The notion of a Central Register of Beneficial Owners (UBO Register), maintained at a national level by EU Member states flows from the 4th EU Anti- Money Laundering Directive (EU) 2015/849 which required Member States to introduce a Central Register of beneficial owners within their respective jurisdictions, likewise for trusts and all other legal arrangements.
The 5th Anti- Money Laundering Directive (AMLD V) further enhanced these reporting requirements by calling for EU Member States to launch publicly accessible UBO Registers. The AMLD V was transposed into Cyprus legislation through the Prevention and Suppression of Money Laundering Activities Laws of 2017-2021 (the Law)
It is thus unsurprising that with the introduction of the Law for the Prevention and Suppression of Money Laundering and Terrorist Financing of 2021 on 23rd of February 2021 (the Amending Law) and the corresponding Directive on the matter (Κ.Δ.Π. 112/2021), the Republic of Cyprus has officially enacted the operation of the UBO Register. The Register of Companies in Cyprus (the ROC) has been appointed at the competent authority for the collection of beneficial ownership information.
The Purpose behind the UBO Register
The purpose behind the UBO Register is quite clear. It stands as a bid to increase tax and structural transparency for all legal structures and to assist with countering the spread and facilitation of money laundering and terrorist financing practices, which aim to destruct the proper functioning of the financial systems.
It is further noteworthy, that the UBO Registers are closely linked with mandatory disclosure rules in the context of cross border transactions in the field of taxation, through hallmark category D of the amendment to EU Directive 2011/16/EU (the DAC6). A cross-border arrangement will thus be reportable under DAC6 to tax authorities if it is reasonable to conclude that it was devised to undermine reporting obligations under Cyprus law relating to EU Directive 2014/107/EU (DAC2) and the Common Reporting Standards (CRS) or if said arrangement takes advantage of the absence of such laws. It is therefore implied that a corporate structure which seeks to hide its true beneficial owner(s) or a company which refuses to report beneficial ownership information to competent authorities may well fall under a cross- border reportable transaction.
As such, the UBO Register is deemed a necessity for proper & practical exchange of information between tax authorities, the police, various governmental institutions and even members of the general public with a legitimate interest for access to this information.
Definition of UBO:
According to the Law, an ultimate beneficial owner (UBO) is defined as any natural person who has ultimate control or ultimate ownership either directly and/or indirectly in a company, including at least the following:
- With respect to a legal entity:
The person having the final ownership or ultimate control of the legal entity, directly or indirectly, in a sufficient proportion of the shares or voting rights or the ownership of that legal person.
A person has control over a company if they fulfil one or more of the following conditions:
- holding more than 25% of the shares in the company
- holding more than 25% of the voting rights in the company
- holding the right to appoint or remove the majority of the board of directors
- otherwise exercising significant influence or control over the company.
- With respect to trusts:
- the settlor
- the trustee
- 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.
- Regarding legal entities, such as foundations and legal arrangements similar to trusts, the natural person holding a corresponding or equivalent position with a person holding more than 25% of the voting rights in the entity.
What information should be included in the UBO Register?
The following information must be collected and recorded for each UBO:
- Identification card number or Passport number (for Cypriot residents’ identity card number will be sufficient)
- Residential Address
- Nature and extent of the beneficial interest held
- Date on which the natural person became UBO
- Date on which any natural person ceased to be a UBO.
Types of Beneficial Ownership Registers
- The Register of Beneficial Owners of Companies and Other Legal Entities (Public Registry) – maintained by the Registrar of Companies. While now it is only open to competent authorities and governmental bodies, it will soon be open to the public.
- The Register of Trusts and Similar Legal Arrangements – supervised and maintained by the Cyprus Securities and Exchange Commission. This register is not open to the public, noting however that it is accessible for those who can prove a legitimate interest in having the relevant information disclosed to them.
- The Register of Legal Bodies, other than those registered with the Registrar of Companies, such as clubs, federations, and unions. This register is maintained by the General Commissioner and is open to the public.
What are Trust Registers?
A crucial controversial aspect of the AMLD IV and AMLD V is the introduction of the requirement to disclose the beneficial ownership behind trusts through Register of Trusts and Similar Legal Arrangements.
