Following the introduction of a public register of persons with significant control for the British companies and LLP (from April 2016), as well as for the Scottish partnerships (since June 2017), some British dependent territories, under pressure from the UK itself, have created similar registers / databases. However, these centralized registers will be closed, and the access to data from them will be available only to the British competent authorities and only upon request. This decision has become a compromise after many years of negotiations and frictions, since the overseas territories, although partially subject to the law of Great Britain, are still self-regulatory. On the one hand, access to these closed registers / databases will enable the UK law enforcement agencies to monitor tax evasion, as well as terrorists and criminals hiding behind the anonymous companies. On the other hand, this will put an end to the requirements for the introduction of open registers of beneficiaries in the countries partially controlled by Great Britain. Among such states are the Cayman Islands, the British Virgin Islands, the Isle of Man, Bermuda, Guernsey, Jersey, and others. As the British Virgin Islands (hereinafter - the BVI) are the most popular with our clients among offshore jurisdictions, we will consider legislative changes in connection with the agreements reached with the UK.

So, after the exchange of official communications between the governments of the BVI and the UK on June 12, 2017 the Law on Beneficial Ownership Secure Search System (hereinafter - BOSS) was adopted, and from June 30, 2017, it came into force. In accordance with this law, at the moment, the work is in progress on creating a central database (server) on the BVI, which will contain all the information and supporting documents about the beneficial owners of all corporate entities and legal entities registered in this jurisdiction. This database will be used to facilitate the effective transmission of information on the ultimate beneficial owners by the competent BVI authorities at the request of an authorized law enforcement agency of the United Kingdom.

The beneficial owner in the BOSS Act is defined as a natural person who ultimately owns or controls directly or indirectly 25% or more shares or voting rights of a legal entity. It should be noted, that, however, there is a threshold of 25% or more for the purposes of the BOSS legislation for claiming a report on a beneficial owner, in other BVI legislation, on combating terrorism and money laundering, it is set of more than 10%. This means that the registration agent can request information about all persons who control more than 10% of the company’s shares. The information about the trustee or other person who controls these legal relationships is subject to disclosure, as well as information about the founder or another person with whom a nominal agreement is concluded.

The BOSS Act allows each Registered Agent to create its own databases for storing information about the ultimate beneficial owners of legal entities, which, in turn, will be available to officials of one of the following authorized competent authorities:

  • Financial Investigation Agency;
  • Financial Services Commission;
  • International Tax Office;
  • Chamber of Attorney General.

The BOSS Act requires to provide the following information for each beneficial owner:

  • name;
  • address of residence,
  • date of Birth,
  • citizenship.

The requirements for storing information in BOSS are also listed in the Law. The requirements for the relevance of data in BOSS are also established. The companies are required to notify the registered agent of any changes in the beneficial ownership or the information about the beneficial owners provided by law for filing, within 15 days from the receipt of information about such changes, indicating the date of these changes. After this, the registered agent must take all necessary steps to update the BOSS system within 15 days after receiving the notice of the changes.

Strict penalties are imposed on both companies and registered agents for non-compliance with these requirements. Strict punishment for registration agents (fine or imprisonment) is also provided for provision of knowingly false information concerning a corporate legal entity, since this is considered a crime. In conclusion, we note that the BVI has concluded a number of agreements on the exchange of tax information with other countries. In addition, information on beneficial owners has always been available to competent authorities that have submitted a proper request to the relevant BVI body. And this means that BVI, like other offshore jurisdictions, are moving towards transparency with long strides, and the offshore companies are gradually losing their anonymity.

The Cyprus holding companies are widely used in the context of international business structuring for the optimization of the channels of incoming and outgoing investment in/from the countries that have signed an agreement with Cyprus on avoidance of double taxation. Recently, the Tax Department has published a guide to VAT accounting for holding companies, which is designed to provide clarity with respect to the circumstances under which the Cyprus holding companies can receive taxable income.

