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2012.11.03 - Cyprus: Ministry of Finance of Russia removed Cyprus from the ‘Black List’.

 

Cyprus/Russia: The wording of the regulation ‘List of the States and Territories Providing Preferential Tax System and/(or) not Requiring Disclosure and Furnishing of the Information upon Conducting of Financial Transactions (Offshore Zones)’ approved by Order 108-n of the Ministry of Finance of the Russian Federation dated 13th November 2007 included at length a mention of Cyprus. Cyprus was listed under number 15.

Simultaneously, Cyprus has been an EU member since 2004. The local legislation provides for a high-level of requirements in Due Diligence and Anti Money Laundering, and the tax legislation of Cyprus has been harmonised in accordance with the EU standards.

In addition, an Amendment Protocol to the 1998 Double Taxation Treaty between Russia and Cyprus entered into on 7th October 2010 and ratified by Russia on 15th February 2012 provides for exchange of tax information between both countries in accordance with the OECD Model Convention.

Under Order No. 115-n of the Ministry of Finance of Russia dated 21st August 2012, which was registered with the Ministry of Justice of Russia under number 25728, Cyprus was removed from the ‘black list’ established in 2007 under Order No 108-n. This fact was announced on 31st October 2012, and the Order 115-n comes into force on 1st January 2013.

International Overseas Services comments:

Obviously, a full-fledged EU Member being on any ‘black lists’ was not correct. The long-awaited correction of the legislation of Russia is likely to contribute to improvement in the investment climate between Cyprus and Russia.

This should improve the work of Russian companies using Cyprus holding structures to enter the EU countries market. With effect from 1st January 2013, receiving dividends from a Cyprus subsidiary by the Russian parent company (if it meets the Participation Exemption criteria, i.e. owns at least 50% of the share capital of the Cyprus company for at least 12 months) will be eligible for tax benefits provided for in the Participation Exemption provisions of the Russian law. Previously, this treatment was not available due to Cyprus being on the ‘black list’.

Order No 115-n should reduce administrative barriers imposed previously by Russian legislation and the Ministry of Finance on cooperation of Russian businesses with Cyprus companies due to the fact that the country is no longer on the ‘black list’ of Russia.

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