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26 September, 2023
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Cyprus and Russia come to terms

Moscow closes loophole on taxable income while Nicosia can still maintain comparative advantage


It will no longer be possible for wealthy Russians to distribute profit via dividends to foreign firms in Cyprus, after Nicosia said it agreed with Moscow on terms to amend a double tax treaty, but some say the island still kept some competitive advantages.

The Republic of Cyprus and the Russian Federation came to a mutual agreement on Monday to amend their double-tax avoidance pact, just one week after Moscow said previous proposals by Nicosia had been “unfeasible.”

Russian President Vladimir Putin proposed earlier this year a plan to combat capital outflows, with Moscow demanding the amendment of two fundamental articles of the Treaty, in order to increase withholding tax rates on dividend income from 5% or 10% to 15% as well as on interest income from 0% to 15%.

Last week, Cypriot finance ministry officials said they were caught by surprise when Russia announced it would scrap a double tax treaty, with Moscow suggesting there was no other alternative after talks had failed.

But on Monday, Cypriot Finance Minister Constantinos Petrides, who said he was still in talks with his Russian counterparts, traveled to Moscow to hash out remaining details alongside the two amendments. Petrides said he met with Deputy Prime Minister Alexei Overchuk during his trip.

The Cypriot side also stood to gain from the agreement, according to Petrides, who described the deal on Twitter as “important and mutually beneficial.”

It was reported that the Russian Federation agreed that provident funds and publicly-listed companies could be exempted from the new rules, based on specific criteria including shareholder registers of firms listed on major stock exchanges.

According to local media, the Cypriot side also scored an exemption for payments of interests from corporate and government debt instruments as well as Eurobonds from Russian federal tax withheld.

Following Monday’s meeting, Moscow reassured Nicosia that it would withdraw the processes for terminating the current Treaty, noting the same arrangements would apply for other countries with similar DTTs.

'The fact that similar changes are expected in the agreements that Russia has with other European states means that conditions still remain that would not put Cyprus in an unfavourable position'

The Cypriot finance ministry maintained that updating treaties while taking into consideration the changing international conditions was “indispensable,” adding that maintaining the current network of Double Taxation Avoidance Treaties constituted a priority for the government.

According to the Cyprus News Agency, the Russian side reportedly also confirmed that the same arrangements vis-à-vis the two amendments would apply to other countries as well that maintain similar agreements.

A single date has been locked in for all countries, including Malta and Luxembourg, suggesting that Russia was carrying out a single budget and tax policy aiming at raising public income, with Cyprus appearing not to lose any comparative advantage against competitor states with similar tax regimes.

According to the President of the Cyprus-Russian Business Association, Evgenios Evgeniou, the deal was a positive step as it put an end to uncertainty.

Evgeniou, who spoke to InBusinessNews, was quoted as saying that “the fact that similar changes are expected in the agreements that Russia has with other European states, such as Holland, Luxemburg, and Malta, means that conditions still remain that would not put Cyprus in an unfavourable position.”

Cyprus  |  Russia  |  taxation  |  double tax  |  Petrides  |  Evgeniou

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