Definition of taxable activities

The common position and practice regarding the regime for levying VAT on dividends remain unchanged. The simple acquisition and ownership of shares in other companies by a Cypriot company does not constitute a taxable business activity in the sense of exploiting assets for income generation. The reason for this approach is that the dividends received from such ownership of shares are considered to arise solely at the expense of ownership of shares, rather than from the form of business activity carried out for the purpose of income generation. Consequently, an enterprise that simply owns shares or a similar form of a stake in another organization is not considered to be taxable. However, if a holding company goes beyond the simple exercise of its rights as a shareholder and takes an active part in the management of its subsidiaries, directly or indirectly, this may constitute a taxable activity.

The test for determining whether such participation in management exists is objective. There are no decisions in the European Court that set out specific rules or precedents on this issue. Each case must be considered individually on specific facts and circumstances. The instruction states that the term “management” can cover a wide range of activities, from organization and administration to the adoption of strategic decisions. These actions can be taken directly, that is, by a legal entity owning shares or indirectly - by a person hired or connected with a legal entity that owns the shares.

Any evaluation should be based on the essence, not on the form. For example, do the directors of affiliated companies exercise autonomous powers to manage their business, or do they simply mechanically approve decisions made at the level of the holding company? These issues should be resolved on the basis of specific facts, such as the degree of duplication or general powers of the director and decisions of the board of directors.

A holding company that has a controlling interest in a subsidiary company clearly has the right to influence the decision-making process in the subsidiary. If the facts show that the holding company exercises this right, any dividends received can be considered a reward for the provided management services and, therefore, income from business activities.
An additional important factor is that the holding company has the necessary human and other resources to provide such services. The instruction states that in some cases the holding company can not use its authority to influence its subsidiary, therefore it is a passive investor with the sole purpose of obtaining dividends without participation in management.

The current jurisprudence is that the company’s participation in the management of the invested company is recognized as economic activity in accordance with Article 3 of the VAT Law and Article 9 (1) of the EU VAT Directive (2006/112 / EU) and therefore it is subject to VAT in accordance with Article 5 of Cyprus Law and Article 2 of the EU Directive.
A holding company, like other companies, must be registered by a VAT payer if its taxable supplies exceed the registration threshold or it receives services from foreign suppliers that must be taken into account within the framework of the reverse charge mechanism.

Otherwise, the holding company can be registered voluntarily. The amount of input VAT that the holding company can reimburse will be based on the distribution between its taxable and non-taxable activities.

The Verkhovna Rada supported on second reading and in general the law “On Limited Liability Companies and Additional Liability Companies” (No. 4666) with technical and legal amendments. According to the Interfax-Ukraine Agency, 285 people’s deputies voted for the document.
As the Chairman of the Verkhovna Rada Committee on Economic Policy Andrey Ivanchuk (the fraction “People’s Front”) has noted, presenting the law in the parliament, now this issue is regulated by the legislation adopted back in 1991. At the same time, according to the words of the official, limited liability company is the most popular type of Ukrainian companies, and today there are more than half a million of them.
Andrey Ivanchuk also added that regarding the law No. 4666, they received 503 amendments on second reading, 360 of which were taken into account.
The law provides that the value of the LLC’s share is established as of the day before the meeting of the LLC members, at which the decision to exclude the member from the LLC was made.
The transitional provisions of the document also contain the provisions for the compulsory acquisition of a share by a member.

In recent years, the world community has realized the importance of the corporate transparency. The Panama Papers, high scandals with corruption and tax evasion have caused a radical shift in the attitude towards anonymous companies. The creation of the registers of beneficial owners (hereinafter referred to as "the UBO registers") is considered as the main instrument for increasing transparency. This idea underlies the EU legislation, FATF recommendations, G20 initiatives, the OECD project to combat on Base Erosion and Profit Shifting.

