Cyprus Tax Residency and General Powers of Attorney (GPOA)

In accordance with the Cyprus income tax legislation, a company is considered to be tax resident in Cyprus if it is managed and controlled in Cyprus. Even though most European Union Members base the tax residency of a company on their place of registration, Cyprus follows the ‘management and control’ test which focuses on the actual place of management and decision-making of the companies.

Although there are no clear guidelines in the income tax law or in any other Cyprus law as to what constitutes ‘management and control’, it is understood that ‘management and control’ is considered to be exercised where the Board of directors meet and take decisions. In order to facilitate this, it is suggested that all directors (or at least the majority) are Cyprus residents. In relation to the issuance of Cyprus tax residency certificates, the current practice of the Cyprus tax authorities is to issue such residency certificates provided the directors of the company sign and submit a declaration confirming that the company is managed and controlled from Cyprus.

The Cyprus tax residency of a company claiming to be tax resident in Cyprus is not expected to be challenged by the Cyprus tax authorities on their own initiative. It could, however, be the case that a foreign tax jurisdiction challenges the tax residency of a Cyprus company. In such a case the Cyprus company would need to demonstrate to such foreign jurisdiction that the company is indeed tax resident in Cyprus. Thus, the issue of what the foreign tax jurisdiction would require, would need to be addressed from the perspective of the relevant country that may be challenging for residence (always in conjunction with the relevant provisions of the applicable double tax agreement between the two countries).

With regards to the issuance of General Power of Attorney, due to changes in the laws requiring the Compliance Officer and the Director to know the business structure of the company by monitoring the transactions of the company, Cyprus companies are not recommended (however, not prohibited) to issue general powers of attorney, as the company may be not recognized as Cyprus tax resident and may consequently be unable to obtain a tax residency certificate.

As a result of the above and as a matter of policy, our firm no longer issues such General Powers of Attorney. What we require is a special power of attorney for each separate transaction (e.g. one only for bank accounts, one only for signing of specific agreements etc.). The reason for this is for the Company not to jeopardize its Cyprus tax residency since the very test for a Cyprus tax residency is for the management and control of the company to take place in Cyprus. If the holders of the Powers of Attorney transact the general business of the company (i.e. to conclude any agreement etc), there is a risk that the company will not be treated as Cyprus Tax Resident (tax residency will be the place of residence of the beneficiary/holder of the PoA).

The problem with General Powers of Attorney is that they empower the attorney with the maximum number of powers, including negotiations, conclusion and signing of contracts and other documents, opening and operating corporate bank accounts etc. Such Powers of Attorney actually allow managing the company’s affairs abroad.

However, if a client insists to be provided with a General Powers of Attorney, certain limitations shall apply: (a) the duration should be limited to 6 months, (b) the respective Board Resolution must be drafted and approved prior to execution, and also (c) the POA must be drafted in such a way so as to leave discretion to the Board of Directors of deciding on their own and (d) the attorney providing the board with copies of all agreements and documents signed under the POA.

Antonis Michael

Corporate Administrator.

Importance of Ethics in Accounting

The International Federation of Accountants (IFAC) was formed with a mission to “strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high quality professional standards”.

Ethics in accounting are concerned with how to create good and moral choices regarding the preparation, presentation and disclosure of financial information. During the last two decades, a series of accounting scandals brought the issue of ethics into the forefront. Regulators have made it clear that blatant corporate greed and the pursuit of money at all costs is not acceptable. Ethics have always been, and will always be, fundamental to proper accounting practice.

In their daily tasks, accountants handle a wide range of privileged and sensitive information of their clients. This includes social security or bank account numbers, extent of wealth and available cash. This gives accountants a good deal of power in regard to their clients and it is important that the trust among them not to be abused. In the same way it is important that the industry itself does not become stigmatized as being unethical, something that could potentially harm business for all accounting firms. As they work with numbers that can have repercussions on bonuses and stock prices, they may face ethical issues in accounting more often than, say, actuaries or budget analysts.

The ethical dilemmas that accountants sometimes face include conflicts of interest, requests to breach payroll confidentiality, pressure from clients to inflate earnings and clients who request manipulation of financial statements.

As an accountant you need to ensure that you always put the interests of your clients ahead of your own, that you safeguard client information doggedly and never behave in a way that could be, or be perceived to be, unethical. In many firms, training in ethical behaviour is now central to the professional developments of accountants.

