A FUTURE FOR CYPRUS COMPANIES?
Events in recent years have made it increasingly difficult and expensive to operate Cypriot companies. Many businesses are now asking if there is a future for them in international corporate structures. Here we try to answer that question.
Before looking to the future, let us first, look at the past Establishing itself as an international centre for business and finance first became an important part of the Cypriot political agenda in the 1970s. For Cyprus, like many other jurisdictions with similar ambitions, the shipping industry was the catalyst for its initial development. However, it was not until the 1990s that the country truly achieved its objective. Russian business played an important role in bringing this about. Cyprus has a multitude of historic links to Russia. These and a favourable tax treaty made Cyprus the natural choice for many Russian businessmen opening their first companies abroad.
Despite the frustrations arising from certain cultural differences (Cyprus has its own pace and way of doing business), most Russian businessmen who established Cypriot companies found the arrangement worked well. Or, at least it did, for more than twenty years. Then, under pressure from the EU and OECD, Cyprus tightened up regulations in a number of areas. In 2016 all companies, including small and dormant companies, became subject to compulsory audit. Enforcement of substance requirements made it necessary to employ additional staff and open physical offices while anti-money laundering regulations have made the operation of bank accounts substantially more difficult and Russian de-offshorisation measures have brought their own dangers. All of this increased the administrative and financial cost of operating Cypriot companies. Some began to question if it was still all worthwhile. A sentiment that can only have been increased by the recent news that withholding tax benefits enjoyed under the Russia-Cyprus Double Tax Treaty are to be removed, possibly as early as the beginning of 2021.
So, in light of this, is there a future for Cypriot companies in international structures?
The answer is “Yes,” according to Maxim Sobokarev, Director at Moore ST. “For some businesses it will no longer make sense to include Cypriot companies in their corporate structures. For others, Cyprus will remain a great location. Don’t forget it is one of the lowest tax jurisdictions within the EU and it still has a very positive attitude to Russian business. The key is to carefully assess whether Cyprus is right for you particular circumstances and, if it is, to ensure you do everything possible to ensure your company there is run economically and efficiently.”