Once the beneficiary is determined, the following information shall be mandatorily disclosed through the Trust Register:
- the settlor
- the trustee(s)
- the protector (if any)
- the beneficiary or class of beneficiaries
- information on any other person exercising control over the trust
Submission to the Public Registry:
The company and its officers must maintain clear and updated information on the UBOs and keep these records at the registered office of the company.
If the company believes that any information it holds about the UBO is inaccurate, it may, by written notice, request an update from the beneficial owner. Failure to comply, within 15 days of the notice may result in penalties being imposed.
In addition, the beneficial owner has an obligation to keep the legal entity up to date by sending a written notice within 15 days of any change, or of any facts that should have reasonably been pointed out when a change of the beneficial owner has occurred.
The Law does not apply to the following companies and/or legal entities:
- Company listed on a regulated market that is subject to disclosure requirements consistent with Union law;
- Companies whose directors submitted an application for strike off pursuant to Article 327 (2A) (a) of the Companies Law, prior to the commencement of the AMLD V;
- Companies whose liquidation has been enacted before the commencement of the AMLD V;
- Overseas companies
Access to the Public Registry:
The Register is directly accessible, without notifying the company and at no restriction and cost, to Regulatory Authorities, Tax Authorities, the Police and the Customs Authorities.
Any person who wishes to obtain access to the Register of Beneficial Owners, shall do so by paying a fee of €3.50 for each company search and subject to the pre-condition that it has been electronically filled and accepted by the Registrar of Companies. In turn, the person who obtained access shall only obtain the name, the date of birth, nationality, the regional address, and the controlling rights that the beneficial owner has.
Timeframe of filings:
- 6 months from the 16th of March 2021 – for all legal entities incorporated prior the 16th of March 2021
- 30 days from the incorporation – all legal entities incorporated after the 16th of March 2021
- Amendments/changes must be submitted within 14 days from the day they were brought to the attention of the company/Officers
- Lastly, the company and its Officers have an annual obligation to confirm the information included in the Register of Beneficial Owners
Penalties for failure to comply:
Failure to comply with the provision of information with regards to the UBO may result in criminal and civil liability but also in penalties being imposed on the legal entity and on each of its officers.
The penalty is €200 and an additional €100 for each day that the violation continues, with a maximum penalty capped at €20,000. In addition to the monetary penalty, the failure or unwillingness to comply with the reporting requirements and any subsequent notice(s) by the Registrar demanding compliance may result in imprisonment of up to one (1) year.
The officers may avoid fines, if they are able to show that they have taken proper due diligence steps to comply with their obligations.
How long is the information on UBOs kept?
- The Register of Beneficial Owners shall hold such information for a period of 10 years from the date of removal of the company or legal entity, from the registry held by the Registrar of Companies.
The Registers aim to reveal the identity of beneficial owners not only to governmental bodies and competent authorities but also to the public. The exchange and reporting of this somewhat ‘sensitive’ information for most corporate entities and the surveillance associated with its publication, has been criticized as bordering the limits of data protection rights. It will not be easy to determine the extent to which the data disclosed through these UBO registers is indeed relevant and necessary or whether access to such data satisfies the requirement of the applicant having a ‘legitimate purpose’.
Moreover, it is not yet clear whether the UBO register is the most practical solution to discover non-transparent or fictitious corporate structures that hide ultimate beneficial owners of an entity. At the moment, there is no verification process in place to check the accuracy of the information that is submitted to the ROC on beneficial ownership of companies and other legal entities. The competent authority relies solely on the scare of civil or criminal liability imposed on officers for non-compliance with the Law. This is problematic because it means that unless the ROC has enough manpower to assess files of all Cyprus registered companies, submitted data may have questionable value.
While the outcome of centralizing and publishing beneficial ownership information and the reliability of the UBO Register as a tool to counter non-transparent corporate structures, remains to be seen, all Companies are advised to assess their existing structures, the exposure to risks and take necessary steps to comply with the Law.
The information provided above by C. Pilyugin & Co LLC is intended for general information purposes only and should not be construed as professional or legal advice in any sense. It is advised that readers should refrain from acting only on the basis of the above information without first obtaining legal or professional advice on the subject.
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We would be pleased to review the existing legal structure of your Company, advise on the reporting requirements, and assist in fulfilling them.