Russia announced the denunciation of tax agreements with Cyprus

On August 3, the Russian government announced the denunciation of the agreements on avoidance of double taxation with Cyprus. For the first time, President Vladimir Putin announced the initiative to revise the agreements in March. In the event they don’t accept the conditions of Russia on the increase in tax rates, it was planned to denounce the agreement.

A lot of time has passed since then, the Ministry of Finance has negotiated with representatives of the jurisdiction more than once, which gave hope for a new agreement. The first discussions took place on June 25, and two days earlier it became known about the beginning of the bill creation to break the same agreements with Malta. However, the text of the bill has not yet been published.

Throughout the entire period of negotiations, the parties discussed the list of persons who can get the reduced tax rate. Each time it decreased, and Cyprus ceased to be attractive as a jurisdiction for tax structuring. The Ministry of Finance argued the decision by the fact that substantial financial resources could be illegally withdrawn with the help of the island. To break the agreements, the Russian government must send a notification to the Cypriot authorities by December 31st. In this case, the preferential tax rates will expire from next year. Then the dividends transferred to Cyprus will be taxed at 15%, and the rest will be taxed at 20%.

It will involve not only payments to shareholders, but also payments for the lease of ships.

It is worth noting that Cyprus has introduced an exit tax from January 1 of this year. That is, when a company is transferred to another jurisdiction, it will be necessary to pay tax on the difference between market and tax values. It is especially worth paying attention to those organizations which have loans and intellectual property items. So, until the double taxation treaty is still in effect, it might be worth worrying about income redistribution.

You can also consider other strategies:

• Company transfer to another jurisdiction. Few places can show such favorable conditions as in Cyprus. In addition, there is no certainty that they will also not receive a letter from the Ministry of Finance soon to break the agreements. So in this case it is worth thinking a few times before doing.
• “End-to-end” approach. If a company in Cyprus was previously a transit company, then the break of agreements should not affect it. However, it should be borne in mind that the company must be officially recognized as such so that the departments have no doubts.
• Transfer to the Russian territory. This option is the most frequently discussed among entrepreneurs. In addition, many of them chose it.