For the EU Member States, the obligation to establish the UBO registers, stipulated by the fourth Anti-Money Laundering Directive (AMLD IV), entered into force on June 26, 2017. However, there are still many questions about how the UBO registers will work in practice. The European states independently define in the national legislation such terms as "legal entity", "legal structure" and "UBO". The concern about data confidentiality is also increasingly growing in Europe, as the countries are discussing who should be allowed access to the registers and for what purpose. Will they provide information only to law enforcement and regulatory authorities, or yet to financial institutions within the framework of the client verification procedure? Each country also decides independently whether the register will be public. At present, it boils down to an interpretation of that idea who has "legitimate interests".
For example, in Germany, since October 1, 2017, the Transparency Register has been introduced. It contains the information on the identity of beneficial owners and detailed information on the share held by the legal entities, partnerships, as well as with respect to the foreign trusts and funds without legal capacity, which purpose is to serve their founders. The register will be available to the government agencies, individuals who are required to verify the clients and the third parties, such as journalists, public organizations and potential commercial partners, provided that any such third party can demonstrate a legitimate interest in the access to the information.
Great Britain has introduced a register of people with considerable control. This register was introduced one of the first - April 6, 2016, but it contains less information than the UBO register (for example, it does not include information about the beneficial owners of the trusts). The registry data is publicly available, but the British law provides for the ability to close registry data in cases when a company or partnership has reason to believe that the disclosure of the controller may endanger the controller or his relatives.
Following the UK, the UBO registers are being introduced in the British-dependent territories. All crown lands and overseas territories have signed an agreement to enhance the exchange of information on the beneficial owners and controllers between the law enforcement agencies. Thus, only this year such commitments in the national legislation have been introduced by the Governments of Jersey, Guernsey, the Isle of Man, the British Virgin Islands and the Cayman Islands. In these countries, the requirements for the companies to maintain the UBO register have already been introduced. The rest offshore British-dependent territories are ready to provide the British authorities with information on the beneficial owners upon request.
As a result of pressure from the Organization for Economic Cooperation and Development, other offshore jurisdictions also introduce into their legislation a requirement for the companies to maintain the UBO registers. So, in the Seychelles, the amendments to the Law on International Business Companies have been adopted in July 2016. The amendments provide for each Seychelles company to maintain the UBO register, keep it at the registration address in the Seychelles and provide data from the register to law enforcement and regulatory authorities upon the request. The similar requirements have also been introduced into the legislation of Belize, having adopted the amendments in the Law on International Commercial Companies, which came into effect from July this year.
In March 2017, the Companies Act has been amended in Singapore, demanding to keep the registers of the beneficiaries and nominees not only for the companies registered in Singapore, but also foreign companies operating in Singapore. Following Singapore, the government of Hong Kong plans to introduce the relevant changes into its legislation. According to the results of public hearings held by the State Financial Services Bureau, the Parliament has developed the amendments to the Companies Act, which were published in the form of a bill in the official newspaper in June 2017. After the adoption of this law, the companies established in Hong Kong will have to provide the information on beneficial owners only to the competent authorities.
In Russia, the requirement to maintain the UBO register came into force at the end of 2016. The companies must keep the information on the beneficial owners for five years. They are obliged to provide this information at the request of “Rosfinmonitoring”, tax authorities and other authorized state bodies.
In Russia, the requirement to maintain the UBO register came into force at the end of 2016. Companies must keep information on beneficial owners for five years. They are obliged to provide this information at the request of “Rosfinmonitoring”, tax authorities and other authorized public authorities.
Ukraine was among the leaders in this race to disclose the ultimate beneficiaries. The Law on amendments to certain legislative acts of Ukraine regarding the determination of the ultimate beneficiaries of the legal entities and public figures was adopted in 2014, and the May of 2015 was established as the deadline for the fulfillment of the obligation to provide the data on the ultimate beneficial owners to the state register. Moreover, all the data provided were entered in the open register.
The UBO registers simplify the process of customer verification, so they could be extremely valuable for a number of organizations conducting detailed inspections (for example, banks and other financial institutions). But there must be a 100% certainty for this that data can be relied on from the register without being exposed to an increased risk. Unfortunately, the request for additional information from the individuals when creating a company does not guarantee the accuracy, timeliness and completeness of the information provided. To reduce the chances for those who wish to provide false or inaccurate information about the beneficial owner in state registers, special technologies that are already used in the private sector should be used (for example, cross-checking, large data, artificial intelligence used to prevent fraudulent Internet purchases).
Currently, there are many other gray areas around how each state implements the requirement to introduce the UBO registers into the national legislation. On the main issues - who is the beneficiary owner, who is the administrator of the register, its controller - each state has a certain freedom in interpretation. All this complicates the use of the information from the official sources, which is rather scattered. It should also be taken into account that state authorities can be also corrupt and protect a certain business or politicians, and no one will ever know about it unless a leakage similar to the Panama Papers occurs.
The real value of the information about the beneficial owners of the companies is the creation of one centralized register. Thus, the Article 30 of the AMLD IV suggests that by 2019 the UBO registers of the EU member states can be linked through the European Central Platform, providing an integrated source of the UBO information throughout the EU. It is still not clear how exactly this will work, but the European Commission is tasked with drawing up a report on the assessment of the technical conditions and the order of ensuring the interconnection by June 2019.
As for the rest of the countries, unlike the EU, it is, of course, impossible to establish universal obligations for all of them. However, the voluntary initiatives already exist, and the countries will join them under the pressure of international and public organizations. After the Global Anti-Corruption Summit in London in May 2016, the OpenOwnership was created - a project to create an open Global Register of Property Rights, the data from which will be interconnected between jurisdictions, industries and with other data sets. The creator and manager of the Global Registry is a consortium consisting of leading international organizations for the struggle for transparency: Transparency International, OpenCorporates, Global Witness, Worldwide Web Foundation, Open Contracting Partnership, ONE Campaign and B Team. The first country that officially confirmed its readiness to integrate data on the beneficial owners of companies into the Global Register was Ukraine in April of this year.
Only in the last year the mankind has significantly advanced in the direction of increasing the transparency of corporate ownership. And this trend is only increasing. The most civilized countries either have already introduced the requirements for the maintenance of the UBO registers, or they are at a certain stage of consultations on this issue. While access to the data remains one of the most controversial issues, the countries are striving to find the right balance between maintaining the principle of transparency and fears about the safety of the potentially vulnerable individuals and cyber security. However that may be, it is becoming increasingly difficult to hide the information about the owners of the company through offshore zones and nominal shareholders. The business will have to revise its corporate structures and learn to work in full transparency, including the ability to track any transactions. The companies need to create a literate history today for both enterprises and their beneficiaries.

