Month: March 2023

The Minister of Finance Mr. Konstantinos Petridis presented on the 15^th of October 2021 the Action Strategy for attracting companies to activate or expand their activities in Cyprus.

In summary the incentives announced are in relation to residency and employment, taxation, simplification and digitization of procedures, as well as promoting the country as an attractive investment destination.

The different schemes will start entering into force from 1^st of January 2022.

Emphasis is placed on areas related to, inter alia, High Technology, Shipping, Innovation, Research and Development, Biogenetics and Biotechnology and any other companies that choose Cyprus as their place of business.

In more detail the actions are as follows:

1. Business Facilitation Unit

This is the evolution of the existing Fast Track Business Activation Unit for International Companies to the Business Facilitation Unit.

Responsibilities:

• Provision of Services for setting up businesses:
  • Company registration, name approval
  • Registration with the Social Insurance
  • Registration with the VAT and Income Tax authorities
• Guidance for the necessary licenses to operate in Cyprus
• Accelerate the issuance and renewal of residence and employment permits 

2. New Policy for Employment of Third Country High Skilled Nationals

Review, expansion, and simplification of the existing policy.

Eligible companies:

High Technology, Shipping, Innovation, Research and Development, Biogenetics and Biotechnology and any other companies that choose Cyprus as their place of business.

Employment Permits:

• Minimum gross monthly salary €2,500.
• Holding of a university diploma or degree or equivalent qualifications or certificate/verification of relevant experience in a corresponding employment position of at least 2 years.
• Presentation of an employment contract for a minimum of two years.

The duration of residence and employment permits will be for up to three years.

The issue of the residence and employment permits will be made within 1 month.

The maximum number of third-country nationals eligible for employment is set at 70% of all employees in a period of 5 years, from the date of joining the Business Facilitation Unit. In case the company did not employ the 30% Cypriot workers, the Business Facilitation Unit will review each case independently at the end of the 5^th year and decide accordingly.

The employment of third-country nationals as support staff is permitted provided that it does not exceed 30% of all staff. The third country nationals and the employer must enter into an employment contract duly ratified by the competent authority in Cyprus and to be in accordance with current legislation. The amount of the salary is determined based on the current legislation.

3. Family Reunification

Direct and free access to the Cyprus labour market with paid work, to spouses whose spouse has obtained a residence and work permit in Cyprus, and who receives a minimum gross monthly salary of €2,500. The family reunification does not apply to support staff.

4. Simplification and Faster Processing of Issue of Work Permits (CATEGORY E: Long-Term Resident Status)

This relates to persons who have been offered permanent employment in the Republic, which will not create undue local competition. Right to a pension through the Social Insurance Fund by intensifying the efforts to conclude Bilateral Agreements with third countries so that when a third country national has paid social security contributions in Cyprus, when he/she returns for permanent residence in his/her country to be entitled to transfer the contributions paid with the condition that with these contributions he/she did not acquire any right to old-age pension, disability, etc.

5. Introduction of DIGITAL NOMAD VISA (up to 100 individuals)

Beneficiaries:

Third-country nationals that are self-employed or employed working remotely with the use of information and communication technologies with employers and/or clients that are situated outside Cyprus.

Residence status:

• They have the right to stay in the country for up to one year, with the right to renew for another two years.
• They can be accompanied by their family members, who are granted, upon request, a residence permit that expires at the same time. During the stay in Cyprus, the spouse or partner (concerns persons who have entered into a cohabitation agreement), and the minor members are not allowed to work or to engage in any kind of economic activity in Cyprus.
• If they reside in the Republic for one or more periods that in total exceed 183 days within the same tax year, then they are considered tax residents of Cyprus, considering that they are not tax residents in any other Country.
• Evidence that the applicant has sufficient resources, at a level of fixed income, to cover expenses during his/her stay in the country, without burdening the national social welfare system. The amount of sufficient resources is set at €3,500 per month. The amount is increased by 20% for the spouse or cohabitant and by 15% for each child.

6. Tax Incentives

• Tax exemption of 50% to new residents-employees with annual remuneration exceeding €55,000.
• Existing employees with earnings of less than € 100K have the possibility to extend the benefit from 10 to 17 years. Potential beneficiaries are also individuals with annual remuneration between €55,000 and €100,000 for the remaining a period of 17 years.
• Possibility of extending the 50% tax exemption for investment in certified innovative companies by corporate investors.
• Possibility of an increased deduction on research and development costs (e.g. by 20%). Eligible research and development costs will be deducted from taxable income at 120% of actual.

