Using nominee directors in Cyprus isn’t simply a matter of paperwork. It’s a practice that carries substantial legal obligations, particularly under anti-money laundering legislation. For anyone considering such an arrangement, or for the service providers who offer these structures, understanding precisely what the law demands is essential.
Cyprus has built its reputation as a favourable jurisdiction for international business. The island’s membership in the European Union, combined with a 15% corporate tax rate and an extensive network of double taxation treaties, makes it attractive to foreign investors seeking a European base of operations. But this attractiveness brings scrutiny. And that scrutiny has intensified significantly in recent years.
The AML framework governing nominee arrangements in Cyprus draws from multiple sources. There’s the Prevention and Suppression of Money Laundering and Terrorist Financing Law (originally Law No. 188(I)/2007), which has been amended repeatedly to incorporate EU directives. CySEC Directive R.A.D 282/2024 brought additional updates just last year. The Cyprus Bar Association, ICPAC (the Institute of Certified Public Accountants), and the Central Bank all issue sector-specific guidance that affects how nominee services operate in practice.
Perhaps the most important thing to understand is this: from a legal standpoint, there’s no such thing as a “formalistic” director. The Supreme Court of Cyprus made this explicit in Criminal Appeal No. 323/2015 (Attorney General of the Republic v Solomonidi), stating that, once appointed, a person assumes all the responsibilities of a director as determined by the Companies Act (Cap 113) and applicable case law. The nominee label offers no protection.
The Legal Standing of Nominee Directors Under Cyprus Law
The concept of a nominee director might seem straightforward. Someone is appointed to represent the beneficial owner’s interests while providing a layer of privacy. In reality, the legal position is considerably more complex.
Under Cypriot law, every private company must have at least one director. Public companies require at least two. A private limited company in Cyprus needs a director, a secretary, and a registered office address to operate. While the secretary can be a separate individual, in single-member companies, the sole director may also serve as secretary.
Here’s where things get interesting from an AML perspective. For a Cyprus company to maintain its tax residency, its management and control must be exercised locally. This typically means the majority of directors should be Cyprus residents. That requirement alone creates demand for nominee services, as foreign investors often lack physical presence on the island.
The legal framework governing directors derives primarily from:
- Companies Law, Cap. 113
- The Prevention and Suppression of Money Laundering Activities Law
- CySEC directives for regulated entities
- Various sectoral guidance from supervisory authorities
The court system has made clear that nominee directors cannot hide behind their appointment status. English case law, which Cyprus courts frequently reference, given the common law heritage, established in Hawkes v Cuddy (2009) that while directors may owe duties to whoever nominated them, those duties cannot detract from obligations owed to the company itself.
| Requirement | Private Companies | Public Companies |
| Minimum directors | 1 | 2 |
| Secretary required | Yes | Yes |
| Registered office | Mandatory | Mandatory |
| Cyprus-resident director | Recommended for tax residency | Recommended for tax residency |
| UBO disclosure | Mandatory | Mandatory |
The Central Bank of Ecuador v Conticorp SA case further reinforcedthe principle that nominees cannot surrender their discretion to another party, regardless of how minor the matter may seem. Put plainly, a nominee director who acts purely as a rubber stamp exposes themselves to significant liability.
Documentation and Due Diligence Requirements
Corporate services providers offering nominee arrangements in Cyprus must follow strict protocols before establishing any business relationship. These aren’t optional best practices. They’re legal requirements with teeth.
The process begins with what the industry calls customer due diligence, though perhaps “client investigation” would be more accurate given the depth of inquiry involved. Administrative Service Providers (ASPs), the entities that typically provide nominee services, fall squarely within the definition of “obliged entities” under AML legislation.
What gets collected during onboarding:
For the beneficial owner, the documentation typically includes:
- Valid passport or national identity document
- Proof of residential address (utility bill, bank statement dated within three months)
- Professional or employment background verification
- Source of funds documentation
- Source of wealth explanation, where applicable
- Criminal record certificates in some cases
- References from banks or professional advisors
The nominee directors themselves face screening against:
- EU Consolidated Sanctions List
- UN Security Council sanctions
- OFAC’s Specially Designated Nationals list
- Politically exposed persons (PEP) databases
- Adverse media searches across multiple jurisdictions
This screening isn’t a one-off exercise. The 2024 CySEC directive requires real-time re-screening whenever client information changes or sanctions lists are updated. Obliged entities must also periodically check their entire client base for negative press coverage and update client risk profiles accordingly.
