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"Russian offshores": Cyprus Tax Conditions for Residents
August 19, 2020 16:11


The Ministry of Finance has prepared amendments to the Tax Code, establishing a tax rate on dividends of 5% for residents of "Russian offshore companies". Earlier, Russia achieved an increase in the preferential rate to 15% from Cyprus, Malta and Luxembourg.

The Ministry of Finance has prepared amendments to the Tax Code, according to which public and non-public international holding companies registered in special administrative regions (SAR) on Russky Island in Vladivostok or Oktyabrsky Island in Kaliningrad will be able to pay dividends on shares at a minimum tax rate of 5%.

A tax rate of 5% is applied on income received before January 1, 2029, according to the draft federal law published on the single portal of draft regulatory legal acts.

Russian companies used a similar tax regime in Cyprus, but recently Moscow and Nicosia agreed to raise the tax rate on dividends to 15%.

The amendments to the Tax Code provide that international holdings registered in the SAR will be exempt from the need to pay tax on profits transferred by their foreign divisions. International companies which divisions are involved in the implementation of projects for the extraction of minerals will also fall under the preferential treatment.

In July, the government approved a roadmap for transforming the corporate governance business climate, which will allow SAR residents to transfer profits abroad at a tax rate of 5%. Currently, only public international holding companies have a preferential rate on dividends abroad.

SAR on the Russkiy and Oktyabrsky Islands appeared in 2018 in order to attract capital from foreign companies of Russians. Currently, 33 international companies are registered in the SARs, including one fund. The overwhelming majority of them - 31 - are residents of Oktyabrsky Island in the Kaliningrad Region.

After the adoption of new amendments to the Tax Code, the number of residents should increase. “Undoubtedly, the possible tightening of requirements for companies registered in foreign jurisdictions and operating in Russia can serve as a serious incentive for re-registration in the Russian ATS,” a representative of the Directorate of the Kaliningrad Region Development Corporation told Vedomosti.

“Taking into account the information that has appeared on the conditions on which the protocol to the treaty on avoidance of double taxation between Russia and Cyprus was signed, in particular on the base rate of withholding tax on dividend payments of 15%, amendments to the Tax Code regarding taxes in the SAR will make a change of residence attractive for those companies and groups that would like to maintain the current level of taxation,” Natalia Kuznetsova, partner at Deloitte noted.

Author: Anna Dorozhkina

Tags: Russian laws taxes Russian government Russian business  

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