7. Citizenship

Right to apply for naturalization:

• After 5 years of residence and work in the Republic, instead of 7 that is valid today.
• Further reduction to 4 years if they meet the criterion of holding a recognized certificate of very good knowledge of the Greek language.

Implementation of the Register of Beneficial Owners

As a result of the enactment of the amendment Law 13(I)/2021 which introduces changes to the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 (the Law) in order to be harmonized with the 5th European Directive (EU 2018/843) (the Directive), the Department of the Registrar of Companies announced the implementation of the interim system solution for the Beneficial Owner (BO) Register for companies and other legal entities on 16 March 2021.  

A twelve-month period has been given to all entities to facilitate the collection of the BO data required in the interim system during which, access to the BO information will be granted ONLY to Competent Supervisory Authorities, the Financial Intelligence Units, the Customs Department, the Tax Department and the Police, without any restriction and upon submitting a written request to the Registrar of Companies.

After the twelve-month period, the BO register will become publicly available following payment of three euros and fifty cents (€3,50) fee, per entity. 

Definition of Beneficial Owner:

According to the Law, Beneficial Owner (BO) means the natural person(s) who ultimately own(s) or control(s) a legal entity, other than a company listed on a regulated market that is subject to disclosure requirements consistent with Union law or subject to equivalent international standards which ensure adequate transparency of ownership information, through direct or indirect ownership of a sufficient percentage of shares or voting rights or ownership interest in that entity, including through bearer shareholdings, or through control via other means.

It is noted that an indication of ownership which evidences control constitutes a twenty-five percent (25%) plus one (1) share, or ownership right above twenty-five percent (25%) to the customer whether owned by a natural person directly or held by a legal entity which is itself under the ultimate control of the same natural person(s).

The information to be filed in the BO register for each natural person beneficial owner is the following:

• Name, surname, date of birth, nationality and residential address
• Nature and extent of the beneficial interest held directly or indirectly by each beneficial owner, including through percentage of shares, voting rights, or the nature and extent of the significant influence or control with other means exercised by each controlling person
• Identification document number indicating the type of document and the country of document issuance (identity card or passport)
• Date on which the natural person was entered in the register as beneficial owner
• Date on which changes in the particulars of the natural person or the date on which the natural person ceased to be a beneficial owner.

In cases where the shareholding structure of a Cyprus entity registered in the Republic, leads to Trust/s, Foundation/s, other similar legal arrangements or listed companies as beneficial owner(s), the information to be submitted in the BO register is the following:

• Name
• Registration number (if any)
• Country of Jurisdiction
• Business address (not applicable to trust)
• Nature and extent of the beneficial interest held directly or indirectly by each beneficial owner, including through percentage of shares, voting rights or the nature and extent of the significant influence or control with other means exercised by each controlling person,
• Date on which the Trust, Foundation, other similar legal arrangement and listed company was entered in the register as beneficial owner and
• Date on which there were changes in the particulars of a Trust, Foundation, other similar legal arrangements and listed company or the date on which it ceased to be a beneficial owner for BO register purposes.

In case where no natural person is identified as the beneficial owner based on the ownership rights or when there is doubt that the person identified is the beneficial owner, the details of the senior management official must be submitted in the BO registry, indicating whether the person is a director in the company or whether it holds another position, by declaring that position. In this case, the nature and extent of the beneficial interest is not submitted on the system.

The responsibility for the submission of information lies with the entity and its officers.

Procedure to implement the registration in the BO register:

Step 1: Registration in Ariadni (the Government gateway portal)

Each company has to create a corporate profile in Ariadni. This can only be done by an officer of the company (director/secretary). In order to register in Ariadni, a company must set up a unique email address (separate from the email address of its officers or representatives), and a unique Ariadni username and passcode.

Step 2: Activation of Ariadni profile.

An officer or legal representative of the company must make an appointment with the relevant authorities (Registrar’s office, Post office, Citizens Service Centers and other offices to be announced shortly), and submit the following documents:

• Copy of certificate of incorporation of the company;
• Authorization from the company to the bearer to submit the documents on behalf of the company. The authorization must be original, signed by at least one of the directors of the company and bear the seal of the company. The name of this person and his/her identity must be explicitly stated in the authorization. Where the procedure is carried out by a director or the secretary of the company, no authorization is required.
• Copy of his/her ID;
• Copy of the email confirming the profile registration (16-digit code).

