The Cyprus Emerging Companies Market. A safeguard to CFC rules?

Cyprus/June 2014

In light of the recent financial turmoil and the ever increasing need for the attraction of new investors and companies in the country, the CSE established in 2010 its Emerging Companies Market (“ECM”).  The ECM constitutes a Multilateral Trading Facility (“MTF”) which operates under the Regulative Decisions adopted by the CSE and it has proven to be the most successful MTF that the CSE has initiated.  The ECM is seen as a “non-regulated market” as it does not come under the continuous and cumbersome conforming obligations imposed to regulated markets by the Cyprus Securities and Exchange Commission (“CySec”).

Raison d’être

Its raison d’être is to support the raising of capital for small and medium-size enterprises (SMEs) as well as to enable the easy, fast and affordable admission to public trading.  What distinguishes the latter from the main listing on the CSE, are its simplified listing requirements and trading criteria.

Listing methods

Listing a company on the ECM can effectively be achieved in two ways.  Through a public offering, seeking for more than 2.5 million Euros and addressed to more than 100 persons. In this case a prospectus must be prepared and approval from CySec shall need to be obtained.  Alternatively, the offering can be done through a private placement, that is to say addressed to institutional investors only (strategic or other) or to less than 100 persons and for less than 2.5 million Euros. The approval of CySec is not required in this case but instead, an Admission Document must be submitted to the CSE.  Listing may also be achieved through a combination of the above two.

An advantageous alternative

The ECM constitutes an alternative method to raise finance which can be easily obtained at the time of a flotation or later on through subsequent share issues.  Taking into consideration that the regulations imposed upon listed companies on the ECM are lighter, corporate transactions may be carried out in a more cost efficient way.  Moreover, it offers greater marketability since the mere existence of a public market promotes share transactions that were not possible before.  In addition, higher and improved value, through positive share price performance and enhanced corporate profile, substance, recognition and credibility may be some of the advantages offered by the admission on the ECM.  There is no minimum share capital requirement to be dispersed to the public, no criterion as to the minimum market capitalization and no criterion for the minimum shareholders equity.  Last but not least, the ECM constitutes a gateway to a regulated market.

It should not be misunderstood however, that the ECM is free of any supervision.  On the contrary, the Securities and Exchange Commission indirectly supervises the ECM through its supervision on the CSE as a market operator which operates the ECM.

Russian CFC Rules

The Russian Ministry of Finance has recently published a draft law on anti-offshore measures which introduces, amongst others, the concept of controlled foreign companies’ rules (CFC rules).

The implementation of the said CFC rules essentially empowers the Russian tax authorities to tax international corporate and private structures directly or indirectly controlled by Russian tax residents.  The proposed rules provide, inter alia, that a controlled foreign company is a legal entity whose shares are not listed on a stock exchange approved by the Russian Central Bank. Therefore, if a Company is listed on a reputable and recognized market, then such a company will simply not fall under the onus imposed by the proposed CFC rules.


In conclusion, Russian tax residents who own companies listed on the Cyprus ECM will be safeguarded by the application of the forthcoming Russian CFC rules.  Having the aforesaid in mind and in combination with the easy of accessibility through its simplified requirements, its reduced regulation, additional capability to attract capital, cost efficiency, marketability and creditability, paired with the enhanced substance that listed companies are offered, listing on the ECM is undoubtedly an alternative which is worthwhile to consider.

Gold News: The Cyprus Emerging Companies Market: A Safeguard to CFC Rules?

Antonis Michaelides
Michalis Zambartas
Tel : +357 22 699 222