Obtaining an EMI license in Cyprus - YB Case 2024

Obtaining an EMI license in Cyprus

Obtaining an EMI license in Cyprus

Introduction

Obtaining an EMI license in Cyprus stands as the paramount task for the lawful conduct of operations in the virtual financial realm within this jurisdiction. An EMI constitutes a financial entity vested with the authorization to distribute electronic money and offer financial transaction solutions. This delineation encompasses a broad spectrum of financial transactions, ranging from simple fund transfers to operations involving prepaid cards and electronic wallets.

Obtaining an EMI license in Cyprus affords entities the opportunity to leverage a plethora of privileges available in this jurisdiction. Among these are a stable economic environment, advantageous tax regime, and stringent confidentiality measures. By virtue of its membership in the EU, Cyprus also unlocks access to opportunities for cross-border operations and the single market of Europe.

Securing an EMI license in Cyprus necessitates strict adherence to regulatory benchmarks established by the Central Bank. These prerequisites encompass verification of financial soundness, presentation of a comprehensive business plan, and fulfillment of AML/CFT obligations. To ensure compliance, companies must undertake thorough preparation, including the development of robust internal policies and control frameworks, thus solidifying their credentials as trustworthy actors within the Cypriot financial landscape.

Licensing of EMI in Cyprus is of paramount importance in enhancing trust and stability within the country's financial sector. This ensures reliable and secure means of conducting payments for both clients and businesses. The implementation of EMI licenses not only fosters the development of new financial services on the island but also solidifies its position as a pivotal financial hub in Europe.

Principles of regulation of EMI license holders in Cyprus

Powers and responsibilities of the regulator

The Central Bank of Cyprus (CBC) plays a pivotal role in regulating financial activities within the nation, particularly concerning institutions engaged in electronic money operations. Its roster of primary responsibilities encompasses:

  • Implementation of the European Central Bank's strategies in the field of monetary policy and lending.
  • Supervising banking institutions to maintain their financial stability and credibility.
  • Ensuring the stability of the financial system at the country level.
  • Management of international reserves of the state.
  • Regulation and control of payment and settlement systems, ensuring their uninterrupted operation.
  • Collection, analysis and publication of statistical information within its competence.

As a constituent of the European System of Central Banks, the CBC maintains autonomy and special prerogatives, particularly concerning the issuance and regulation of activities related to electronic payment instruments.

The establishment of a business in Cyprus with an EMI license necessitates direct engagement with the CBC, as this entity is the determiner and approver of standards and regulations aimed at enhancing the transparency and security of financial transactions and safeguarding user rights. This entails both the initial acquisition of the license and subsequent adherence to the norms and requirements endorsed by the CBC.

Consequently, for the establishment and operation of a business in Cyprus with an EMI license, strict adherence to regulations set by the Central Bank covering a broad spectrum of activities, including anti-money laundering measures, ensuring financial stability, and safeguarding client rights, is imperative.

Basic legislation establishing the principles of operation of EMI license holders in Cyprus

The process of issuing licenses for EMI in Cyprus is governed through a series of legislative measures. The cornerstone of this legislation consists of EU Directive 2009/110/EC, establishing norms for the organization, provision of services, and supervision of electronic money circulation, and Directive (EU) 2015/2366 on payment services in the internal market, known as PSD2. The transposition of these directives into national law ensures uniform standards for regulating EMI activities within the European Union.

Applicants for an EMI license in Cyprus must adhere to international standards in combating money laundering and the financing of criminal enterprises, possess adequate statutory capital, maintain risk management systems, and safeguard consumer rights. Licensing applications must meet specified criteria, including the required minimum size of statutory capital, competencies of the management team, and peculiarities of the business model.

The CBC plays a pivotal role in the licensing procedure for entities engaged in electronic money services, not only by regulating the licensing process but also by overseeing their subsequent activities to ensure compliance with prevailing norms.

In general, licensing is governed by stringent regulations: candidates must not only obtain approval from the CBC but also continuously adhere to legislation and regulatory requirements that uphold stability, transparency, and safety in the payment services sector.

Process for obtaining an EMI license in Cyprus

Popular types of legal entities for those wishing to obtain an EMI license in Cyprus

Legal entity

Characteristics

Limited Liability Company (LLC)

  • The preferred form for small and medium-sized enterprises requires at least one founder (individual or legal entity) and one director.
  • The authorized capital is divided into shares.

