Advantages of the Cyprus economic zone for Russian companies

Nicosia, June 27, 2008 – Cyprus is one of the most advantageous places of residence for Russian and Ukrainian companies. It offers a high level of banking, auditing, accounting and legal services, as well as its real estate, which made Cyprus a successful international business and finance center.

Some of the main factors and advantages that ensure the attractiveness of Cyprus for international companies and investments are the following:

1. 10% corporate tax rate for business profits;

2. No withholding taxes are imposed on dividends, interest and royalties for non-residents (either a company or an individual);

3. Dividend income is exempt from income or corporation tax;

4. The attractive platform and tax regime that Cyprus offers to a holding company (ie, subject to certain conditions, full exemption from local taxes in respect of dividends received by a holding company from its local and foreign subsidiaries);

5. The attractive platform and tax regime that Cyprus offers for international trusts;

6. The network of favorable double tax treaties that Cyprus maintains with more than 40 countries, including Russia and most of the former Republics of the Soviet Union;

7. Tax benefits available to non-residents, including non-EU residents;

8. The Cypriot tax regime allows losses to be carried forward indefinitely;

9. The geographical location of Cyprus, located at the crossroads of Europe, Asia and Africa;

One of the factors mentioned above is a double tax treaty between Russia and Cyprus, which provides the Russians with many tax advantages. On August 17, 1999, an agreement was signed between Russia and Cyprus to avoid double taxation with respect to taxes on income and capital. The treaty provides for the exemption of income in the country of origin or the granting of a tax credit with respect to the foreign tax paid by the country of tax residence.

Typically, Russian companies would pay a 35 percent tax on profits, plus a 20 percent VAT tax and a 40 percent tax for social security and employee benefits in Russia. However, when the Russian business is structured so that it is owned by a Cyprus company (which does not require any physical presence in Russia), all of its profits will be legally transferred to Cyprus and it will only be subject to a 4.5% tax. percent on earnings and 15 percent VAT. Consequently, Russian companies escape the 40 percent tax for social services. This tax advantage allows you to channel benefits in the form of dividends at a reduced rate.

For example, a Cyprus holding company can be used for international investment purposes. Basically, it is about taking advantage of tax incentives and treaties to avoid double taxation. The most important advantage of a Cyprus Holding Company is that the dividends received by the foreign company can flow completely tax-free in Cyprus through the Holding Company, thus avoiding the payment of any tax on dividends. Furthermore, payments made to non-Cyprus resident Shareholders do not have any (0) withholding tax, so the Shareholder receives the dividends absolutely tax free.

Paying interest on loans is another advantageous method for Russian companies. Under the Cyprus Law, the Russian company is partially owned by the Cypriot company and pays its interest on loans to the Cypriot company, effectively minimizing its taxes. However, interest payments will not necessarily be paid to the Cyprus Company. It is the most efficient method used by the Russian company to avoid almost all its tax payments.

Russian companies that were structured into Cypriot companies to maintain their business activities within the territory of Russia, can transfer the income earned in Russia abroad in the form of dividends and interest, with considerable tax savings. Companies registered in the jurisdiction of Cyprus pay lower taxes than those paid in Russian jurisdictions.

All the structures mentioned above are based on “Cyprus economic zone“of reduced taxation and perfectly legal, in addition, its tax advantage can be further enhanced when, in certain circumstances, it is combined with other jurisdictions in adequate legal structures.

In the last 30 years, the Cyprus Law Firm has become a renowned international financial and commercial center due to the very favorable tax regime offered by the island. The admission of Cyprus to the European Union as a full member in May 2004, established Cyprus as a prestigious, stable and attractive jurisdiction.

Although the offshore company status was abolished as of January 1, 2003, the favorable tax regime for the international investor has been maintained. In addition, the liberalization of investments from non-EU countries and the abolition of the maximum and minimum shares of investment in all sectors of the economy in October 2004 (unless the Law provides otherwise) , has transformed Cyprus into an important destination for the location of international holding companies and global investments.

Contact:

Olga Kosareva, NCI Law Group

[email protected]

T: + 357-22-680670

Author: Ioannis John Neocleous