North Cyprus Property Market Opens to Russians

After months of negotiation, the Russian parliament (Duma) has voted to approve a double taxation treaty with Cyprus, making it easier for Russian citizens to buy property in the country.

The new treaty replaces the one signed between the two countries in 1998. In the past decade, Cyprus has signed several double taxation treaties in an effort to make the country attractive to off-shore enterprises and property investors. Cyprus is clearly benefiting from the present arrangement which allows it to become a base through which foreign companies can do business in Russia. However, Russian officials have expressed their intention to amend the treaty. This is the third round of talks between the two parties and negotiations are expected to continue.

Cyprus is putting great efforts into attracting offshore collective investment funds. The corporation tax rate for offshore companies of 4.25%, and the increasing number of double tax agreements with other countries, are two strong reasons for establishing a collective investment fund in Cyprus. Current legislation creates no problems for close-ended funds. A study has been commissioned by the government for drafting the appropriate legislation for open-ended funds.

Under the double tax treaty with Cyprus, investors can enjoy a 5% withholding tax rate on dividends distributed by a Russian subsidiary, rather than the regular 15% rate. Therefore, using Cypriot holding companies is one of the most typical vehicles to structure inbound investments in Russia.

Despite having numerous treaties, the signature from the Russian parliament is perhaps viewed as the most important one on the list. Scores of Western businesses have established a presence in Cyprus to trade with Russian companies and Russians are now viewed alongside the British as the most important international buyer group on the island.

Cyprus is one of the most advantageous places of residency for Russian and Ukrainian companies. It offers a high level of banking, auditing, accounting and legal services, as well as its real estates, which developed Cyprus into a successful international business and financial centre.

Some of the main factors and advantages which secure Cyprus ' attractiveness to international businesses and investments are the following: 10% corporate tax rate for business profits; No withholding taxes imposed on dividends, interest and royalties for non-residents (whether a company or an individual); Income from dividends is exempt from income or corporation tax; The attractive platform and tax regime that Cyprus provides for a holding company (i.e. subject to certain conditions full exemption from local taxation in respect of dividends received by a holding company from its local and foreign subsidiaries); The attractive platform and tax regime that Cyprus provides for international trusts; The network of favorable double taxation treaties that Cyprus maintains with more than 40 countries including Russia and most of the ex Soviet Union Republics; Tax advantages available to non-residents including non - E.U. residents; Cypriot tax regime permits losses to be carried forward indefinitely; The geographic location of Cyprus, located at the crossroads of Europe, Asia and Africa.

Ukraine balks from treaty

Although the Russian government ratified the treaty, the Ukrainian parliament has rejected a similar agreement between itself and Cyprus. The Ukrainian government believes that the old treaty between the Soviet Union, of which the Ukraine was a member, and Cyprus in the 1980s, was too generous and allowed private individuals and companies to avoid paying the appropriate level of taxes in their home country.

It has since rejected the new treaty with Cyprus and is likely to take a further six months for it to be altered and put before the country’s government again. The Cypriot parliament is also unsure of the treaty’s composition and believes that it goes against the nature of the original agreement.