| After months of negotiation, the Russian | | | | companies. It offers a high level of banking, |
| parliament (Duma) has voted to approve a | | | | auditing, accounting and legal services, as |
| double taxation treaty with Cyprus, making it | | | | well as its real estates, which developed |
| easier for Russian citizens to buy property | | | | Cyprus into a successful international |
| in the country. | | | | business and financial centre. |
| | | | |
| The new treaty replaces the one signed | | | | Some of the main factors and advantages which |
| between the two countries in 1998. In the | | | | secure Cyprus ' attractiveness to |
| past decade, Cyprus has signed several double | | | | international businesses and investments are |
| taxation treaties in an effort to make the | | | | the following: 10% corporate tax rate for |
| country attractive to off-shore enterprises | | | | business profits; No withholding taxes |
| and property investors. Cyprus is clearly | | | | imposed on dividends, interest and royalties |
| benefiting from the present arrangement which | | | | for non-residents (whether a company or an |
| allows it to become a base through which | | | | individual); Income from dividends is exempt |
| foreign companies can do business in Russia. | | | | from income or corporation tax; The |
| However, Russian officials have expressed | | | | attractive platform and tax regime that |
| their intention to amend the treaty. This is | | | | Cyprus provides for a holding company (i.e. |
| the third round of talks between the two | | | | subject to certain conditions full exemption |
| parties and negotiations are expected to | | | | from local taxation in respect of dividends |
| continue. | | | | received by a holding company from its local |
| | | | and foreign subsidiaries); The attractive |
| Cyprus is putting great efforts into | | | | platform and tax regime that Cyprus provides |
| attracting offshore collective investment | | | | for international trusts; The network of |
| funds. The corporation tax rate for offshore | | | | favorable double taxation treaties that |
| companies of 4.25%, and the increasing number | | | | Cyprus maintains with more than 40 countries |
| of double tax agreements with other | | | | including Russia and most of the ex Soviet |
| countries, are two strong reasons for | | | | Union Republics; Tax advantages available to |
| establishing a collective investment fund in | | | | non-residents including non - E.U. residents; |
| Cyprus. Current legislation creates no | | | | Cypriot tax regime permits losses to be |
| problems for close-ended funds. A study has | | | | carried forward indefinitely; The geographic |
| been commissioned by the government for | | | | location of Cyprus, located at the crossroads |
| drafting the appropriate legislation for | | | | of Europe, Asia and Africa. |
| open-ended funds. | | | | |
| | | | Ukraine balks from treaty |
| Under the double tax treaty with Cyprus, | | | | |
| investors can enjoy a 5% withholding tax rate | | | | Although the Russian government ratified the |
| on dividends distributed by a Russian | | | | treaty, the Ukrainian parliament has rejected |
| subsidiary, rather than the regular 15% rate. | | | | a similar agreement between itself and |
| Therefore, using Cypriot holding companies is | | | | Cyprus. The Ukrainian government believes |
| one of the most typical vehicles to structure | | | | that the old treaty between the Soviet Union, |
| inbound investments in Russia. | | | | of which the Ukraine was a member, and Cyprus |
| | | | in the 1980s, was too generous and allowed |
| Despite having numerous treaties, the | | | | private individuals and companies to avoid |
| signature from the Russian parliament is | | | | paying the appropriate level of taxes in |
| perhaps viewed as the most important one on | | | | their home country. |
| the list. Scores of Western businesses have | | | | |
| established a presence in Cyprus to trade | | | | It has since rejected the new treaty with |
| with Russian companies and Russians are now | | | | Cyprus and is likely to take a further six |
| viewed alongside the British as the most | | | | months for it to be altered and put before |
| important international buyer group on the | | | | the country's government again. The Cypriot |
| island. | | | | parliament is also unsure of the treaty's |
| | | | composition and believes that it goes against |
| Cyprus is one of the most advantageous places | | | | the nature of the original agreement. |
| of residency for Russian and Ukrainian | | | | |