The KYC form and risk assessment process:
Every nominee arrangement requires a comprehensive KYC form documenting the beneficial owner’s identity, the intended purpose of the corporate structure, the expected transaction volumes, and the geographical scope of planned activities. This information feeds into a client risk assessment that determines the level of ongoing monitoring required.
Higher-risk relationships trigger enhanced due diligence. This might include:
- More detailed source of wealth verification
- Senior management approval is required before establishing the relationship
- Increased frequency of account reviews
- Additional documentation requirements
The Institute of Certified Public Accountants of Cyprus (ICPAC) AML Directive mandates that members evidence and document background screening for clients, beneficial owners, significant shareholders, directors, bank signatories, attorneys, and authorised persons. Nothing escapes the compliance net.
UBO Register Obligations and Transparency Requirements
The UBO register sits at the heart of Cyprus’s AML transparency regime. For nominee arrangements, it represents both a compliance obligation and a philosophical shift in how corporate privacy operates.
Since March 2021, Cyprus has maintained a central electronic register of beneficial owners. The key principle is straightforward: nominees are not beneficial owners. The ultimate natural person behind any nominee structure must be disclosed to the register.
What must be submitted:
For each beneficial owner, the following details are mandatory:
- Full name and date of birth
- Nationality and residential address
- Identification document details
- Nature and extent of the beneficial interest held
- Percentage of shares or voting rights
- Date the person became a beneficial owner
When ownership structures involve trusts, the disclosure requirements expand significantly. Settlors, trustees, protectors, and beneficiaries must all be reported. For discretionary trusts where beneficiaries aren’t fixed, the class of potential beneficiaries must be described.
The threshold for reporting is 25% ownership or control. A natural person holding directly or indirectly more than 25% of shares, voting rights, or ownership interest qualifies as a beneficial owner. Where nobody meets this threshold, or where doubts exist about who truly controls the entity, the senior management official must be reported instead.
Timeline requirements:
- Initial filing: Within 45 days of incorporation or establishment
- Changes: Must be filed within 45 days of any change
- Annual confirmation: Between 1 October and 31 December each year, entities must confirm that their UBO information remains accurate
Non-compliance carries penalties. The current framework imposes an initial €200 fine, plus €100 for each day of ongoing non-compliance, capped at €20,000. However, it’s worth noting that the December 2024 reforms shifted liability to the legal entity rather than individual officers, and that all penalties imposed since April 2024 were revoked and refunded. Some observers suggest this indicates wavering political will around transparency enforcement.
The register isn’t publicly accessible. Following the European Court of Justice ruling in joined cases C-37/20 and C-601/20, public access was suspended in January 2023. Only competent authorities, supervisory bodies, and obliged entities performing customer due diligence can request information, for €3.50 per query.
Responsibilities and Risks for Service Providers
Offering nominee services in Cyprus isn’t a passive activity. The corporate services provider assumes substantial obligations that extend well beyond the initial onboarding process.
What service providers must maintain:
Nominee services are regulated activities in Cyprus. Only certain licensed professionals can offer these structures. The arrangements themselves are typically governed by detailed agreements that specify:
- Scope of authority granted to the nominee
- Circumstances requiring the beneficial owner’s explicit approval
- Communication protocols and response times
- Indemnification provisions
- Termination procedures and transition arrangements
Declaration of Trust documents establish that nominees hold shares or positions for the benefit of the valid owner. These are private agreements not disclosed to the Registrar of Companies, but they’re critical for protecting both parties’ interests.
Ongoing monitoring requirements:
Service providers must:
- Review transactions for consistency with the client’s stated purpose
- Update client information periodically based on risk level
- Screen against sanctions lists and PEP databases continuously
- Maintain detailed records for at least five years after the relationship ends
- Report suspicious activities to MOKAS (the Financial Intelligence Unit)
The board meeting minutes, share transfer documentation, annual returns to the Registrar of Companies, and statutory registers all become part of the ongoing compliance apparatus. A nominee secretary handles much of this administrative burden, but the responsibility for accuracy remains with the obliged entity providing the service.
Penalties for AML failures:
Supervisory authorities can impose fines up to €1,000,000 for regulatory violations. Individual officers may face:
- Personal fines up to €100,000
- Imprisonment up to 2 years for sanctions violations
- Criminal liability for knowing participation in money laundering
- Professional disciplinary action
In 2024, CySEC alone conducted over 850 audits and imposed fines totalling €2.76 million against regulated entities. Several investment firms had their licences revoked. This isn’t theoretical enforcement; it’s active supervision with real consequences.
