Cyprus Guidelines on Completing and Submitting Applications for Authorisation as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the Appointment of Agents & the Establishment of Branches

1. Cyprus Guidelines on Completing and Submitting Applications for Authorisation
as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the
Appointment of Agents & the Establishment of Branches
Introduction
The new e-money regulatory law affects not only e-money issuers but also, for the first time, intermediaries of e-money issuers involved in the distribution or redemption of e-money. A kiosk or supermarket operator which sells or charges pre-paid cards for an e-money issuer will be classified as an 'e-money agent'. Under the new law, these intermediaries are subject to a regulatory regime of their own.
Licensing and supervision of Electronic Money Institutions in Cyprus
In accordance with the provisions of the Electronic Money Law, 2012 (hereinafter to be referred to as the «Law») which was enacted for the purposes of harmonization with the act of the European Community entitled “Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009” amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC, electronic money services in the Republic of Cyprus may only be provided by an electronic money institution which has been granted an authorization by the Central Bank of Cyprus («CBC»).
Notwithstanding the provisions of the Law concerning authorizations, the following persons may provide electronic money services in the Republic of Cyprus without obtaining the prior approval of the CBC:
 Banks licensed by the CBC or by a competent supervisory authority of another EU member state.
 Cooperative credit institutions which have been licensed by the Authority for the Supervision and Development of Cooperative Societies of Cyprus.
 Institutions which provide postal payment services and which issue electronic money by virtue of relevant legislation.
 The European Central Bank and national central banks when not acting in their capacity as monetary or other public authorities.
 Member states or their regional or local authorities when not acting in their capacity as public authorities.
Electronic money institutions that have been granted and maintain a valid authorization to operate by the competent supervisory authorities of other EU member states. These institutions may either exercise the right of establishment or the right to provide services on a cross - border basis, provided that the competent authorities of the home member state submit to the CBC a notification in the manner prescribed by the Electronic Money Institutions Directive
(241/2012) issued by the CBC.
An authorization for the operation of an electronic money institution is only granted to a legal person who has been incorporated and has its head office in the Republic of Cyprus. For the purpose of obtaining an authorization as an electronic money institution, interested persons must submit an application to the CBC accompanied by the information and documents prescribed in paragraph 3 of the Electronic Money Institutions Directive (241/2012) issued by the CBC by virtue of the powers vested in it under the Law.

2. Cyprus Guidelines on Completing and Submitting Applications for Authorisation
as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the
Appointment of Agents & the Establishment of Branches
In the aforementioned Directive the following are also, inter alia, defined:
 The amount of the initial capital as well as the amount of own funds that electronic money institutions are required to maintain;
 The methods for safeguarding the funds received by electronic money institutions;
 The delegation of operational functions to third parties;
 The right to exercise the freedom of establishment and the freedom to provide services in another EU member state without establishment;
 The criteria which an agent of an electronic money institution must fulfill in order to be listed in the public register maintained by the Central Bank of Cyprus.
In view of the need to safeguard the sound and prudent management of an electronic money institution, the CBC will grant an authorization provided that it has been satisfied that the electronic money institution maintains an adequate organizational framework for its electronic money services business. This includes a clear organizational structure with well-defined, transparent and consistent lines of responsibility, effective procedures to identify, manage, monitor and report the risks to which it is or might be exposed, as well as adequate internal control mechanisms, including sound administrative and accounting procedures. Therefore, applicants must ensure that the arrangements, procedures and mechanisms described in their business plan are comprehensive and proportionate to the nature, scale and complexity of the electronic money services applied for.
Maintenance of Register of electronic money institutions by the CBC
The CBC, acting in accordance with the provisions of the Law, maintains public registers which include:
the names of the electronic money institutions to which it has granted authorization to offer electronic money services, the names of the electronic money institutions which have been authorized in other EU member states and which have exercised the right of establishment or the right of freedom to provide cross-border services in the Republic of Cyprus.
The CBC is responsible for the supervision and compliance with the provisions of the Law of all electronic money institutions which have been authorized by it. In addition, the CBC is responsible for the supervision of certain operational functions of banks and electronic money institutions which have been authorized in other EU member states and offer electronic money services in the Republic of Cyprus under the freedom of establishment or through an agent.
Cross-border (passport) involvement of e-money agents
The cross-border involvement of e-money agents of an e-money institution based in another state of the European Economic Area requires that a notification proceeding be conducted (so- called 'European passport'). Since the relevant provisions of the Payment Services Supervisory Act are based on the new e-money directive, this also applies, in principle (ie, subject to a different implementation of the directive or a different administrative practice in particular cases), to the reverse case: namely where an e-money institution based in another EEA state employs the services of an e-money agent working in Cyprus.

