Following months of speculation, Vladimir Putin, President of Russia, has ratified legislation that introduces amendments to the country’s tax code, obliging Russian owners of companies registered in offshore tax havens to pay taxes in Russia. The deoffshorization legislation obliges Russian tax residents to declare undistributed profits of controlled foreign companies; minimum profits subject to declaration will equal 50 million roubles in 2015, 30 million roubles in 2016 and 10 million roubles after 2017.
Effect on Cyprus?
As a country with a strong strategic partnership with Russia, the news of the law’s ratification has left Cypriot businessmen wondering what effect this will have on Cyprus.
“In no way is this immediately disastrous for Cyprus,” Christodoulos Angastiniotis, Chairman of the Cyprus Investment Promotion Agency (CIPA) told Gold News this morning.
Though the legislation will oblige certain Russian firms to alter their operations on the island, he continues, there is a grace period of between a few months to several years before any real action must be taken.
“The ultimate effect of the deoffshorization will depend on how many Russian firms decide to take the appropriate measures that will allow them to extend the grace period.”
Additionally, alternative options may be offered to investors to tackle the new terms, explains Christodoulos Damianou, Executive Director of Eurofast.
Speaking exclusively to Gold News, he agrees that “the bill will be quite tough on Russian residents and will bring about a major change in the outbound Russian tax landscape.”
“Therefore,” he notes, “in light of these significant changes, we are now called to improve our game in terms of restructuring options applicable to Russian investors.”
Offering such alternative options may, in fact, lead to further cooperation with Russian firms, as opposed to damaging business relations.
“If we play our cards right, the good may, indeed, outweigh the bad,” Angastiniotis adds.
Retaliation Against Sanctions?
Though commonly perceived as retaliation to Western sanctions, Russian officials have explained that the legislation is not related to political tension following the state’s involvement in the crisis in Ukraine.
“A large part of the Russian economy is linked to offshore tax shelters in one way or another. The use of offshore havens by Russian business causes large damage to the country’s interests,” Deputy Chairman of the Federation Council Committee for Economic Policy Sergei Shatirov told international media sources today.
The implementation of the law will yield an additional $3-4.3 billion in tax revenues for the Russian budget annually, he revealed, noting that, while capital outflow through offshore schemes is estimated at $200 billion this year alone, some $2 trillion has fled Russia in recent years through offshore schemes.
Deoffshorization is thus an important issue in ensuring national security, the senator said.
“I must stress that this initiative is not aimed at Cyprus – it is a general principal that Putin is implementing to repatriate funds,” Angastiniotis explains.
“Russia remains a strategic partner for Cyprus, as it has been for many years.”
SOURCE: GOLD NEWS