Step 3: Filing of BO(s) details in the online portal of the Registrar of Companies

The BO details of each company must be filled in the BO register by entering the required information for each beneficial owner through the online portal of the Registrar of Companies.

Nobel Trust will arrange for the creation of the corporate profile of all Cyprus companies under its administration and shall undertake the aforementioned procedure on their behalf.  Where necessary we shall be contacting you to collect and/or verify any information needed in order to comply with this obligation within the specified timeframe.

Additional information on BO Registry:

After the initial twelve-month period, members of the public will have access to the BO Registry but ONLY to the following information:

• Name of the beneficiary
• Month and year of birth
• Country of residence and nationality of the beneficiary
• Type and extend of his/her rights in the legal entity.

Newly established entities will be required to submit electronically with the Registrar of Companies relevant information on BO(s) within thirty (30) days from their date of incorporation or registration the latest.

In the event that a change is made in relation to the BO(s) information already filed, the new information must be submitted within at least fourteen (14) days from the date that the entity received notice of such change.

Each December, i.e., 1st of December until 31st of December of each calendar year, all entities must confirm electronically to the Registrar that theirs BO(s) and relevant information remain the same.

In exceptional circumstances, it is possible to provide for exemptions to the access to information in relation to the BO(s), in part or in whole, where that information would expose the BO(s) to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation or where the BO(s) is a minor or is legally incompetent. This exception does not apply in the case that application for access is made by obliged entities that are credit and financial institutions or by the responsible Supervisory Authority, Financial Intelligence Unit, Customs and Excise Department, Tax Department and the Police.

The information on the BO(s) shall be available through the BO Register for ten (10) years after a legal entity has been struck off from the Register. However, five (5) years after the date of strike off of a legal entity from the Register, access to such information will be permitted only in the course of administrative or criminal enquiry conducted by the Supervisory Authority, Unit, Customs Department, Tax Department and the Police.

Trusts’ Registry:

A separate registry for BO(s) of trusts (Trusts’ Registry) will be created which will be maintained by the Cyprus Securities and Exchange Commission (CySec). The trustees of express trusts administered in Cyprus are obliged to disclose the BO(s) in the Trusts’ Registry to be created. Express trusts are those created by the express clear intention of the settlor, or the express and clear declaration of the person to whom the property is vested, the trustee, to the benefit of a particular beneficiary or for a purpose.

The timeframe relevant to the application for the registration of an express trust and the information to be included therein as well as the procedure of registration will be determined by CySec with a relevant circular.

In accordance with the Law, the following are considered to be BO(s) of trusts:

• the settlor;
• the trustee(s);
• the protector, if any;
• the beneficiaries, or where the individuals benefiting from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates;
• any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means.

The difference with the Companies’ BO Registry, is that the Trusts’ Registry, will not be open to the public.

Conditions for having access to the Trusts’ Registry:

In accordance with the Law, access to the Trusts’ Registry will be granted only to:

1. Competent Supervisory Authorities, the Financial Intelligence Units, the Customs Department, the Tax Department and the Police
2. Obliged entities for due diligence purposes
3. Any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU (and is therefore not included in any member state’s register of Companies’ Registry).
4. Persons that can demonstrate a legitimate interestand proving same through relevant procedure to be implemented. Legitimate interest is established if the applicant shows that his interest relates exclusively and contributes to the prevention of legalization of income from illegal activities and terrorist financing.

The information accessible to categories b and d above will only include:

• Name of the beneficiary
• Month and year of birth
• Country of residence and nationality of the beneficiary
• Type and extend of his/her rights in the express trust.

Following an application for access to the Trusts’ Registry, CySec may approve the application for disclosure or reject it and specify the procedures for applying, approving or rejecting the applications, for accessing the Trusts’ Registry and procedures as to the type of information for which access will be granted.

Additional information on the Trusts’ Registry:

The registration of express trusts in the Trusts’ Registry is obligatory and applies to express trusts of which the trustee is placed or resides in Cyprus or the trustee is placed or resides outside the EU but concludes a business relationship or acquires immovable property on behalf of the express trust.

The registration requirement does not apply to express trusts that have been registered in the register of another member state and the trustee is placed or resides in another member state other than Cyprus or in the case there are more than one trustees and the one is placed or resides in Cyprus or the trustee concludes various business relationships on behalf of the trust in various member states including Cyprus.