3. Cyprus Guidelines on Completing and Submitting Applications for Authorisation
as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the
Appointment of Agents & the Establishment of Branches
New e-money license also covers payment services
The license to conduct e-money business under the Payment Services Supervisory Act also covers the provision of payment services within the meaning of the Payment Services Supervisory Act (eg, money transfer business or payment card business). In view of the practice of the authority in connection with the issue of licenses to payment institutions (ie, companies which exclusively provide payment services within the meaning of the Payment Services Supervisory Act), it is anticipated that the authority will not issue general licenses for the provision of any payment services whatsoever to e-money institutions, but that the license will be restricted to payment services specifically applied for and made plausible within the scope of the e-money institution's proposed business model.
Reduced initial capital
The minimum amount for initial capital of e-money institutions has been reduced from €1 million to €350,000. In contrast, the ongoing capital requirements of 2% of the average e-money circulation correspond, in principle, to the hitherto applicable ongoing capital requirements. If the e-money institution also provides payment services not associated with the issue of e-money, the applicable provisions for the calculation of equity capital for payment institutions apply cumulatively.
Comment
The new e-money regulatory law covers for the first time e-money intermediaries involved in the distribution or redemption of e-money. While under the previous law the pure distribution of e- money was not regarded as relevant to regulatory law, the distribution now involves the status of an e-money agent. This means, in particular, that the relevant intermediary – for example, the kiosk operator selling or charging pre-paid cards – is directly subject to the Money-Laundering Act.
For e-money institutions, the new e-money regulatory law involves significant relief (eg, the reduction of the initial capital or the repeal of the existing liquidity requirements). However, e- money institutions will in future have to secure customer moneys received in accordance with the strict provisions of the Payment Services Supervisory Act.
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4. Cyprus Guidelines on Completing and Submitting Applications for Authorisation
as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the
Appointment of Agents & the Establishment of Branches
Lowest Corporate Tax rate in the EU of 12.5%
Exemption from Tax:
Dividend income
Profits from overseas permanent establishments Dividend
No withholding Tax on:
Dividend income
Interest and royalties paid from Cyprus
Double Taxation Agreements
Cyprus has developed a wide network of Double Tax agreements with 47 countries, ensuring that the same income is not taxed in more than one country. Cyprus is in the stage of negotiating the conclusion or awaiting ratification of Double Taxation Agreements with several more countries.
Cyprus Tax Incentives
Also the following incentives can be considered:
1. Lowest corporate tax rate in the EU at 12.5% on worldwide income.
2. Extensive double tax treaties network enabling considerable tax advantages.
3. Full utilization of losses on company and group level.
4. No tax on profits from the sale of securities.
5. No tax on dividend income emanating from Cyprus and received by non tax- residents of Cyprus.
6. No tax in Cyprus on profits from a permanent establishment outside Cyprus subject to certain conditions.
7. No tax on profits as a result of group re-organizations subject to certain conditions.
8. No exchange controls on the movement of capital and payments.
International Trusts
Cyprus International Trusts are widely used as a vehicle for international tax planning, offering the following tax advantages:
Income and gains of a Cyprus International Trust, derived from sources outside Cyprus are exempt from any tax imposed in Cyprus under certain conditions.

5. Cyprus Guidelines on Completing and Submitting Applications for Authorisation
as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the
Appointment of Agents & the Establishment of Branches
Services to be provided:
The firm has been engaged to provide the following services:
• Emoney License application based on the 2nd Emoney Directive that allows Emoney License requested by the Client as regards issues concerning Cyprus Law and corporate law advice. We can assist for gathering and providing all below compulsory requirements (a- l).
Every application for the authorization of an electronic money institution shall be submitted together with the following:
(a) A program of operations, setting out in particular the issue of electronic money and the type of any possible payment services envisaged.
(b) A business plan including a forecast budget calculation for the first three financial years, which demonstrates that the applicant is able to employ the appropriate and proportionate systems, resources and procedures to operate soundly.
(c) Evidence that the applying company for authorization holds the required initial capital (Minimum share Capital requirement is 350.000 Euros but I advice that any applicant provides
500.000 Euros in cash as share capital instead).
(d) A description of the measures taken to ensure compliance with section 13 of the Electronic Money Law of 2012.
(e) A description of the applicant's governance arrangements and internal control mechanisms, including administrative, risk management and accounting procedures, which demonstrates that these governance arrangements, control mechanisms and procedures are proportionate, appropriate, sound and adequate.
(f) A description of the internal control mechanisms which the applicant has established in order to comply with obligations in relation to the Prevention and Suppression of Money Laundering Activities Laws of 2007 and 2010 and Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds, as amended or replaced.
(g) A description of the participation of the applicant in a national or international payment system as well as the intended arrangements for outsourcing of operational activities, the intended use of agents and branches and the intended use of natural or legal persons for the distribution and redemption of electronic money.
(h) The identity of the persons that have, directly or indirectly, control of the applicant, including the identity of the natural persons that hold, directly or indirectly, shares or voting rights in one or more legal persons that have control of the applicant, as well as details on the size of the actual participation of these persons and their suitability, taking into account the need to ensure the sound and prudent management of an electronic money institution.

6. Cyprus Guidelines on Completing and Submitting Applications for Authorisation
as an Electronic Money Institution (‘EMI’) under Directive 2012 [“the EMD”]; the
Appointment of Agents & the Establishment of Branches
(i) The identity of directors and persons responsible for the management of the electronic money institution and, where relevant, persons responsible for the management of the issue of electronic money and the provision of payment services activities, as well as evidence that they are of good repute and possess appropriate knowledge and experience to issue electronic money and perform payment services, and in particular copy of clean criminal record report, non-bankruptcy report, description of professional and academic qualifications, managerial or board positions held in other legal persons, previous employments and experience in the issue of electronic money and the provision of payment services.
(j) The identity of statutory auditors along with a description of its audit arrangements and the organizational arrangements it has set up with a view to taking all reasonable steps to protect the interests of the holders of electronic money and of the users of payment services and to ensure continuity and reliability in the issue of electronic money, including the redemption of electronic money, and to ensure continuity and reliability in the performance of payment services.
(k) The applicant’s legal status and articles of association
(l) The address of the applicant’s head office.
For further information on this topic please contact Criton Tornaritis at Tornaritis Law Firm LLC by telephone +35722456056, Fax: +35722664056 or email criton@tornaritislaw.com
This document provides guidance in relation to the requirements of the Central Bank of Cyprus (‘Central Bank’) for establishing an Electronic Money in Cyprus (including their agents and branches). It does not constitute legal advice nor does it seek to interpret relevant legislation.