There can be a range of adverse consequences which will result from poor ethics in accounting practices. Ranging from the most innocuous to the most serious. Accounting firms heavily rely on word of mouth for promotion and reputation, therefore it’s all too easy for a few bad stories about unethical behavior to sway prospective clients away from a particular firm. There can also be serious legal repercussions for those who are found to be violating legal codes and standards for their jurisdiction.

While a person’s professional ethics are certainly important, organizations should also have their own code of ethics and make sure all employees are familiar with it. Not only are more organizations providing ethics training to their employees, but they’re also collecting and reporting ethical information.

If your employer does not have a code of ethics and standards, you and your team should advocate for one. An effective protocol will not provide a solution for every scenario, but it will act as a guide for the decision-making process. When creating a code of ethics from scratch, include guidelines on acceptable behavior, examples of ethical dilemmas and solutions, implementation and cost details, and the consequences for misconduct.

It can be tempting to ignore ethical issues in accounting practice. However, you owe it to your career, your profession and your firm to consider your business ethics in all aspects of your career.

Persefoni Shiakallis

Press Release

It is with a mixed feeling of sadness and pride that we announce that Michael Milonas is stepping down as CEO of Parparinos Milonas and ultimately our Group.

Michael, one of the two founding members of our Firm, has been appointed as CEO of Hanseatic Brokerhouse Global Markets a CySEC Regulated Investment Firm with License number 204/13.

This represents a substantial honour and responsibility for Michael; it is a recognition of his skills and charisma as well as being a culmination of his assiduous work.

Our entire Firm wishes Michael all the very best on his new role and we express our faith that his new duties will be crowned with success!

Michael will remain on the Board on Parparinos Milonas as a non-executive director and he will henceforth assume the role of the Chairman of the Board.


Cyprus Investment Firms (CIF)

In the last few years the Cyprus Regulated Market has grown to the maximum due to the increase of Companies who wish to provide investment and ancillary services. According to the Law 144(I)/2007 the scope of the Law is limited to foreign and local firms that provide, or offer to provide, investment and ancillary services to persons who stay, reside, or are domiciled in Cyprus or where the relevant transaction is concluded within Cyprus or persons that stay, reside, or are domiciled in Cyprus who act on behalf of a third party based outside of Cyprus in providing investment and ancillary services, whether as an employee or in another capacity.

A Cypriot investment Firm (CIF) is a company that is established in Cyprus and authorised by the Cyprus Securities and Exchange Commission (CySEC)[i] to provide one or more investment services to third parties and/or perform one or more investment activities which can be the reception and transmission of orders, execution of orders on behalf of clients, dealing on own account, portfolio management etc.

A CIF is not allowed to provide professional investment services without prior authorisation from CySEC. In order to obtain authorisation, the applicant needs to provide all necessary information to satisfy CySEC and once approved by CySEC the license is valid through all EU member states. A result of that is that the CIF can operate through EU via a branch or directly once approved by CySEC, for the services and activities the CIF is entitled to operate. The register of CySEC is open to the public and it contains the CIF’s name and license number, the registration date, the investment and ancillary services which is authorised to provide and the investment activities which it is authorised to do. A CIF must have a website in order to have its license number and the name of the regulator on the website and all official documents.

The initial capital requirement for granting a license to a CIF depends on the investment services that the CIF offers. There are four different types of CIF (Cypriot Investment Firm) that require different initial capital in order to fulfil the conditions for approval to operate.

(1) A CIF that provides one or more of the following investment services and holds clients’ money or/and client’s financial instruments, must have an initial capital of at least two hundred thousand euro (€200.000)

(2) A CIF that does not hold clients’ money or/and clients’ financial instruments, resulting not to put themselves in debt with their clients, may have an initial capital of at least eighty thousand euro (€80.000) or at least forty thousand euro (€40.000) and professional indemnity insurance covering all member states for at least one million euro (€1.000.000), per claim, and in aggregate at least one million five hundred thousand euro (€1.500.000) per year.

(3) A CIF that is also registered to provide insurance services, may have an initial capital as half as the above and if the CIF is covered by professional indemnity insurance covering all member states then the initial capital requirement is twenty thousand euro (€20.000).

(3) A CIF that is dealing on own account, underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and/or placing of financial instruments without a firm commitment basis and/or operation of multilateral trading facility shall have an initial capital of at least one million euro (€1.000.000).

