Cyprus out of Russian Black List
Cyprus Excluded from the Russian Black List of Offshore Zones; Russia has ratified its Pending Double Tax Treaty with Cyprus last March, which removes the country from being included in its Black List of Offshore Zones. With this settled, it is expected that Cyprus will further attract more Russian nationals to consider investing in the island after attractive tax rates has been approved by both parties of the region. This is expected to gain effect on January 2013; thus, a few more days allocated for investors to study its beneficial effects on their business international tax planning strategies.
Disclosure of Information
One of the reasons for the delay of the ratification of the Treaty is related to disputes concerning the restrictive clauses on the disclosure of information associated with their investors. Fortunately, the OECD Model Tax Convention on Income and Capital’s Article 26 or the Article on the Exchange of Information assisted both countries in resolving this matter. According to the Article, fishing enquiries that will cause harm to the state, investor, or anyone protected by the state of law under their jurisdiction is to be prevented by stressing the absolute necessity to hand over information if and only if detailed prior knowledge pertaining to the requested information can be proved by the requesting body. Otherwise, no one can force the state to obtain this information may it be for investigative purposes. This protects the Right to Privacy of any individual, which is in accordance with the International Humanitarian Rights upheld and supported by the United Nations. Moreover, this allows the pursuance of tax incentives to Russian Nationals who were long interested to enjoy the many benefits the Cypriot Government has prepared for them.
The DTT states that zero profit tax rate would be applied to the dividends of non-Cypriot residents, which includes Russian companies not registered under Cyprus laws, as long as it owns no more than 50% of the Cyprus shares for the past 365 days. Nevertheless, a tax rate of 10% is to be applied to direct investments of less than EUR 100,000; 5% if it is more than EUR 100,000, and a zero percent tax rate on royalties and interests. Furthermore, dividends are to be distinguished from mutual funds and collective investment vehicles. Tax rate on this type of investment is to be calculated using the normal withholding tax rates except for real estate investment funds that receives revenue from immovable properties.
Interest and Royalty Rate
Interest that has been classified by the Russian tax authorities as dividends will be taxed according to the above mentioned rules of calculation. In any case, other types of interests and royalties will enjoy a zero percent rate. This would include income gained from debt claims but will not cover penalty charges for late payment that has been classified as dividends.
Limitation of Treaty Benefits
These benefits are to be gained only by companies that have been incorporate inRussia or Cyprus and does not apply to tax residents of Cyprus or Russia, unless otherwise granted rights by the tax authorities of the countries.
Definition of Permanent Establishment
A structure or enterprise is only to be classified as a permanent establishment if and only representatives offering services under the jurisdiction of the company has performed duties and obligations in its territory for more than 183 days within a 12 month period.
Income from Immovable Property and International Traffic
Real estate investment trusts or funds organized under the jurisdiction of Russian Laws are to be taxed in the country where the said property is located. Said income would then be referred to as Income from Immovable Property. The same will be applied to income gained from international traffic. The country where management of the said transaction took place will be given the right to earn taxes gained from it.
Moreover, in cases wherein it is hard to discern the residency of a particular company; Russia and Cyprus should enter into a mutual agreement before proceeding with the tax rates to be applied on these companies.