In exceptional circumstances, Cysec may provide for exemptions to the access to information in relation to the BO(s) of express trusts, in part or in whole, where that information would expose the BO(s) to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation or where the BO(s) is a minor or is legally incompetent. This exception does not apply in the case that application for access is made by obliged entities that are credit and financial institutions or by the responsible Supervisory Authority, Financial Intelligence Unit, Customs and Excise Department, Tax Department and the Police.

Five (5) years after the date of removal of a registered express trust, access to the information contained in the Trusts’ Registry is permitted only in the course of administrative or criminal enquiry conducted by the Supervisory Authority, Unit, Customs and Excise Department, Tax Department and the Police.

In conclusion and considering the new reporting obligations of the 5^th AML Directive, it appears that in a corporate structure where the shareholder is a trustee of an express trust and not a nominee shareholder or the BO directly, the BO(s) should not be reported in the BO registry but rather in the Trusts registry, thus limiting the information on ownership to those with a proven legitimate interest while complying with the provisions of the Law.

Benefits of a trust:

A trust, besides the added confidentiality aspect, can also be considered to be a versatile instrument with many more benefits to those who wish to use such arrangement either as a stand-alone structure or embedded in a corporate structure. Trusts can serve many purposes in a family’s or an individual’s financial, retirement, estate and tax planning and can ensure that assets are professionally managed across generations and distributed in line with the settlor’s wishes.

The use of a trust arrangement may, for example, remove assets from one’s estate, allow for the carrying out of a charitable intent, reduce income taxes, protect beneficiaries from spendthrift propensities, protect assets from becoming marital property in a divorce, protect assets from creditors, and provide lifetime income to one or more beneficiaries while providing the remainder interest to another generation of beneficiaries.

Nobel Trust Ltd and Ioannides Demetriou LLC can provide extensive advice on the use of Cyprus International Trusts. Further information can be provided upon request.

General Policy

A Cyprus company that is controlled by Non-EU nationals can apply for Cyprus work permits for Non-EU Nationals permitting them and their families to work and live in Cyprus. In such cases, a temporary residence and employment permit is necessary.

The Council of Ministers, with its Decision of 7^th October 2020, reviewed the policy regarding the issuance of temporary residence and employment permits to employees of existing and new companies of foreign interests registered in the Republic as well as companies that have joined the Fast-Track Business Activation Mechanism.

A key pillar of the review is the possibility of employing a higher number of Non-EU nationals of specific professions and or skill sets, for which there is a shortage of supply at national level, without a prior labour market test but merely by taking into account the companies’ annual turnover.

Eligible Companies

Companies of foreign interest must meet the following criteria in order to be eligible to employ Non-EU nationals in Cyprus:

1. Non-EU shareholders should own the majority of the company’s shares. In the case where companies are the shareholders, their ultimate beneficial owner (a physical person) should be declared in order to receive the approval of the Civil Registry and Migration Department.
2. The ultimate beneficial owner must invest at least Euro 200,000 in Cyprus for the purposes of operating the company. This requirement only applies to companies which will employ staff from Non-EU countries for the first time. Additionally, in case the percentage of foreign participation in the share capital of the company is equal to or below 50% of the total share capital, this percentage must represent an amount equal to or greater than the amount of Euro 200,000 in order for the company to adhere to the criterion and be considered eligible.

What is more, the funds need to be legally transferred to Cyprus from a Non-EU country and the company is allowed to be left with a balance in its bank account of at least Euro 41,500 at the time of the application.

3. The establishment/operation of independent offices in Cyprus, in suitable premises, separate from any private housing or other office except in the case of business co-habitation is necessary.
4. If a company is not new, the audited Financial Statements, tax clearance and proof of payment of the annual levy to the Registrar of Companies need to be submitted together with the application.

Staff Categories

Companies that meet the above conditions, are entitled to employ Non-EU nationals in the following categories provided that they first obtain temporary residence and employment permits.

1. Category 1 includes Non-EU nationals that are Directors or Partners registered in the Registrar of Companies & Official Receiver, general managers of branches, departmental managers and project managers.

The minimum acceptable gross monthly earnings for Directors is Euro 4,000.

2. Category 2 includes Non-EU nationals that are upper/middle management executives & other key administrative, secretarial or technical personnel.

The minimum acceptable gross monthly earnings for this category is Euro 2,000.

3. Category 3 includes Non-EU nationals in professions with particular and specialized skill sets and are considered specialists.

The minimum acceptable gross monthly earnings for this category is Euro 2,000.

The minimum earnings quoted in categories 1-3 may be adjusted from time to time, depending on fluctuations in the wage index.