Practical Considerations for Business Owners
If you’re considering a nominee arrangement for your Cyprus company, approaching it with clear expectations will save considerable difficulty later. The privacy benefits are real but come with trade-offs.
Why businesses still use nominee services:
Despite the transparency requirements, legitimate reasons exist for these arrangements:
- Tax residency maintenance: Having Cyprus-resident directors helps establish that management and control occur locally, supporting the company’s tax residency position.
- Administrative efficiency: A nominee secretary familiar with local requirements can handle statutory compliance far more efficiently than a distant beneficial owner unfamiliar with Cyprus procedures.
- Privacy from public registers: While UBO information must be disclosed to authorities, it’s not publicly accessible. The registered shareholder appearing in Companies Registry filings can be a nominee rather than the actual owner.
- Operational convenience: For investors who aren’t physically present in Cyprus, having local representatives who can sign documents and address urgent matters offers practical advantages.
What to consider before proceeding:
- Cost: Nominee services typically include annual fees per position, as well as setup costs and ongoing compliance charges.
- Control mechanisms: Ensure your agreements include undated resignation letters, powers of attorney, and clear protocols for decision-making authority.
- Exit strategy: Know how you’ll transition if you decide to take direct positions or change service providers.
- Documentation standards: Expect extensive due diligence requests. Prepare your source-of-funds and source-of-wealth documentation in advance.
- Response obligations: Your service provider must provide timely responses during compliance reviews. Build this into your expectations.
Choose your service provider carefully. Lawyers and regulated ASPs with established reputations have more to lose from compliance failures, which generally means they’ll manage your arrangements more carefully. The cheapest option rarely proves wisest in the long run.
Frequently Asked Questions
What are the primary risks of being a nominee director in Cyprus?
Nominee directors face the same legal liabilities as any other company director under Cyprus law. This includes personal liability for fraudulent trading, breach of fiduciary duties, and failure to maintain proper accounting records. The Supreme Court has explicitly rejected the notion of “formalistic” directors, meaning nominees cannot avoid accountability by claiming they simply followed instructions. If the beneficial owner uses the company for illegal purposes, the nominee may face criminal prosecution despite having no direct involvement in wrongdoing.
How does AML compliance work in Cyprus for corporate service providers?
Cyprus AML compliance requires obliged entities to perform customer due diligence at onboarding, screen clients against sanctions and PEP lists, monitor transactions for suspicious activity, maintain records for five years, and file reports with MOKAS when suspicions arise. The framework aligns with EU directives and FATF recommendations. CySEC Directive R.A.D 282/2024 updated requirements in August 2024, including electronic verification procedures effective from December 2024. Non-compliance can result in fines of up to €1,000,000, licence revocation, and criminal liability for individual officers.
Who qualifies as a nominee shareholder under Cyprus regulations?
A nominee shareholder is someone who holds shares in a company on behalf of another person, the beneficial owner. The arrangement is typically documented by a Declaration of Trust that establishes that the nominee has no personal rights to the shares and acts solely on the beneficial owner’s instructions. While the nominee appears as a registered shareholder in Companies Registry filings, the beneficial owner must still be disclosed to the UBO register. Nominees themselves cannot be reported as beneficial owners; the chain of ownership must be traced to actual natural persons.
What legal responsibilities does a nominee director actually carry?
Nominee directors must act in the company’s best interests, exercise reasonable care and skill, avoid conflicts of interest, and comply with all statutory obligations under the Companies Act (Cap 113). They’re responsible for ensuring proper books and records are maintained, annual returns are filed, and tax compliance is observed. Fiduciary duties prevent them from profiting at the company’s expense. While they may follow beneficial owner instructions for ordinary business matters, they cannot execute actions that violate the law, even if instructed to do so.
Expert Assistance with Your Cyprus Corporate Structure
Setting up nominee arrangements that satisfy both your business objectives and Cyprus’s AML requirements demands careful planning and professional guidance. The regulatory landscape continues to evolve, with new EU directives and local amendments regularly adjusting compliance obligations.
C. Savva & Associates LTD, based in Nicosia, provides expert corporate services for individuals and businesses establishing operations in Cyprus. Our team can assist with nominee director and secretary arrangements, registered office services, and ongoing compliance management that keeps your structure aligned with current regulations. Contact us to discuss your specific requirements.