Cyprus and Russia have reached an unexpected agreement during negotiations on the two countries' double taxation treaty, it was reported this morning.
According to Constantinos Petrides, the Cypriot finance minister, Cyprus has secured its exemption from a 15% withholding tax on dividends for regulated entities, including pension funds, insurance firms and listed companies. Interest generated from bonds will also be exempt from the 15% withholding tax.
Cyprus has long been an important destination for Russian FDI and trade. The island country was taken aback earlier this month when Russia threatened to terminate the long-established agreement between the two states.
This is very good news for Cyprus. A termination of the agreement would have proven a great challenge for our economy."
Yet hastily-arranged talks to save the treaty were brought to an end early when the Cypriot finance ministry issued a statement this week: "The goal of both parties is to sign the Agreement by Autumn 2020, so that it will be implemented on 1 January 2021."
Russia's ministry of finance also issued a statement: "Additional revenues to the Russian budget from the increase in the tax on dividends by Cyprus will amount to 130-150 billion rubles annually."
Spyros Ioannou, director and head of Tax at Primus in Limassol, told the Cyprus Mail: "This is very good news for Cyprus. A termination of the agreement would have proven a great challenge for our economy. There is no longer likelihood of an exodus of Russian businesses."
Before the breakthrough in talks, the Russian deputy finance minister, Alexei Sazanov, said, "Restructuring one's holding structures through Cyprus will of course become disadvantageous. It will be more advantageous to transfer everything back to Russia."