4. Category 4 includes all Non-EU nationals not included in the above-mentioned categories. Companies are expected to fill positions in this category with Cypriot or European Citizens. In the case where there are no qualified Cypriots or European Citizens available, a company may employ Non-EU nationals in posts in this category at a rate of 30% of total staff. The General Employment rules and procedures are followed under this category.

Maximum number of Non-EU employees per staff category

According to the policy there is a maximum number that can be employed under each category and these are as follows:

1. Directors: 5
2. Middle management executives & other key personnel: 10
3. Specialists: The figures for these categories are based on the annual turnover of the Company and are as follows:

• Less than or equal to Euro 1 million: 5
• Between Euro 1-3 million:10
• Between Euro 3-5 million: 20
• Between Euro 5-10 million:30
• Between Euro 10-20 million: 50
• Between than Euro 20-30 million: 100
• Greater than Euro 30 million: 200

It should be noted that for eligible companies that relocate to Cyprus and have joined the Fast-Track Business Activation Mechanism, the turnover that will be taken into account will be the one from abroad. This will be valid for the first two years of operation in Cyprus. Following the first two years, the annual turnover of the company in Cyprus will be taken into account.

4. Support Staff: 30% of the total staff which will be reviewed by the Department of Labour during the labour market test.

If a company wishes to employ a greater number of Non-EU personnel under the above categories, duly justified and documented requests need to be submitted by the company to the Department.  Furthermore, in order to exceed the limit of more than 300 Non-EU nationals employed in the above-mentioned categories the consent of the Council of Ministers is required.

Family Members

Non-EU nationals with residence and employment permits under staff categories 1-3 of the Policy, have direct access to family reunification with their family members (spouse & minor children) provided that the relevant conditions of the Aliens & Immigration Law are met.

In such cases, Non-EU nationals who are family members can enter and reside in Cyprus after the Company (Sponsor) has followed the procedure of family reunification. For those family members who temporarily do not qualify for family reunification, temporary residence permits of the Dependent visitor may be issued. These family members can enter via a visa and then apply to the Department for obtaining a temporary residence permit.

A New Frontier for Regulation of Crypto Providers in Cyprus

Cyprus has transposed the 5^th EU AML Directive into local legislation on the 18^th of February 2021. The legislation came into force on Tuesday, the 23^rd of February 2021 with its publication in the Official Gazette.

There are a number of important changes such as the implementation of central Beneficial Ownership Register, certain changes in relation to the definition of Political Exposed Persons (PEPs) and to the due diligence procedures on High-Risk countries among other changes.

However, what is important for Cyprus and its Crypto strategic positioning is the new provisions for Crypto Currency and Crypto Assets Providers.

Providers of services relating to Crypto Currencies/Assets will now be regulated under the Cyprus Securities and Exchange Commission (CySEC).

CySEC will create and maintain a register of Crypto Providers where all providers must comply with the regulations and requirements set by CySEC. A formal registration procedure is expected to be implemented by CySEC towards this.

This is a very important development that opens new frontiers for Cyprus. Crypto Providers will be able to add substance, regulation and trust in their operations by becoming approved regulated entities through CySEC. This should empower them to openly market and promote their services across Cyprus and the EU.  

The increasing burden of identifying and verifying ultimate beneficial owners (UBOs) of legal entities is a challenge faced by all obliged entities, especially for complex legal structures such as funds and foundations. However, Know Your Customer (KYC) regulations that enforce corporate transparency by identifying UBOs can reduce the risk of corruption and the cost of compliance.

Why is it so important? Since companies control a large portion of the world’s economic activity, they are being used as vehicles for money laundering by individuals with criminal intent by attempting to make unlawful transactions appear as legitimate business. The criminal and the corrupt seek to hide their ownership of companies in order not to be identified as the individuals who ultimately profit from prohibited activity.

In recent years, the fight against fraud has stepped up, with stricter regulations put in place around financial transparency, such as the 4th Money Laundering Directive (AML) and 5th AML regulation coming into play. Obliged entities have to carry out exhaustive checks when onboarding new customers to ascertain whether they present a compliance risk to AML regulation.

In accordance with the AML regulation, in general, UBO means the natural person(s), who ultimately owns or controls a legal entity through direct or indirect ownership or control of a sufficient percentage of the shares or voting rights in that legal entity, a percentage of 25% plus one share is deemed sufficient to meet this criterion.

KYC means “Know your Customer” and describes the process of verifying the identity of customers – either before or during the start of doing business with them.

