Russia and both the EU accession and remaining COMECON states have proved to be very lucrative if rather volatile investment and trading partners for Western investors. Interestingly, even the more stable EU accession states such as Poland, Hungary and the Czech Republic continue to benefit from tax treaty provisions dating back to before the fall of the Berlin Wall. In the case of Russia and the Ukraine it is vital to seek tax treaty protection preferably using the favoured jurisdictions of the Russians themselves.
Cyprus and Eastern Europe/Russia
Notwithstanding the recent financial catastrophes in Cyprus including the banking deposit ‘haircuts’ Cyprus remains a very attractive investment conduit for those wishing to invest/trade with Eastern Europe and Russia. The reason is that the tax treaties negotiated many years ago still legally afford significant benefits beyond the low Cypriot corporate tax rate of 12.5% or indeed its ability to use (as a sovereign member of the European Union) EU directives and regulations including the parent subsidiary directive 90/435, which allows dividends to be paid out without any withholding taxes or 03/49, which allows interest to be paid on loans without any withholding taxes. An example of Cypriot ‘historic’ tax treaty benefits would include the ability to invest in and develop Russian property, which provided it takes place within a 12 month period, can extrapolate tax obligations back to low tax Cyprus and then use such funds to re-invest in the EU fully benefiting from the fact that Cyprus, as stated, is a full member of the EU. It should also be noted, that it is often not necessary to use Cypriot banks for Cypriot companies even where tax treaty benefits are sought.
For more information on these benefits please contact one of our tax planning consultants.