Nicosia, 27 June 2008 – Cyprus is one of the most profitable places to live for Russian and Ukrainian companies. It offers high-level banking, auditing, accounting and legal services, as well as its real estate, which has developed Cyprus into a successful international business and financial center.
Some of the main factors and advantages that secure the attractiveness of Cyprus for international business and investment are as follows:
1. 10% corporate tax rate for business profits;
2. There is no withholding tax imposed on dividends, interest and royalties for non-residents (both companies and individuals);
3. Income from dividends is exempt from income or corporate tax;
4. The attractive platform and tax regime that Cyprus provides for the parent company (ie subject to certain conditions of full exemption from local taxes in respect of dividends received by the parent company from its local and foreign subsidiaries);
5. The attractive platform and tax regime that Cyprus provides for international trustees;
6. The network of favorable double taxation treaties that Cyprus maintains with more than 40 countries including Russia and most of the former Soviet Union Republics;
7. Tax advantages are available to non-residents including EU non-residents;
8. The Cyprus tax regime allows losses to be carried forward indefinitely;
9. Geographical location of Cyprus, located at the crossroads of Europe, Asia and Africa;
One of the factors mentioned above is the double taxation treaty between Russia and Cyprus, which provides Russia with many tax advantages. An agreement was signed between Russia and Cyprus for the avoidance of double taxation in respect of taxes on income and capital, on August 17, 1999. The treaty provides for the exemption of income in the source country or the granting of a tax credit in respect of foreign taxes paid by the country of domicile.
Typically, Russian companies will pay a 35 percent tax on profits, plus a 20 percent VAT tax, and a 40 percent tax on social security and employee benefits, in Russia. However, when a Russian business is structured in such a way that a Cypriot company owns it (which does not require a physical presence in Russia), all the profits will be legally transferred to Cyprus and subject to only 4.5 percent tax on profits and 15 percent VAT tax. Russian businesses escape a 40 percent tax on social services. This tax advantage makes it possible to distribute profits in the form of dividends at lower rates.
For example, a Cypriot Holding company can be used for international investment purposes. Basically, it is the use of tax incentives and treaties to avoid double taxation. The most important advantage of a Cypriot Holding Company is that dividends received by foreign companies can flow completely tax-free in Cyprus through the Holding Company, in this way avoiding paying taxes on dividends. Furthermore, payments made to Shareholders who are not Cyprus Residents are tax-free (0), so that Shareholders receive dividends completely tax-free.
Payment of interest on loans is another profitable method for Russian businesses. Under the Cyprus Law, Russian Companies are partially owned by Cypriot Companies and pay interest on loans to Cypriot companies, effectively minimizing their taxes. However, interest payments will not necessarily be paid to the Cypriot Company. This is the most effective method that allows Russian companies to avoid almost all of their tax payments.
A Russian business structured into a Cypriot company in order to maintain its business activities on Russian territory, can transfer income earned in Russia abroad in the form of dividends and interest, with considerable tax savings. Companies registered in the Cyprus jurisdiction pay lower taxes than those paid in the Russian jurisdiction.
All the structures mentioned above are based on “Cyprus economic zoneFrom perfect tax and legal deductions, further tax advantages can be increased even more when, under certain circumstances, it is combined with other jurisdictions in the appropriate legal structure.
In the last 30 years, Cyprus Law Firm has developed into a leading international business and financial center due to the highly favorable tax regime that the island has to offer. Cyprus’ entry into the European Union as a full member in May 2004, established Cyprus as a prestigious, stable and attractive jurisdiction.
Although the offshore company status has been abolished since January 1, 2003, a tax regime favorable to international investors has been maintained. In addition, the liberalization of investment originating from non-EU countries and the abolition of the maximum and minimum percentages of participation in investment in all sectors of the economy in October 2004 (unless otherwise provided for by law), have turned Cyprus into a major destination for locations. international companies, holding companies and investments around the world.
Contact:
Olga Kosareva, NCI . Legal Group
Olga@NCILawgroup.com
T: +357-22-680670
Author: Ioannis John Neocleous