The Central Bank of Cyprus is tightening its stance against money laundering by asking the credit institutions that it regulates to avoid doing business with “shell and letterbox companies.”
On June 14th, 2018, the Central Bank of Cyprus issued a circular to its supervised banks, advising them against continuing existing accounts or opening new accounts for companies that are regarded as “letterbox” companies. Such companies seek to minimize tax liability by establishing domicile with a mailing address in a tax-friendly country while conducting their actual business operations elsewhere.
The Bank emphasised the need for businesses to have real substance in order to operate in Cyprus, and therefore benefit from its tax provisions. The regulator wants to prevent firms from using EU single market freedom-of-establishment rules to set up shell companies for tax benefits in the country.
The Central Bank of Cyprus stated:
“The presence of a third person such as a lawyer, an accountant, or a TCSP (trust or company service provider), acting merely as an agent of the company and (or) providing nominee services including company secretary duties does not constitute physical presence. Also, the lack of employed personnel –including the nominal presence of one single person as a staff member– is construed as lack of physical presence”.
The Bank further warned:
“If a company fulfils any of the above criteria, engaging into or renewing a business relationship should be avoided.”
These restrictions do not apply to holding companies which own investments in shares, intangible or other assets, including real estate or ships, companies undertaking group financing activities or acting as group treasurer or companies established to facilitate currency trades, asset transfers or corporate mergers, provided that their beneficial ownership is identifiable and they demonstrate that they are engaged in legitimate business.
The guidelines are due to be incorporated into the Central Bank’s Anti-money Laundering Directive in the near future.