Effective 1 January 2013
Effective 1 January 2013, Cyprus will no longer be on the Russian Ministry of Finance’s list of offshore zones, also known as the “blacklist”. The removal is the result of the ratification in 2012 of the 2010 Protocol to the Russia-Cyprus tax treaty that applies generally from 1 January 2013 (except for certain provisions that will
apply from 1 January 2017).

Consequently, Cyprus has become one of the preferential locations to base an (intermediate) holding company for Russian outbound and inbound investments.

Russian perspective
From a Russian perspective, the removal will have the following effect:

  • Dividends received by Russian companies from qualifying Cyprus subsidiaries may be tax exempt in Russia. Under the Russian participation exemption, subject to certain conditions, dividends received by Russian companies from qualifying subsidiaries are not subject to tax at the rate of 9% but are tax exempt in Russia. These conditions include that the Russian entity must hold not less than 50% of the equity of the Cyprus subsidiary for at least 365 days and that the subsidiary is not resident in a “blacklisted” jurisdictions.
  • Transactions between Russian individuals and/or companies and Cyprus residents will not be automatically considered “controlled transactions” for Russian transfer pricing purposes, provided the parties are unrelated and the transactions are not concluded with respect to goods traded on international commodity markets. Under Russian transfer pricing rules, a transaction is deemed to be controlled if one of the parties is incorporated or domiciled, or has tax residency, in a blacklisted jurisdiction.
  • Any other tax restrictions that may be introduced in Russia in respect of payments to residents in blacklisted jurisdictions will not apply to transactions with Cyprus residents.
  • Information exchange and transparency in tax relationships between the two countries is expected to improve, and there will be more efficient control of tax violations.

Russian blacklist – 41 jurisdictions
The 41 jurisdictions that still remain on the blacklist are: Anguilla; Principality of Andorra; Antigua and Barbuda; Aruba; Commonwealth of the Bahamas; Kingdom of Bahrain; Belize; Bermuda; Brunei Darussalam; Republic of Vanuatu; British Virgin Islands; Gibraltar; Grenada; Commonwealth of Dominica; People’s Republic of China (Hong Kong Special Administrative Region; Macao Special Administrative Region); Union of the Comoros (Anjouan Island); Republic of Liberia; Principality of Liechtenstein; Republic of Mauritius; Malaysia (Labuan Island); Republic of Maldives; Republic of Malta; Republic of the Marshall Islands; Principality of Monaco; 
Montserrat; Republic of Nauru; Netherlands Antilles; Republic of Niue; United Arab Emirates; Cayman Islands; Cook Islands; Turks and Caicos Islands; Republic of Palau; Republic of Panama; Republic of Samoa; Republic of San Marino; Saint Vincent and the Grenadines; Saint Kitts and Nevis; Saint Lucia; Separate Crown dependencies of the United Kingdom of Great Britain and Northern Ireland (Isle of Man; Channel Islands); Republic of Seychelles.

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