An order of the Russian Ministry of Finance with removing the Republic of Cyprus from the list of offshore zones (so-called “black list”) has been published.
The long-awaited exclusion of Cyprus from the “black list” is important from tax planning and transfer pricing perspectives since:
- Zero profit tax rate would be applicable to dividends received by Russian companies from their Cyprus subsidiaries, provided that other conditions to apply this rate are met (not less than 50% ownership held during at least 365 days). The presence of Cyprus in the “black list” disallowed to apply the zero rate, hence such dividends were taxed in Russia at a rate of 9%.
- Transactions between independent Russian and Cyprus companies would not a priori be subject to transfer pricing control regulations in Russia. Nevertheless, if Russian and Cyprus counterparties are interdependent or the subject of the transaction is world stock trade goods – such transactions would still be considered controlled.
The removal of Cyprus from the list should be effective as from 1 January 2013.
Russian and multinational companies should estimate the impact of this change at their international structures and operations. For instance, Cyprus would become more attractive holding jurisdiction for foreign investments of Russian companies, since dividends could be distributed from Cyprus to Russia without any taxation in both countries.
This article has been prepared by specialists of ABLV Corporate Services based on mass media publications. Specialists of ABLV Corporate Services provide legal and tax advise, including advise on international tax planning, establishment of holdings, trade, investment, and protection structures, purchase of real estate and other assets, as well as advise on change of residence and acquirement of residence permits. More detailed information on services provided by ABLV Corporate Services can be found at http://www.ablv.com/en/services/advisory