The Law prescribes a number of organisational requirements. A CIF must:

  • Establish adequate policies and procedures to comply with its legal obligations, and the appropriate rules governing personal transactions, of its managers, employees, tied agents and other relevant persons.
  • Maintain and operate effective organisational and administrative arrangements to prevent conflicts of interest from adversely affecting clients’ interests.
  • Ensure continuity and regularity in performance of services and activities, by employing appropriate and proportionate systems, resources and procedures.
  • Ensure avoidance of undue additional operational risk when outsourcing functions to third parties.
  • Ensure robust governance arrangements are in place including clearly organised organisational structures with well-defined, transparent and consistent lines of responsibility.
  • Have sound administration and accounting procedures, internal control mechanisms, effective risk-assessment procedures, and effective control mechanisms in place.
  • Keep records of all services and transactions in line with the Cyprus and EU legal requirements.
  • Apply appropriate client identification procedures in line with the Prevention and Suppression of Money Laundering Activities Law and relevant EC directives.
  • Make adequate arrangements to safeguard clients’ ownership rights when holding cash or financial instruments belonging to clients, particularly in the event of insolvency of the CIF, and prevent the use of these clients’ funds and investments for its own account.

[i] Cyprus Securities and Exchanges Commission (CySEC) is the supervisory authority of the investment firms and it has the responsibility to establish, maintain and regularly update a public register of all persons acting on behalf of a CIF or an IF of another member state.

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All terms of the present sale agreement are of essence

The time of exercising the right to terminate a sale contract due to a breach of any of its terms determines the way the innocent party should act in order to terminate the agreement validly and effectively.

The tolerance shown by one of the contracting parties when the other does not fulfil his obligations deriving from the sale contract giving him time to do so, prevents the innocent party from terminating the sale contract immediately without giving reasonable notice to the other party. The intention of the parties to make the time for the  execution of a contractual term of the essence of the agreement is a factor to be examined, as well as the parties’ behaviour when the innocent party tolerates a breach and gives more time to the other to execute his obligations under the sale agreement. The party showing tolerance should not terminate the agreement without giving a prior written notice to the other party requesting him to comply with and fulfil his contractual obligations as provided in the agreement despite the fact that the presence of an expressed term in the agreement that reads ‘’all terms of the present sale agreement are of essence’’.

In a recent judgment, the Supreme Court examined the issue with regard to a house sold under a sale contract, whereby a clause stated the following: “If the purchaser shall be in default as regards the payment of any amount as hereinabove provided then any balance shall become immediately due and payable and the vendor shall have the option either to call upon the  purchaser by notice in writing to pay the whole outstanding balance and any accrued  interest with a time limit to be specified in the said notice or to cancel this agreement forthwith without prejudice to any other of the rights.” Another term in the agreement read the following: ‘’All the terms of the present sale agreement are of essence.’’ Moreover, the sale contract provided for the last payment to be made upon delivery of the house to the purchaser. The delivery took place but the payment was not made by the purchaser. The vendor did not terminate the sale contract at the time and gave the purchaser time to pay.

Two years later after the purchaser took possession of the property, the vendor sent a letter of termination to the purchaser referring to the amount due and of his right to terminate the agreement as provided therein. The issue was referred to the District Court through an action filed by the vendor, claiming that the agreement was lawfully terminated due to the purchaser not paying the purchase price, an order for the sale of the house and delivery of its free and vacant possession, an order that the purchaser had no right to enter the house and the vendor also raised a claim for the recovery of a certain amount due for land taxes and common expenses paid by him on behalf of the purchaser. The District Court did not accept the vendor’s claims except the one for the recovery of the amount paid for land taxes and common expenses.

In view of the outcome, the vendor appealed and the Supreme Court upheld the decision stating among others that the issue depends on whether the parties intended to make the time of the essence of the agreement despite an explicit clause contained therein. In order to identify the parties’ intention, one must look into the terms of the agreement, the nature of the transaction, their intention and generally the circumstances of each case. The time is essential despite the fact that there is an expressed provision in the agreement and when due to the circumstances or the nature of the transaction, it is understood that the intention of the parties was to make the time essential to perform their obligations precisely.

In the said case, the tolerance shown by the vendor was such that gave him no right to terminate the sale contract without giving the purchaser prior reasonable notice. The reason for the notice was not to alter the terms of the agreement but to terminate the tolerance of the vendor and warn the purchaser in order to fulfill his obligations as provided in the terms of the agreement. Consequently, the  termination was declared invalid and the vendor’s claims were dismissed, except the recovery of the taxes and common expenses due.