Cyprus’ Tax Department has warned financial institutions that Citizenship by Investment (CBI) and Residency by Investment (RBI) programmes may be misused to conceal an individual’s true tax residency and overseas assets, potentially allowing account holders to circumvent reporting obligations under the Common Reporting Standard (CRS).
Due diligence
The warning was issued as part of the implementation of the CRS, the framework developed by the OECD’s Global Forum for the automatic exchange of financial account information between jurisdictions.
In guidance aimed at strengthening due diligence procedures, the Tax Department said passports, identity documents and other records obtained through CBI and RBI schemes could be abused, creating a risk that individuals may falsely declare their tax residency. Such practices, it warned, could undermine the effectiveness of CRS due diligence procedures.
The department stressed that where a Cyprus Financial Institution (CFI) determines that it cannot rely on a self-certification or supporting documentation, and knows or has reason to know that the information provided is incorrect or unreliable, it must take into account all relevant information available to it. This includes the findings of the OECD’s risk analysis concerning CBI and RBI programmes.
Additional questions expected
Under the new guidance, where an account holder or controlling person declares tax residency in a jurisdiction offering a potentially high-risk CBI or RBI programme, financial institutions will be expected to ask additional questions.
These may include whether the individual obtained residence rights through a CBI or RBI scheme, whether they hold residence rights in any other jurisdiction, whether they spent more than 90 days in another jurisdiction during the previous year, and in which jurisdictions they filed personal income tax returns during that period.
According to the Tax Department, the enhanced due diligence procedures will apply immediately to new customers from the date of the announcement.
For existing customers, the measures will be implemented where an account holder has declared tax residency in a jurisdiction that offers a potentially high-risk CBI or RBI programme. The review process for existing customers must be completed within six months of the announcement.
The department also called on Cyprus Financial Institutions to notify it by email of any corrective or new CRS filings concerning reportable information relating to existing customers. Such notifications should be submitted under the subject line “CBI/RBI-CRS”.
