The Circular dated 2/11/2018 revised the definition of “shell companies” as the following :

Definition of Shell Companies:

The term “shell company/entity” refers to a limited liability company or any other legal/business entity that bears the following characteristics:

  1.  It has no physical presence or operations in its country of incorporation/registration (other than a mailing address);                                      Physical presence of a company/entity is construed as having a place of business or operations (own or rented premises) in the country of registration/incorporation.Also, absence of meaningful mind and management could be construed as lack of physical presence.The presence of a third person providing merely nominee services including company secretary duties does not constitute on its own physical presence and
  2. It has no established economic activity in its country of incorporation/registration, little to no independent economic value and no documentary proof to the contrary.

Exceptions:

  1. the company/entity is established for the purpose of holding stock or shares or other equity instruments of another business entity or entities engaged in legitimate business with identifiable ultimate beneficial owner(s);
  2. the company/entity is established for the purpose of holding intangible or other assets including real estate, ship, aircraft, portfolio of investments, debt and financial instruments;
  3. the company/entity is established to facilitate currency trades and asset transfers, corporate mergers as well as carrying out asset management activities and trading of shares;
  4. the company/entity acts as a treasurer for companies recognized as a group or manages the activities of the group;
  5. any other case where convincing evidence can be provided that the company/entity is engaged in legitimate business, with identifiable ultimate beneficial owner(s).

 

if an entity falls within the above exceptions but

  1. it is registered in a jurisdiction where companies/entities are not required to submit to the authorities independently audited financial statements and does not voluntarily prepare audited financial statements by independent qualified professional accountants who are licensed or regulated and/or
  2. it has a tax residence in a jurisdiction included in the EU list of non-cooperative jurisdictions for tax purposes or the OECD’s list of non-cooperative jurisdictions for tax purposes or has no tax residence whatsoever,

 

then business relationships (i.e. banking) with such an entity shall be avoided.