The data sources you need to check and documentation required to be collected for a beneficial owner, inter alia, are:

• Corporate ownership structure 
• Jurisdiction of company incorporation
• Business activities of the company
• Company/UBO from high-risk countries
• Shareholder’s information and documentation
• Sister companies with the same ultimate owner, not necessarily in the same group structure
• Politically Exposed Person(s) (PEPs)
• Sanction lists
• News and media regarding that company
• International passport or Identification documents
• Recent proof showing the residential address of the UBO
• Curriculum Vitae
• Recent Bank/Reference letter for the UBO’s reputation
• Analyzing the source of funds and wealth of the UBO
• Value of size of wealth and supporting documentation thereof

Based on the aforesaid, you may understand and assess which of the three risk categories the UBO fall into. Ranging from low, medium or high, they demand different approaches and based on the categorization then the UBO should be reviewed at different time intervals.

Finally, the requirement of the 4th AML Directive, among other requirements, that Countries in the European Union establish and provide access to UBOs registers of companies, commonly referred to as UBO registers, results to an increase in transparency. This is a primary source of information that can be used by businesses engaged in the financial and professional services and obliged by regulators to conduct customer due diligence to protect national economies from financial crime.

Due diligence of legal entities extended to the identification of their UBOs for the prevention of financial wrongdoing such as money laundering and terrorist financing being hidden behind closed corporate doors has been developed extensively over the last 5 years however its correct implementation by obliged entities is the key to its success.

Over the recent years, we have witnessed an important number of innovative and high-tech enterprises relocating or setting up their business in Cyprus. This is mainly attributed to the very welcoming and fertile business ecosystem the island offers. The ecosystem is based on fundamental elements delineated below.

Setting up a business in Cyprus is time and cost efficient. It is noted that the cost for setting up a business on the island is significantly lower compared to other major European capitals. According to Eurostat, the estimated hourly labour cost in Cyprus was Euro 17.4, whereas in the EU-area it was Euro 27.7 and, in the Euro-area it was Euro 31.4, in 2019. Also, business-related services such as accounting and legal advice services are quite competitive compared to other EU member states. Additionally, the government, in an effort to attract foreign business and make the Cypriot corporate environment simpler and faster, has recently come up with solutions that are of great assistance to foreign investors. For instance, lately, the government has devised the fast-track business activation mechanism, where it offers aid in getting all important registrations needed for a company to set up, from the outset, saving time and cost for new and existing businesses, subject to criteria.

Cyprus offers a strong regulatory framework and legal system. There is legislation protecting intellectual property developed by high-tech companies. In addition, the legal system is based on English Common law and English Case Law and is considerably used in many situations. Also, as a full member of the European Union, Cyprus follows European legislation and directives that enlarge the business areas covered by laws in Cyprus.

The country provides access to a highly-skilled, and well-educated workforce with the majority of local professionals being university graduates. Also, EU nationals can come and work in Cyprus without the need for a visa or any other work permit. Furthermore, the government, as part of its policy to ease foreign business set up, offers the ‘’startup visa program’’ where potential entrepreneurs can come to Cyprus, set up their business and bring to the island employees from non-EU areas, subject to conditions.

Innovative companies that fulfill certain criteria can benefit from funds and grants that Cyprus and other European organizations offer. For instance, local banks can assist in providing funding solutions with favorable financing terms through the Cyprus entrepreneurship fund. This particular fund aims to support and strengthen entrepreneurship in the country by easing access to financial solutions for small and medium-sized enterprises.

Cyprus offers a business-friendly tax regime both at corporate and individual level. At corporate level, Cyprus tax resident companies are charged an income tax rate of 12.5%, one of the lowest within EU countries. Also, there are other internationally approved tax incentives that startup businesses can enjoy by settling on the Island. For instance, through the intellectual property tax regime, companies producing intellectual property can apply for an 80% tax exemption, reducing their corporate tax rate to an effective rate of 2.5%. Other companies, that bring in new equity can benefit from the notional interest deduction regime. According to this scheme, they can enjoy an 80% deduction on the income associated with the new equity. At individual level, tax rates are amongst the lowest in the European Union, with the first Euro 19,500 of income being tax free. Most importantly, non-domiciled taxpayers do not pay tax on dividends, interest or rental income. It is worth saying that highly remunerated employees that earn more than Euro 100,000 per annum can enjoy a 50% tax exemption on their total remuneration for 10 years, provided that certain conditions are met.

Cyprus, by being part of the European community, offers to its residents the merits of being a member of this family. Entities can enjoy all the benefits that the European Union has to offer, such as free movement of goods, services and capital to and from other member states and members of the European Free Trade Association.

