ANNUAL MOSCOW LEGAL FORUM
The Third Annual Moscow Legal Forum, is the largest legal forum in Russia, attended by over 1000 participants, including the “Magic Circle” law firms, and “Big Four” advisory firms. John Joannides, Head of Legal & Business Development of LSTS Cyprus was invited to speak at the forum, on the Russian Deoffshorisation legislation, as amended, and solutions to Russian Deoffshorisation through Cyprus. In particular, the Cyprus Non-Domiciled Beneficiary, the Cyprus Foreign Interest Company and Cyprus Citizenship by Exemption. Round Table followed the presentation.
John Joannides is an experienced Cyprus qualified corporate lawyer specialising on all aspects of Cyprus corporate law, including restructurings, M&A transactions using Cyprus companies, redomiciliations of foreign companies to Cyprus, legal review and drafting, due diligence exercises and legal opinions. John has acted in M&A transactions on behalf of UTH Russia in the forging of the JV with Disney Channel, TATA Global Beverages, and Kamis S.A. in the highly publicised sale of the company to McCormick & Co.
The presentation delivered by John Joannides at the Forum appears below.
Following the “de-offshorisation” provisions in the Russian Tax Code (the “Code”) a Russian tax resident individual who controls a Controlled Foreign Company (“CFC”) has to pay taxes on the profits of the CFC as if these profits have been earned directly by the Russian Tax Resident.
For a Russian national individual to be considered as being a tax resident in Russia, he has to be on Russian territory for at least 183 days in the preceding consecutive 12 months.
Similarly a Russian national individual will be considered as a tax resident of Cyprus if he spends more than 183 days in Cyprus on a calendar year.
Under that tax laws in Cyprus such an individual would gain the status of a non-domicile Cyprus tax resident and would enjoy the following benefits:
- No tax in Cyprus on dividends received either from Cyprus or abroad
- No tax in Cyprus from interest received from fixed deposit bank accounts and
- No tax in Cyprus from royalties received
A Russian national can stay in Cyprus for the required amount of days and gain the non-domicile Cyprus tax resident status on the follows ways:
- Naturalisation by exception
A Russian national can obtain the Cyprus passport by investing EUR2.5mln into the economy of Cyprus for a minimum of 3 years and purchasing a residential property of at least EUR500,000.
The investments can be Cyprus government bonds, financial assets or participation on Cyprus companies, real estate and deposits in Cyprus banks or a combination of the above.
- Cyprus permanent residency
A Russian national can permanently reside in Cyprus by purchasing property of at least EUR300,000 and proving that she has a secured and steady income from outside Cyprus. A Russian national who obtained the Cyprus permanent residency status will not be able to be employed and work in Cyprus.
- Foreign interest Cyprus company
A Russian national can stay in Cyprus as an employee of a foreign interest Cyprus company and earning a minimum salary.
A foreign interest Cyprus company is a Cyprus company whereby the majority of the share capital is owned by non-Cypriot individuals (i.e. a Russian national).
A Russian national who wants to come and stay in Cyprus can establish a Cyprus company, register such company as a foreign interest Cyprus company with the migration authorities and become an employee of such company earning a middle management salary of at least EUR21,000.
The foreign interest Cyprus company method provides an easy way to be able to stay and work in Cyprus with a lower initial outflow of funds compared to i.) and ii.) but it also enhances the substance on the Cyprus company since it has employees working from Cyprus.
Substance is very important in addressing challenges by the foreign tax authorities questioning the status of the company.