In 2008 Cyprus was added to Russia’s blacklist consisting of 54 countries for reportedly failing to share tax information.
A new protocol was signed between the two countries on the 7 October 2010 amending the existing Cyprus-Russia Double Tax Treaty of 1998. This protocol is aligned with the OECD policy standards on fiscal transparency and exchange of information on taxation matters and is in line with changes that were already introduced to the Cypriot tax legislation back in 2008 in accordance with Article 26 of the OECD model convention with regards to the exchange of information. With the Russian State Duma now ratifying this protocol the new Tax Information Exchange Agreement will come into effect from the 1 January 2013 the result of which is that The Ministry of Finance of the Russian Federation has now announced the removal of Cyprus from its black list also effective from the 1 January 2013.
Whilst this is extremely good news for investment into Russia via Cyprus companies as Russian companies transacting with countries on the blacklist can face heavy tax implications and strict reporting obligations, it also leads to more transparency of the commercial transactions and structures, therefore before structuring your investment it is advisable to seek professional advice from a professional firm such as Chesterfield Group in order to structure it properly and optimize the tax liabilities in a compliant manner.
The double tax treaty between the two countries also has many other advantages such as;
– – Dividends received by Russian companies from Cyprus will be exempt from tax in Russia
– – Dividends will have a 5% withholding tax if there is a direct investment in the capital of the Russian entity of at least EUR100,000, otherwise the withholding tax will be 10%
– – Interest and royalties are exempt from withholding tax
– – Transactions shall not be subject to the transfer pricing rules that apply to Russian companies that have transactions with countries on Russia’s black list
Cyprus is recognized for its commitment to implementing the internationally agreed standard. If you would like more information regarding Cyprus structures in regards to Double Tax Treaties and Tax Information Exchange Agreements please do not hesitate to contact us.