The Russians began to get rid of companies and other assets in Cyprus, which for a long time was considered the favorite offshore of Russian business, despite the fact that several years ago the country ceased to correspond to the formal signs of an offshore, Vedomosti writes, citing data from the Central Bank.
According to the regulator’s statistics, net direct investment (PI) from Russia to Cyprus at the end of 2020 amounted to $ 1.5 billion. This indicator is calculated as the difference between purchased and sold financial assets (contributions to authorized capital) in a particular country. The calculation does not include payments of dividends and interest on loans and credits.
Thus, we can conclude that the Russians got rid of Cypriot assets in 2020, and this trend was recorded for the first time in the modern history of Russia. At the end of 2019, the size of net direct investment in the island state amounted to $ 14.4 billion.
Direct investments are made for further return investment of funds in Russian companies. The Cyprus-based firm uses its own share capital to acquire a stake in a Russian organization, which subsequently returns the funds in the opposite direction through dividends or interest. The latter are considered to be part of the capital outflow. In 2019, according to the Ministry of Finance, more than 1.9 trillion rubles were withdrawn to Cyprus.
This approach has long been possible due to the terms of the bilateral agreement on the avoidance of double taxation (DTT). It provided for a reduction in the income tax rate on dividends at the source to five percent (instead of the standard 15), provided that the recipient is a resident of one of the contracting parties. Interest on loans was not at all subject to withholding tax. Since this year, the terms of the agreement have been revised at the request of Russian President Vladimir Putin – withholding tax rates on dividends and interest have been increased to 15 percent.