On June 23, 2017, the official government publication of Hong Kong published a draft amendment in the Ordinance on the companies (Companies (Amendment) Bill 2017). One of the changes it covered was the introduction of a requirement for the companies registered in Hong Kong to collect, store and provide up-to-date information on their beneficiaries for the verification. This refers to the so-called "Registers of people with significant control over the companies". This innovation was adopted within the framework of the international policy on combating money laundering and financing of terrorism and it is designed to bring the corporate jurisdiction legislation in the line with the standards of the Financial Action Task Force on Money Laundering. By analogy with the definition given by the FATF, in anti-laundering legislation of Hong Kong, "significant controllers" are defined as individuals and legal entities that:

  • directly or indirectly own more than 25% of the company's shares;
  • directly or indirectly have more than 25% of the voting rights of the company;
  • directly or indirectly have the right to appoint or remove the majority of the members of the company's board of directors;
  • otherwise exercise or have the right to exercise the significant influence over the activities of a company or control over it;
  • in fact, exercise or they are entitled to exercise significant influence or control over the activities of a trust or partnership that is not a legal entity whose members or managers meet any of the above criteria.

Therefore the persons having significant control over the company imply its beneficiary owners. It is worth noting that the register of data on the beneficiaries will be non-public, that is, only law enforcement bodies and "people with significant control" themselves will have access to it.

In accordance with the new requirements, each company established in Hong Kong is required to identify individuals and legal entities that have a significant impact on its activities and control over it and then within 7 days send them a notice requesting the data required for the registry.

Regarding individuals, the following data are requested:

  • name and surname;
  • mailing address;
  • the number of the identification document and the country that issued it;
  • the date from which the person is "controlling";
  • the nature of control over the company.

As for legal entities, the registry will require:

  • name of the enterprise;
  • the address of the main office;
  • organizational and legal form and the country of registration;
  • the date from which the person is "controlling";
  • the nature of control over the company.

The persons who did not comply with the notification requirements within 1 month will be fined of up to 25,000 HKD. In addition to the above information, the contact data of the appointed representative of the company should be included in the register, who can provide the information to the law enforcement agencies about the "controlling" persons, if necessary.