Cyprus has been blacklisted by both
Russia and Ukraine tax Authorises. This could pose problems for Cyprus which has
managed to attract many international companies to the small island.
Russia and Cyprus have long been
financial partners with the island attracting many companies from Russia. Such
investment has boosted Cyprus financial services industry including its banking
sector with the island aiming to achieve a financial centre for foreign
investment. Low taxation rates are a strong advantage for foreigners wishing to
invest on the island. All these factors are contributing to placing Cyprus as an
international business centre.
However Cyprus has fallen foul of
being Black listed by Russia stemming form the fact that Russian companies can
register in Cyprus and then repatriating their dividends tax-free back home.
This has not made Russian Tax Authorities too happy.
Being black listed may not however
have the overall effect that Russian Tax Authorities wanted to achieve. Foreign
companies investing in Russia through Cyprus subsidiaries are exempt from the
rule, leaving many loopholes to be utilized. In fact the Russian Tax Code came
into effect on January 1 introducing a tax exemption on dividends earned by
Russian companies through foreign subsidiaries under certain conditions. This
exemption does not apply to foreign organizations registered in territories seen
as having beneficial tax treatment or that are not required to disclose and
provide information on financial operations.
A positive aspect for Cyprus authorities is that most Cyprus- registered
companies are not subsidiaries, in fact most are holding companies receiving
dividend from Russia and not vice versa. However the problem of Black listing
could be avoided by using an intermediary company which is not Black listed by
the Russian Authorities.
The Cyprus and Russia Double Taxation Agreement is also favourable and
re-negotiating the treaty could prove harmful to attracting investment in Cyprus
Until recently, the rate was 9% for Russian companies and 15% for foreign ones.
Exemption from these payments was granted at the request of President Putin, who
instructed the ministry to create stimuli for large companies to register at
home. However because of the proviso requiring at least a 500 million rouble
stake in share capital, only major companies affiliated with the state would be
able to use the privilege, but they are unlikely to use some obscure offshore
territory to register.
Major future investments are most likely to be channelled through
Luxembourg, the Netherlands, Austria and Britain, which have not been black
listed. Cyprus will still remain attractive for Russian businesses, because the
ministry's instruction will in no way affect the present tax-optimizing schemes
involving local companies and the Cyprus Russian Double Taxation agreement,
until re-negotiated still proves advantageous for Russian Businesses wishing to
invest in Cyprus.
ClarisGlobal's office in
Valletta, Malta, reported increased interest from Cyprus and offshore professional advisers
examining the option of using Malta's favourable holding regime for
clients. "In view of the absence of withholding taxes in Malta, we have received
more inquiries from intermediaries in in the past weeks," said Dr Priscilla
Mifsud Parker of
Claris Trustees & Fiduciaries Ltd in Malta.
"There has been a marked increase in
inquiries from Russian and Ukrainian tax advisors seeking to use
companies to route dividends back to Russia," said Dr Jean-Philippe Chetcuti, tax partner at
Cauchi Advocates, Malta's leading tax and legal practice
for company management. For more information about
holding company regime and the
taxation of Malta companies, visit our jurisdictions section.