. Together with the assistance of a licensed trust service provider, settlors can custom draft their Seychelles International Trust Deeds to meet the most specific and particular requirements. Settlor’s can custom tailor the Trust Deed to ensure the assets handled are transferred explicitly according to their wishes and intentions, and can even be so specific as to explicitly select the governing law for their trust.
Despite the extreme flexibility provided for by the Seychelles International Trusts Act, there are a few requirements as to the structure of International Trusts that must be kept in mind:
- The minimum number of Trustees is one, and this must be a licensed Trustee in the Seychelles.
- Every International Trust must have a Seychelles resident corporate trustee, which holds a trustee service providers licence issued by the Financial Services Authority. Additional Non-resident co-trustee/s and/or protectors are permissible.
- Settlors are permitted to be beneficiaries under Seychelles International Trusts, but may never be the sole beneficiary of a trust.
- The settlor cannot at any time during the duration of a Trust be a resident of Seychelles.
- Seychelles International Trusts are permitted to exist with a maximum term of 100 years from the date of their creation. Upon reaching 100 years, the trust will automatically terminate resulting in a final distribution of the remaining trust assets to any remaining beneficiaries, or pursuant to the terms of trust termination set out in the trust deed. Termination of the trust may occur earlier than 100 years from the creation of the trust, should the terms of the Trust Deed provide so.
- The 100 year maximum duration does not apply to charitable, or purpose trusts, which may have an indefinite duration.
- Trust beneficiaries must be identifiable by name or ascertainable by reference to either:
- a class; or
- a relationship to another person, whether or not living at the time of the creation of the trust or at the time by reference to which, under the terms of the trust, members of a class are to be determined.
Once the terms of the trust have been agreed upon, and a trust deed drafted, the Seychelles International Trust must be registered.
Registering a Seychelles International Trust
Registering a trust with the proper authorities in the Seychelles is very straightforward, simple process, and in no way affects the confidentiality of your trust.
In order to register your International trust you will need to:
- File a brief declaration by the Trustee with the Registry, which declares that
- the Settlor of the Trust is not Seychelles resident;
- the Trust property does not include land in the Seychelles;
- and provides the name and date of the Trust.
- Make a one off payment to the Registry of US$ 100.
Provided that the declaration is correctly drafted, signed and filed along with the applicable Government fee (USD 100 for initial registration), the International Trust will be issued with a numbered certificate of registration.
For more detailed knowledge on Seychelles International Trusts, please feel free to peruse the full official texts of the Seychelles International Trusts Acts, which are available in our "Downloads" section.
Please contact us for more information.