Russia is ending tax treaty with Cyprus

RUSSIA / FSU POLITICS - In Brief 04 Aug 2020 by Alex Teddy

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Russia intends to charge 15% tax on dividend payments on money remitted from Russia companies registered in Cyprus. Many Russian companies are registered on the Mediterranean island because of it is tax advantageous.The new tax will assist in paying for the country to recover after COVID-19. The government is eager to prevent Russian companies remitting profits to other countries in order to reduce tax liability at home. The law will take effect in January 2020. However, it will also entail Russia amending treaties with several other countries. This might be a difficult task especially in that timeframe.Cyprus is a desired place for Russian companies to register. The country has low corporate tax, the English language, common law, EU membership and strict privacy laws. There is a significant Russian expatriate community there and it attracts tens of thousands of Russian tourists a year. There is a major boost to the economy considering Cyprus has little over a million people. Moscow estimates that USD 27 billion was sent by companies from Russia in 2019. The new dispensation will seriously reduce the incentives to do this. Cyprus will probably offer a compromise. They do not want to lose all the Russian money they are getting. The Russian Government is keen to reduce capital outflow to countries with lower tax. Foreign companies in Russia are shocked. They use dividends as a means of remitting profits from their Russian branch back to the home country.