A new Circular Letter of the Central Bank of Cyprus on shell companies

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Legal firm Pepeliaev Group advises that the Central Bank of Cyprus has issued an additional circular letter regarding shell companies, containing more favourable explanations as to when a company is classified as a shell company.

On 2 November 2018, the Central Bank of Cyprus issued an additional Circular Letter as to whether it is possible to open bank accounts for companies that demonstrate the signs of a shell company. The letter contains more favourable explanations as opposed to an earlier circular letter dated 14 June 2018.

Specifically, according to the Central Bank of Cyprus, a company may not be a shell company if it shows the signs of economic activity, namely:

  • the company/entity is established for the purpose of holding stock or shares or other equity instruments of another business entity or entities engaged in legitimate business with identifiable ultimate beneficial owner(s);
  • the company/entity is established for the purpose of holding intangible or other assets including real estate, ship, aircraft, portfolio of investments, debt and financial instruments;
  • the company/entity is established to facilitate currency trades and asset transfers, corporate mergers as well as carrying out asset management activities and trading of shares;
  • the company/entity acts as a treasurer for companies recognised as a group or manages the activities of the group;
  • any other case where convincing evidence can be provided that the company/entity is engaged in legitimate business, with identifiable ultimate beneficial owner(s).

Комментарий ПГ

The Central Bank of Cyprus is taking a favourable stance towards international groups of companies that use international holding and/or treasury companies to structure their overseas operations.

What to think about and what to do

Knowing the position of the Central Bank of Cyprus can come in useful for those taxpayers who may face, or have already faced, attempts of Russian tax authorities to challenge the beneficial ownership of income of foreign holding or treasury companies, and for entrepreneurs who are only starting to think about entering international markets.

Help from your adviser

Pepeliaev Group’s lawyers are ready to assist you with proving ownership of income both at the pretrial stage and in courts, and to help you tackle complicated issues of how the double tax treaty should be applied.

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