On 2 November 2018 the Central Bank of Cyprus issued a circular which clarifies dubious and vague information on shell companies and entities in Cyprus and advises banks and service providers on how to deal with them.
As Cyprus remains an attractive jurisdiction for registering offshore entities, the circular's revised definition of 'shell companies' will assist banks when opening accounts for international businesses and corporate service providers.
According to the circular, the term 'shell company/entity' refers to limited liability companies or any other legal or business entities which:
- have no physical presence or operations in their country of incorporation. The 'physical presence' of a company includes employees and office space. The presence of a third person providing merely nominee services (eg, company secretary duties) does not constitute 'physical presence'; and
- have no established economic activity in their country of incorporation.
The following companies and economic activities are excluded from the definition of 'shell company':
- companies established to hold stocks or shares or other equity instruments of another business entity engaged in legitimate business with identifiable ultimate beneficial owners;
- companies established to hold intangible or other assets such as real estate, ships, aircraft, portfolio of investments, debt and financial instruments;
- companies established to facilitate currency trades and asset transfers or corporate mergers, as well as carrying out asset management activities and share trading; and
- companies which act as a treasurer for companies recognised as a group or manage the activities of the group.
In addition to the above, banks should avoid engaging in business relationships with companies or entities which:
- are registered in a jurisdiction in which companies and entities are not required to submit audited financial statements to the authorities and do not voluntarily prepare audited financial statements by independent, qualified professional accountants; and
- have a tax residence in a jurisdiction included in the EU list of non-cooperative jurisdictions for tax purposes or the Organisation for Economic Cooperation and Development's list of non-cooperative jurisdictions for tax purposes.
In all other cases, banks must decide whether to engage in or maintain a business relationship and apply a risk-based approach, in accordance with the legal and regulatory framework of the respective jurisdiction where the company or entity is established.
Considering the above, banks and credit institutions should revise their customer acceptance policies in order to comply with the new circular.
In accordance with the applicable legislation and regulatory framework, banks and credit institutions are reminded of their obligations to conduct all necessary due diligence measures and checks regarding, among other things:
- the identity of ultimate beneficial owners;
- the source of funds; and
- the transnational behaviour of their customers.
For further information on this topic please contact Angelos Paphitis at A G Paphitis & Co by telephone (+357 25 73 10 00) or by email (email@example.com). The A G Paphitis & Co website can be accessed at www.agplaw.com.
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