Cyprus Off Black List by Russia


Russia Strikes Cyprus Off Black List: It is official. Cyprus will officially be off the blacklist of tax havens created by Russian beginning January 1, 2013. This is the news shared by the Cyprus Government soon after a ratification of the Double Tax Treaty between Russia and Cyprus is expected to be completed during the end of this year and is to be implemented on the first day of the year 2013.


The Ministry of Finance of Russia has officially declared this in writing through Decree No. N 115n, which was issued on the 21st Of August, but was officially registered in October 25 by the Ministry of Justice. In addition, the exemption rule involving tax incentives has also experienced a few amendments as specified in the revised Double Tax Treaty ratified by both countries.


Both countries have long entered an agreement between one another, but the year 2008 created a slight turmoil between the two as Russia decided to add Cyprus in its list of 54 blacklisted countries in the world, after it failed to share tax information with it. Negotiations on how to ratify existing DTT rules was regularly discussed, but it was only recently that both parties have agreed into terms with one another.


The Advantages of Russian Companies Registering IBC in Cyprus

With the removal of Cyprus in the list of blacklist countries of Russia, Cyprus maintains its position as the most competitive and most favorable destination of Russian businesspersons, as it gives way for these individuals and companies to enjoy the dividend participation exemption by registering a company in Cyprus. Therefore, the burden of being taxed for the second time could be avoided resulting in more revenues earned by the parent company.


Amendments to the Existing Double Tax Treaty


It took more than two years before the Russian and Cypriot government agreed into terms with the revised DTT. It has been revised to fit the OECD model, which include the following amendments:


  1. The threshold for the exemption of dividend tax payments has been changed from the original below US$100,000 currency to below $EURO 100,000
  2. Revised definition of dividends, which includes payments received from collective investment vehicles, mutual investment funds, and the depository receipts of shares.
  3. Residency of an entity will be shared if the location of effective management becomes difficult to be determined
  4. Redefinition of permanent establishments, which will include the profits earned from the services it has provided even if this falls outside the jurisdiction of the region where the IBC has been registered. In addition, the individual should provide evidence of staying at that location for more than 183 days within a 12-month period and it has 50% ownership of aggregate revenues based on its active business in that vicinity before it could file exemptions. Therefore, Russia is given liberty to consider a certain company part of its boundary even without permanent establishment based on the services this company has been providing to its citizens.
  5. Real estate mutual investment funds will be taxed in the country where the immovable property is located in the other country surrendering any right to have it taxed for the second time.
  6. More importantly, the exchange of information policy is to be followed provided that the normal course of administrative protocols implemented by the contracting state is to be followed. Professional secrecy rules cannot be used as a form of excuse and could be lifted so long as detailed provisions of domestic legislations between the two agreeing countries is fulfilled. Therefore, any request from the Russian Government to see records of its bank has to gain approval from the Attorney General before the desired information can be provided.


The amendment is seen as an important factor for the erasure of Cyprus in the blacklist of tax havens of Russia. The impact of this revision is expected to be felt in the coming year, but the Cyprus Government is very much optimistic it will bring forth increased investors and will be of great assistance to their economic growth and development.