After a few contentious weeks of negotiations, Cyprus and Russia have reached a final agreement on their amended double tax treaty.
Russia plans to introduce a 15 percent fee on dividends paid to Russian-owned parent companies in Cyprus in order to ease the pain caused by COVID-19 pandemics and cope with the current decline in oil and gas prices.
The amended tax treaty will be signed in September and effective for income taxes on January 1, 2021. It will be a compromise in terms of tax obligations.
The deal includes an exemption for a number of regulated financial institutions, such as pension funds and insurance companies, as well as listed companies with a certain market cap.
Also exempted from Russia’s 15 percent tax are dividends and earnings from corporate and government bonds, as well as Eurobonds. At the same time, the Cypriot government vowed to keep “a 0% gains tax for these instruments.” Although, as reported by the Cyprus Mail, “any other type of Cyprus-based entities will still be able to avoid double taxation, but at a higher rate of 15 per cent.”
In general, the Cypriot government is satisfied with the possibility of a change in tax liability which states that “the existing network of Double Taxation Agreements is a priority for the government, and therefore updating them in the face of changing international conditions is imperative.”
The Russian government’s statement said it agreed that it could make “additional revenue to the Russian budget from an increased dividend tax in Cyprus of 130-150 billion rubles.” This has a clear advantage for Cyprus, as the termination of the Double Taxation Agreement could be a major challenge for the Cypriot economy. Hence, there is no longer any real likelihood of an exodus of Russian businesses. Besides amending its double tax treaty with Cyprus, Russia is looking for similar deals with Malta, Luxembourg and the Netherlands.