THE OFFICIAL visit of Russian president Dmitry Medvedev to Cyprus this week may signal a new era in economic relations between the two countries.
The visit may end uncertainty for thousands of Russian and Cypriot owned companies based in Cyprus that grew for more than three years after Russia branded Cyprus as a tax haven in 2007, and placed it in a back list together with more than 50 other countries. The authorities of these countries, failed to provide Russian tax collectors with information related to repatriated dividends from companies based in their respective territories, the Russians said. While in April 2009, Cyprus and Russia agreed to renew their double taxation agreement, the Russian government avoided to reveal its intentions regarding the time of implementation of the agreement.
The good news was brought to the island from the Russian vice minister of Economic Development Igor Manylov. The Russian government, he said on September 16 after a meeting with finance minister Charilaos Stavrakis, has issued instructions for the implementation of the new agreement.
This news was met with relief in the Cypriot business community. “While Cyprus’ inclusion in the Russian black list per se did not result in concrete repercussions, the mere fact that it was included in such a document did entail possible risks,” Phidias Pilides, president of the Cyprus Investment Promotion Agency and chief executive officer of PriceWaterhouseCoopers told the Sunday Mail. “Some sort of penalties could not have been ruled out in the future. The same time, it was causing uncertainty among enterprises in Cyprus. Consequences would be unpredictable if the situation was to continue,” he said.
“With the new protocol, Cyprus can maintain its most favoured status in its partnership with Russia,” Pilides said. This will directly benefit Cyprus’ chartered accountant bureaus and law offices, as well as banks and the financial sector in general, with a positive spill-over effect for the entire economy of the island, according to the CIPA president.
Russia is among the largest foreign investors in Cyprus, with an investment volume of €2 billion in 2008, according to official figures. In 2008, $34 billion were invested in Russia via Cyprus, while Cypriot investment in the country, the world’s largest by area, was €1.5 billion.
Spyros Kokkinos, director of the Department of the Registrar of Companies and Official Receiver said that a further boost in new company filings should be anticipated following the implementation of the new treaty. “Any double taxation treaty benefits the signatory parts,” he said. “Though one cannot predict what the impact will be in terms of new company filings and whether it will be sufficient to return to the 2007 and 2008 levels, what is sure is that it can have a positive impact and add to the rebound in new filings this year,” he said.
According to figures on his department’s website, the number of new filings in January to August 2010 was 12,139, compared to 16,101 the entire 2009.
At the same time, the implementation of the double tax agreement, will also have significant benefits for Russia. The country, which experienced a large outflow of capital after the collapse of the Soviet Union in the early 1990’s, is relying to a significant degree on investment flows from Cyprus.
Russian owned capital in Cyprus may help transform the Russian economy from a raw material producer and exporter to a leading high-tech country, capable of competing with other nations on the world market, a diplomatic source told the Sunday Mail. “There is money belonging to Russians in Cyprus who have a good insight of Russia’s economy. We cannot afford to turn our backs to them,” the source said.
