Russia's decision is not expected to have real impact on Cyprus

Russia’s decision to suspend implementing its double tax avoidance agreements with the US and EU countries is not expected to have any real impact on Cyprus, according to tax expert and Board Member and GMS Country Leader at KPMG Cyprus Costas Markides.

The double tax avoidance agreement between Cyprus and Russia significantly reduces the tax rates on business activity between the two countries. For example, the tax on interest is 15% instead of 20%, while on royalties 0% instead of 20%. Dividends remain the same at 15%.

Following Russia’s decision, Moscow will now charge its own tax rates.

Markides said it was extremely important to note that the agreement has been suspended and not cancelled altogether, and that the suspension is one-sided.

“The suspension is unilateral on the part of Russia; Cyprus continues to implement the agreement,” he told InBusinessNews. “It is also worth noting that suspension does not mean cancellation. I mean, with the return to pre-war Cyprus-Russia relations, we will not have to re-enter negotiations from the beginning, but a decision will be made instead to place the agreement back into force.”

In terms of how the suspension affects Cyprus practically, Markides explained that all companies receiving payments from Russia will be charged the increased rate of 20% instead of 15% in terms of interest, and 20% instead of 0% on royalties, while nothing will change regarding dividends.

The revenue from these increases will end up in Russian state coffers.

At the same time, said Markides, this means there will be huge delays and additional paperwork when it comes to transactions.

But overall, he added, Moscow’s decision is not expected to have any considerable impact on Cyprus or its competitiveness, given that since the war in Ukraine, business activity with Russia has been reduced to a minimum.

Also, this is not just something that has affected Cyprus but all European countries, which are also having to deal with the suspension.

“Therefore, it is not affecting our competitiveness or our economy because it is something that applies for all countries, not just Cyprus,” Markides concluded.