Joint Stock Company (JSC)

  • Used for large enterprises, they can offer their shares to the public.
  • At least one shareholder and one director are needed. Capital is divided into shares.

Limited Partnership

It consists of one or more limited partners (investors bearing limited liability in proportion to their investment) and one or more general partners (managers bearing full financial responsibility).

Variable Capital Company (SICAV)

An investment fund offering shares for public sale, whose capital fluctuates depending on the number of shares bought and sold.

The registration of an EMI license in Cyprus requires the selection of an appropriate legal entity structure that complies with both legislative requirements and the company's business model. It is important to consider that each type of legal entity has its own characteristics in terms of management, liability, taxation, and other key aspects. Therefore, choosing the optimal legal entity form is a crucial step in obtaining an EMI license in Cyprus.

Stages of opening an EMI in Cyprus

Licensing EMI in Cyprus is a complex multistage process, involving a series of crucial stages, each of which is critical to the successful acquisition of an electronic money activity license.

Stage 1

Preparation:

  • Defining and planning the EMI business model.
  • Selecting the legal form for the business applying for a license.
  • Drawing up a business plan with financial forecasts and a description of the estimated operations.
Stage 2

Registration of legal status:

  • The process of registering a company in Cyprus as a legal entity.
  • Submission of constituent documents for official registration.
  • Determination and registration of the company name.
Stage 3

Preliminary preparation for licensing:

  • Drawing up internal regulations and procedures that meet the criteria of the CBC.
  • Creating policies to manage risks and combat the financing of criminal activities and money laundering.
  • Designing a management structure and recruiting a management team.
Step 4

Submitting an application for a license:

  • Compilation and organization of all necessary documents for submission to the CBC.
  • Formal submission of all papers and application to the regulatory authority.
  • Payment of required government fees and other required fees as part of the licensing process.
Stage 5

Consideration of the application:

  • Verification of provided data and documents by the regulator.
  • It is possible to request additional data or clarifications from the applicant.
  • Conducting audits, including analyzing the reputation of the founders and management.
Stage 6

Issuance of a license:

  • If all conditions are met, the CBC issues an EMI license.
  • The company acquires the right to carry out the activities specified in the license.

Period after obtaining a license:

  • Final approval and implementation of internal rules and procedures.
  • Launching operational processes and providing services to clients.
  • Constant communication with the CBC, including fulfillment of reporting obligations in accordance with established standards.

Minimum authorized capital and terms for obtaining an EMI license in Cyprus

To successfully obtain an EMI license in Cyprus, candidates must adhere to specific regulatory criteria and undergo a rigorous vetting process, in addition to possessing a sufficient minimum authorized capital. In accordance with Cyprus statutory instruments and standards delineated by the CBC, acting as the regulatory authority, a minimum authorized capital of €350,000 is required. This amount must be fully accessible to the company at the time of license application, thereby demonstrating its financial robustness and readiness for the commencement of planned operations.

The procedure for obtaining an EMI license in Cyprus entails temporal investments, during which the CBC conducts an analysis of the submitted application and accompanying documents, encompassing requisite assessments. From the moment of furnishing all mandated materials, such as business plans, risk management strategies, AML procedures, and others, to the receipt of a regulatory decision, a timeframe of three to six months may transpire. It is noteworthy that this period may extend should additional inquiries arise or more detailed information be necessitated. Meticulous and thorough preparation of documents is critically imperative for expediting the licensing process.

Securing an EMI license in Cyprus is a critical step for entities seeking to offer EMI services across the EU. Cyprus' advantageous geographic positioning and streamlined regulatory environment make it a compelling jurisdiction for fostering financial innovation and driving business expansion in the digital payments landscape.

Tax system for EMI license holders in Cyprus

The owners of EMI licenses in Cyprus are subject to taxation at a flat rate of corporate tax, standing at 12.5%. This stands as the primary fiscal indicator for such organizations.

A crucial feature for companies holding an EMI license is the ability to leverage the Notional Interest Deduction (NID), which can significantly reduce the taxable base. The NID amount is calculated as a percentage of "new capital" and can reach up to 80% of taxable profit before accounting for NID, with the calculated NID percentage depending on the yield of ten-year government bonds of the country of fund usage plus an additional 5%.

