A new era of economic relations between Cyprus and Russia will begin in 2021

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According to the agreement on double taxation between the two states, Russian companies, which had their headquarters (the so-called “base”), was located in Cyprus, paid taxes on the island. In 2013, after the European “haircut” of capital and a tax increase to 12.5%, Russian businessmen did not take any steps to withdraw funds and re-register companies. They remained faithful to our sunny island. This, in turn, kept the local economy afloat, and even brought it to an acceptably stable level.

But, as practice has shown, Russia has seriously taken up taxation issues and revised its policy in relation to foreign companies and taxes, which were actually lost to the Russian budget.

The figures are certainly impressive, so in Russia it was decided to levy 15% of taxes from such enterprises.

It turns out that due to the current crisis, financial collapse, “viral” epic, entrepreneurs who are struggling to stay afloat are forced to pay taxes to Cyprus and Russia. The total amount will be 27.5%!

What the owners of the companies themselves will decide against this background is not yet clear. Such measures affected not only Cyprus, but also other “financial harbors” – Malta and Luxembourg. The situation is not unambiguous. Perhaps the high cost of servicing enterprises there will push their owners to transfer them to Cyprus. The scenario on which Russia is counting is also possible – the return of companies to their native land.

The recent conversation between the two leaders, Putin and Anastasiadis, did not particularly influence the decision of the Russian Federation. The Cypriot side managed to “bargain” for several exceptions to the rules, light concessions. But this will not affect anything at all. First of all, entrepreneurs are interested in how to minimize tax costs. If it is not cost-effective, then Cyprus risks losing the lion’s share of its CWP.

After the unilateral withdrawal from the tax treaty with Cyprus, all payments (dividends, interest, royalties) in favor of the residents of Cyprus from Russia will be taxed in accordance with the Russian Tax Code, that is, at the rate of 15% (dividends) and 20% (interest, royalties). Russian companies and individuals who receive income from Cyprus may also suffer, since taxation of these payments will be carried out according to the legislation of Cyprus, without the application of DTTs.

According to the latest available data from the Central Bank, in the first nine months of 2019, Russia invested almost $ 13.5 billion in Cyprus, and received less than $ 4.8 billion in direct investment.

Cyprus is the most popular transit jurisdiction: dividends are paid by a company registered there at reduced rates, and after that the income can be transferred to classic offshore companies.

This agreement was concluded in 1998. To break it, Russia must send Cyprus through diplomatic channels a notice of termination of the agreement, in which case it will terminate on January 1, 2021. Presumably, the signing of new terms of financial interaction and cooperation will be signed during Sergey Lavrov’s official visit to Cyprus in September this year.