The Central Bank of Cyprus has released new guidance for all credit institutions on the island, refining the definition for shell companies and subsidiary entities; coming into effect from November 2018, which are detailed as follows:

Going forward, Cyprus will define a “shell company or subsidiary entity” as being a Limited Liability Company or any other business entity with the following features:

a. The company has no proper physical presence or operations in its country of incorporation/registration (except for a mere postal address).

The requirement of physical presence is interpreted as having a rented or owned premises for carrying out the daily business or operations in the jurisdiction of incorporation.

The absence of a functioning management team could be interpreted as having a lack of physical presence. Having a third-party providing nominee services including corporate secretary duties will no longer constitute having a stand-alone physical presence.

b. The company cannot establish economic activity in its jurisdiction of registration; carries out no substantial independent economic value and cannot provide any documentation to prove the contrary.

The following situations can also prove to be substantial economic activity, not with standing the above info:

1. The company has been established for the purpose of holding shares or other equity instruments such as stock or assets for another entity that is engaged in legitimate business in Cyprus that have an identifiable Beneficial Owner.

2. The company has been incorporated for the purpose of holding assets intangible or otherwise including:

• Real estate & property services.
• Shipment or aircraft services.
• Portfolio of investments.
• Debts or other financial instruments.

3. The company has been established to facilitate:

• Currency trading.
• The transferal of assets.
• Corporate or professional mergers.
• Asset management activities.
• The trading of shares.

4. The company can also act as a Treasurer or Bookkeeper for companies recognised as a group or managing the group’s operations.

5. Any other situation where substantial evidence can be provided that the company is engaged in legitimate business, with identifiable ultimate beneficial owner(s).

Additionally, even if the company falls within the above definition as specified in points a or b; business relationships should be avoided with companies in the following jurisdictions:

• It is incorporated where companies are not obligated to submit audited financial statements and do not voluntarily prepare audited financial statements by an independent, licensed Accountant.
• It has tax residency in a jurisdiction included in the EU or OECD list of non­ cooperative jurisdictions for tax reporting.

Please note that all companies should update their CAP Client Acceptance Policy as per the guidance with immediate effect in order to comply with the new guidance.

The Central Bank also advised all Cyprus-based institutions to be diligent in undertaking their obligations lawfully; adhering to the necessary Directives in order to conduct all (CDD) and other due diligence measures. This includes reporting the identity of Ultimate Beneficial Owners; the correct source of funds and any suspicious or transactional behaviour of their clients.

Eltoma Corporate Services has local Cyprus specialists that can give further advice on any information provided in the above guidance. Contact us for any restructuring or to set up a consultation. We’d be happy to help!