The revised definition of shell companies/entities comes in as a great tool to facilitate banks during account opening for international business companies as well as Service Providers offering corporate services in general.

As provided by the CBC, the term “shell company/entity” refers to a limited liability company or any other legal entity that:

  • Has   no   physical   presence   or   operations; “physical presence” includes employees, office space, etc. The presence of a third person providing merely nominee services including company secretary duties does not constitute on its own physical presence; and
  • Has no established economic activity.

Companies Excluded from the Shell Companies Criteria

Through the latest circular of the Central Bank of Cyprus, dated February 2nd 2018, the following type of Companies (with such economic activities) are excluded from the “Shell” Companies criteria:

  • Companies which hold stock or shares or other equity instruments of another business entity with identifiable ultimate beneficial owner(s);
  • Companies which hold intangible or other assets including real estate, ship, aircraft, portfolio of investments, debt and financial instruments;
  • Companies established to facilitate currency trades and asset transfers, corporate mergers, as well as carrying out asset management activities and trading of shares;
  • Companies that act as a treasurer for companies, recognized as a group or manages the activities of the group.

Offshore  Companies:

In addition to the above definition if the company/entity is registered in a jurisdiction where companies/entities are not required to submit to the authorities audited financial statements and does not voluntarily prepare audited financial statements by independent qualified professional accountants, or companies/entities which have a tax residence in a jurisdiction included in the EU list of non-cooperative jurisdictions for tax purposes or the OECD’s list of non-cooperative jurisdictions for tax purposes, then it is advised that banks should avoid engaging in a business relationship with them.

In all other cases, the bank shall decide on whether to engage in or maintain a business relationship, applying a risk-based approach, in accordance with the legal and regulatory framework of the respective jurisdiction, where the company/entity is established.

Considering the above, each bank and credit institution should revise accordingly its customer acceptance policy in order to comply with this circular.

Conclusion

Banks and credit institutions are reminded of their obligations to conduct all necessary due diligence measures and checks, among others concerning the identity of the ultimate beneficial owners (UBOs), the source of funds and the transnational behavior of their customers, in accordance with the applicable legislation and regulatory framework.