Treaty with Russia Russia and Cyprus have signed a double tax treaty, second to none, its main purpose is to avoid the same income being taxed twice (both in Russia and Cyprus) . The treaty applies to those persons (companies or individuals) who are resident for tax purposes in one or both states by reason of domicile, residence, place of effective management or other similar criteria. The treaty includes special provisions for persons having dual residence. Income is taxed in only one of the two states, depending upon where it is derived. For example profits made in Cyprus by a resident of Russia, are only liable to taxation in Cyprus if they result from a "permanent establishment" located there. A building or construction project is considered a permanent establishment if it lasts for more than twelve months, although this time period may be extended by mutual consent. Dividends, Interest, Royalties There is no withholding tax on dividends, interest, or royalty payments between the two countries. General provisions The treaty includes articles on "non-discrimination", "exchange of information" and the "settlement of disputes" . Joint Ventures Profit of an enterprise in general is subject to tax at 35 per cent. Furthermore, distributions of the profits to non-resident investors result in withholding tax of 15 per cent. The same withholding tax applies to interest payments. Royalty payments are subject to 20 per cent withholding tax. It is immediately evident that the western investor doing business in Russia is exposed to heavy taxation on profit/dividends, royalties and interest. Entering Russia as an investor therefore warrants careful tax planning. Cyprus has a double tax treaty with Russia(see above) which provides that there is no withholding tax on dividends, interest and royalties. This coupled with Cyprus' own low-tax rate, substantially lowers the investors tax exposure(saves the 20/15 per cent withholding tax) in Russia and enables him to repatriate profits (if necessary) using Cyprus' extensive treaty network.
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