Cyprus. “Shell Companies and Entities” by the Cyprus Central Bank

On November 2, 2018, a Circular came into effect in Cyprus, which clarify the definition about the “shell companies and entities” in Cyprus and how banks and service providers should deal with them.
 
Thus, limited liability companies or any other legal entities will be referred to as “shell companies and entities” if they fall under the following characteristics:
 
1. The company does not have physical   presence   or   operations in the country of registration; Confirmation of “physical presence” includes employees, office space, etc. The use of nominal services, as well as the corporate secretary, will no longer be considered sufficient evidence of the actual presence of the company in the country.
 
2. The company cannot provide convincing evidence of economic activities in the country of registration, does not have sufficient economic value of its own, and cannot provide any documentation confirming the contrary.
 
However, despite the above classification parameters, the following signs may indicate significant economic activity:
 
1. The company was registered for the purpose to hold stock or shares or other documents on shared ownership, such as shares or assets, for another legal entity with identifiable ultimate beneficial owner(s);
 
2. The company was registered with the purpose to hold intangible or other assets including real estate, ship, aircraft, portfolio of investments, debt and financial instruments;
 
3. The company was registered to simplify foreign exchange transactions; transfer of assets; professional associations and corporate mergers; asset management activities; trading of shares.
 
4. The company acts as a treasury and provides accounting services for legal entities recognized as a group of companies or manages the activities of a group of companies.
 
5. In any other case in which substantial evidence can be provided that the company is engaged in lawful activities and has an identifiable ultimate beneficial owner (s).
 
The Central Bank of Cyprus also recommended that all institutions in Cyprus make every possible effort to fulfill their obligations legally, adhering to the relevant Directives when conducting a comprehensive legal due diligence of clients. This includes the provision of information on the final beneficial owners, correct information about the sources of origin of funds and any transactions of the client of a suspicious nature.
 
This recommendation correlates with a recent statement by the Cyprus Minister of Finance that deposits of wealthy foreigners and “shell companies”, until recently, constituted the bulk of Cyprus financial services. Now, according to the Minister of Finance, rich citizens of third countries and “one-day firms” will no longer be able to deposit large sums of money into Cypriot banks without a physical presence on the island. According to the assurances of a Cypriot official, the practice of using deposits from foreign sources without personal reference of the account holder to the bank is a thing of the past.