Reflections on Russia – Cyprus double tax treaty

The presidents of Russia and Cyprus, Dmitry Medvedev and Dimitris Christofias have signed a new version of the double tax treaty. Cyprus is seemingly the largest foreign investor into the Russian economy: the total volume of Cyprus investment exceeds $52 billion, most of which, however, is repatriated Russian capital. Cypriot companies own many of the largest Russian companies.

Oleg Moskvitin
senior lawyer
Muranov, Chernyakov & Partners

+7 495 783-74-50

The most important amendment to the Russia – Cyprus double tax treaty concerns operations with shares of Russian companies, more than half the assets of which comprise real estate in Russia, if such companies are resident in Cyprus. Currently, proceeds from such transactions do not form the object of taxation but this will change in 2015.

This will significantly affect the costs associated with the sale of such assets, unless, of course, beneficial owners of real estate cannot find workarounds. In particular, from the literal interpretation of the revised treaty it does not follow that transactions in shares of companies which own real estate indirectly, but through the shares of closed real estate mutual funds will become taxable.

The extended version of article 26 ‘Exchange of Information’, is interesting from a procedural point of view. The fact is that the Cyprus authorities could share with the Russian side information even without the amendments. The foundation for this exchange of information was the recently changed legislation of Cyprus, including the Law ‘On the Assessment and Collection of Taxes’. Changes to the Agreement only streamline the procedure and terms for the exchange of information.

Another interesting innovation is the development of the institution of mutual aid in tax collection. The new version of Article 27 of the agreement governs the adoption of interim measures for the execution of the requests of foreign tax authorities, and also allows tax authorities to check the validity and amount of the tax requirements of one state in the courts and administrative bodies of another.