One of the distinctive features of Cyprus' tax system is the complete exemption from taxation of income derived from the sale of securities, including stocks, bonds, and other financial instruments. This provision of the tax legislation is particularly valuable for financial entities, including holders of EMI licenses, as it enables significant tax relief on their operations.

It should also be noted that dividends and interest income unrelated to the company's core activities are typically exempt from corporate tax. However, such income may be subject to a special levy for defense funds, rendering them partially taxable depending on the origin of the income.

The tax framework in Cyprus additionally provides incentives for investments in research and development (R&D), enabling corporations to diminish their taxable income via operational and capital outlays in R&D. These incentives can notably ease the tax load and cultivate encouragement for innovation.

Therefore, the Cyprus tax structure includes the following key elements for companies with an EMI license:

  • Corporate tax: 12.5%.
  • NID: up to 80% deduction, rate based on government bond rates.
  • Full tax exemption on securities sales; partial exemptions on dividends and interest.
  • Special defense fund contribution to specific incomes.
  • R&D investment benefits, reducing tax base significantly.

Additional requirements for EMI license holders in Cyprus

Accounting requirements

The establishment of a company with an EMI license in Cyprus entails strict adherence to precise deadlines and stringent requirements regarding financial reporting. According to legislation, companies holding an EMI license in Cyprus must submit their financial statements no later than the 31st of December each year. This encompasses the preparation and submission of financial reports, such as balance sheets, profit and loss statements, cash flow statements, and accompanying notes to the financial statements.

Requirements for financial reporting also include conducting an audit, which is mandatory for companies with turnover above a certain threshold. For instance, if a firm's annual turnover exceeds €70,000, as well as if its assets surpass €35,000, the company is obliged to conduct an audit of its financial statements. The audit must be carried out by a licensed auditor and must be submitted within four months after the end of the financial year.

Furthermore, owners of firms holding an EMI license in Cyprus must vigilantly monitor legislative and regulatory updates. For instance, alterations in reporting requirements or tax regulations can impact accounting practices, necessitating adjustments in financial reporting. Such a proactive approach will mitigate penalties and compliance issues, ensuring stability and fostering stakeholder confidence.

Confidentiality and information protection requirements

For companies obtaining an EMI license in Cyprus, strict adherence to high standards of confidentiality and information protection is mandatory, forming the foundation of the regulatory environment ensuring client data security and the safety of their financial transactions. Paramount is the guarantee of client information confidentiality. Companies holding an EMI license in Cyprus must strictly adhere to confidentiality rules, refraining from disclosing personal client data without their explicit consent, encompassing the protection of user account information, financial transactions, and other sensitive data.

The paramount concern following this is safeguarding financial transactions from fraudulent activity. EMI licensees in Cyprus are mandated to implement all practicable measures to guarantee the security of transactions. This includes the deployment of cutting-edge authentication tools, real-time transaction monitoring, and the swift identification and blockage of any fraudulent attempts.

The third fundamental aspect pertains to averting external threats to information security. Companies holding an EMI license in Cyprus are required to ensure robust protective measures against cyberattacks and other external threats, including but not limited to software updates, data encryption, access control systems monitoring, and other information security measures.

In general, the approach to ensuring confidentiality and information security for EMI license holders in Cyprus must be comprehensive and multi-faceted, ensuring meticulous protection of client data and the security of financial transactions. Such an approach is an integral part of maintaining client trust, complying with regulatory requirements, and adhering to legislation.

Conclusion

Obtaining an EMI license in Cyprus offers favorable conditions for financial sector innovation. The process adheres to strict European standards, requiring compliance with regulations and demonstrating financial soundness and transparency. Cyprus is promising for businesses in electronic payments.

Acquiring an EMI license involves creating and submitting thorough documentation, with a keen focus on detail and scrutiny. Organizations seeking this license must adhere to AML/CTF rules, along with maintaining sufficient capitalization and good corporate governance.

Our highly qualified specialists offer full support in obtaining an EMI license in Cyprus. From document submission to successful acquisition, we provide detailed consultations and quality assistance. Contact us via our website for collaboration or more information. We're here to help with any inquiries or challenges you may have.

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