Last but not least, the island provides a high standard of living. Businesspeople can relocate to Cyprus with their families, as here they will find the Mediterranean weather, culture and nature at its best. Cyprus has relatively small cities making commuting easy, it provides a great and expanding road infrastructure, two newly renovated airports and great healthcare service. Also, the island offers a selection of reputable schools and universities.

The Council of Ministers, with its decision made on 16^th December 2020, has decided to appoint the Company’s Registrar & Official Receiver of the Republic of Cyprus as the competent authority for the upkeeping and maintenance of the register of ultimate beneficial owners of companies and other legal entities.

By this decision, the Company’s Registrar and Official Receiver is authorized to collect information about the ultimate beneficiaries of companies and other legal entities through an intermediary platform that has been created.

Based on the above, the Company’s Registrar has announced that the commencement of data collection is set to the 18^th January 2021.

From this date, entities will be granted a period of 6 months (until 19/07/21) to register all the relevant information regarding their ultimate beneficial owners.

However, it should be stressed that the intermediary system that has been created is only accessible by competent authorities upon a formal request to the Company’s Registrar.

The data collected will be transferred to the final platform solution, that will be developed in the second half of 2021, and access to it will be based on the provisions of the 5^th European Directive (EU 2018/843) of the European Parliament and Council of 30 May 2018, concerning the prevention of money laundering and terrorist financing.

Cyprus has not yet transposed the 5th Anti-Money Laundering Directive (AMLD5) into national law. However, this is expected to happen during 2021.

The Covid-19 pandemic is having a catastrophic impact not only for global health but also for economies. It goes without saying that tax regimes and international tax practices could not stay unaffected from the drawbacks that this situation is causing.

Transfer pricing models seem to battle between the up to now used techniques and the changes that may be necessary to be applied due to the difficulties arising from the pandemic.

What is transfer pricing and what is the main tool in order to establish the price between associated enterprises located in different countries.

The price between related parties for any transaction should reflect pricing that would be agreed between independent parties and these are based on the arm’s length principle and bringing us to the importance of comparability analysis.

Under the OECD and the transfer pricing guidelines in order to apply the arm’s length principle it is essential to undertake a comparability analysis. The OECD makes references to consideration of economically relevant characteristics when undertaking comparability analysis and specifically identifies five comparability factors:

1. Characteristics of property
2. Functional analysis
3. Contractual terms
4. Economic circumstances
5. Business strategies

Existing transfer pricing policies are now under pressure with any economic downturn.

The negative impact on the sales which adversely affects the companies and required by them  to explain the low operating profits to tax authorities and how by using the five comparability factors will build acceptable transfer prices. Obviously business strategies change from one day to another according the course of the pandemic.

Transfer pricing models and guidelines may need to be adjusted to come in line with any commercially driven changes made to the global supply chain, and to ensure that they reflect any re-allocation of functions, assets and risks across the group. The companies need to make further review to check if the actual conditions are similar with previous transfer pricing policies and any contractual terms become critical in order to show how the actual versus economic allocations of functions assets and risks.

The contractual terms defining how the parties to a transaction are going to divide the risk and responsibilities between them. Rationally there are may be practical difficulties in obtaining the details of contractual terms from third parties how much now due to Covid-19.

Additionally, when there is an intragroup transaction, it may be preferable, at least form some period, to use instead of the CUP method and the Resale price method the cost plus method in order to simplify the procedure and to support the companies to reduce any losses, cash transfers and customs duties.

Due to the pandemic there may be a necessity for a new cross border financial support, and of course these arrangements will need to result in an arm’s length outcome regarding the interest rate that the associated parties are charged and should be considered that many jurisdictions have interest rates limitations that will need to be reconsidered and of course the withholding tax if any.

The OECD suggests some traditional transaction methods such as CUP, Resale price method and the cost plus and some transactional profit methods such as the Transactional net margin method and the profit split method. Obviously all these methods should be taken into consideration again and may need to be adjusted to align with the changes arises from the negative or positive impacts from Covid-19.

For taxpayers incurring losses or low profits for the year 2020, the tax authorities will analyze the TP practices applied where it is possible, challenging the allocation of extraordinary losses or arguing for higher profits allocation in the past or for future years in return for undertaking additional risk. Due to this APA (Advanced Pricing Agreements) will become a convenient instrument to mitigate Transfer Pricing Risks. However existing APA and rulings concluded during prosperous economic times may require to be renegotiated because of the changes in economic circumstances and those changes affect the critical assumptions underlying the agreement.

