Good times are over. Russian owned Cyprus companies will have to prove their real economic activities within the country.

On Thursday, February 7, the government of the Russian Federation approved the draft law on ratification of the Organization of Economic Cooperation and Development (OECD) Multilateral Convention to Implement Tax Treaty Related Measures (MLI). From that moment it will become more difficult to gain tax benefits in transactions with foreign companies.

The aforesaid convention concerns bilateral agreements on the avoidance of double taxation which companies can use in tax avoidance schemes.

We would like to point out that among other countries Cyprus ranks at the top regarding investments in the Russian Federation, and in accordance with expert estimates, about 40% of Russian non-resident companies registered solely for the purpose of optimizing taxation are located in Cyprus.

These amendments, first of all, are aimed to tighten the rules of taxation and information sharing, the essence of which is to combat the possibility of using Cyprus companies for tax evasion. Thus, owners of the companies will have to prove the fact that the main purpose of registering their companies in Cyprus is not to receive tax remissions. Those who will not be able to prove this will not be able to perform money transfers to their Cyprus companies.

On the other hand, for Cyprus, the above-mentioned changes will be another measure to improve the situation of the country in terms of international anti-money laundering legislation.

It should be also noted, that apart from Cyprus, Russia plans to apply MLI to amend agreements with another 71 countries.

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