Concluding, the economic consequences of this pandemic may reach the limits of transfer pricing policies and many other cross border transactions, increasing the risks of double taxation and disputes. In this respect, an OECD guidance addressing the main issues in a uniform manner would be desirable.

A trust is the legal relationship created when a person (the settlor) places assets under the legal ownership and control of another person (the trustee) for the benefit of other persons (the beneficiaries) or for a specific purpose, in accordance with the terms expressly stated in the Trust Deed.

The Common Reporting Standard (CRS) is a standard of Automatic Exchange of Financial Account Information on tax matters, developed by the Organization of Economic Cooperation and Development (OECD), which imposes reporting obligations and exchange of information standards between the tax authorities of the Participating Jurisdictions. It is important to note that the exchange of information under CRS is between tax authorities only and such information is not made available to any public registers.

In order to determine the reporting obligations applicable to a trust under CRS, one would firstly need to establish whether the trust is a Reporting Financial Institution (RFI) or a Non-Financial Entity (NFE) that maintains a Financial Account with a RFI.

The reporting obligations in the case of a trust that qualifies as a RFI differ from the disclosures that should be carried out for a trust that is a Passive NFE that maintains a Financial Account with a RFI. A thorough analysis of the Trust Deed, identification of the RFI, identification of the Reportable Accounts, review of the Financial Accounts and application of due diligence rules should, therefore, be made in order to reach an accurate classification of the trust and thereafter carry out the applicable CRS reporting obligations.

Classification of a trust as a Reporting Financial Institution (RFI):

If (a) the majority of the trust’s gross income is primarily attributable to investing or trading in Financial Assets and other passive investments (the Gross Income Test) and (b) the trust is managed by another Entity that is a Financial Institution (FI) such as a professional corporate trustee (the Managed By Test), the trust is classified as a FI.

A trust that is a FI will be a RFI if the trustee of the trust is resident in a Participating Jurisdiction.

The trust as a RFI is required to report Financial Information and Financial Activity relating to Financial Accounts that it maintains that are Reportable Accounts held by either (a) a Reportable Person (a person resident in a Participating Jurisdiction) or (b) a Passive NFE with a Controlling Person who is a Reportable Person.

According to CRS, a Financial Account includes, not just bank and brokerage accounts held with other institutions but also Equity Interests held by the settlor, the beneficiaries and any other natural person exercising ultimate effective control over the trust (the Account Holders). A discretionary beneficiary will only be treated as an Account Holder in the years during which it received discretionary distributions from the trust. 

In the event an Account Holder is a legal entity, appropriate KYC procedures should be carried out in order to identify the natural person that is the ultimate Controlling Person of such entity.

The Financial Information to be reported by the RFI include the name of the trust and the name, address, tax residency, TIN, DOB, account number and account balance (the total value of trust property which would be nil for discretionary beneficiaries) of the Reportable Persons as well as any Financial Activity carried out during the year (value of payments or distributions made in the reporting period).

A trust that is a FI but its trustee undertakes to fulfil the trust’s reporting and due diligence obligations on behalf of the trust, is considered to be a non-reporting FI (NRFI).

Classification of a trust as a Non-Financial Entity (NFE):

If the trust is not managed by a FI, it would be classified as a NFE and be either Active or Passive. If the trust that is a NFE does not fall into the list of categories of Active NFEs, as per the CRS criteria, it is considered to be a Passive NFE.

A trust that is a Passive NFE and maintains a Financial Account with a RFI will be reportable if (a) the trust is a Reportable Person whereby the RFI is required to report the name and identification number of the RFI and information about each Reportable Person, namely name, address, tax residence, TIN, DOB and account number or (b) the trust has one or more Controlling Persons that are Reportable Persons for whom the RFI is required to report the information stated above as well as the total account balance or value and the gross payments made or credited to the account of each Controlling Person.

The definition of Controlling Person with respect to trusts covers any natural person exercising ultimate effective control over the trust. A settlor is always reported, irrespective of whether the trust is revocable or irrevocable. Unlike the case of a trust that is a FI, beneficiaries are also always reported, irrespective of whether they are mandatory or discretionary, however the Reporting FI may have the option to report discretionary beneficiaries in the year in which they receive distributions from the trust.  

In the event a Controlling Person is a legal entity, appropriate KYC procedures should be carried out in order to identify the natural person that is the ultimate Controlling Person of such entity.