Seven months passed since Russian President, Vladimir Putin, had
first announced the plans for 'deoffshorization' of the
Russian economy and no decision has been reached on the final
amendments to the tax legislation.
Putin had originally instructed the Government to ensure that
the new tax laws were approved by the Duma until July
1st, but this did not occur. Speculators attribute this
delay to an effort to improve the bill from what the Ministry of
Finance had initially drafted.
Prime Minister Dmitry Medvedev has reportedly given instructions
to improve the bill and while the improved version was due by the
end of June, there has been no announcement of the final text of
Meanwhile, the Finance Ministry, the Ministry for Economic
Development and the Russian Union of Industrialists and
Entrepreneurs are to develop a system to stimulate the transition
of companies under Russian jurisdiction and to increase the profit
threshold beyond which companies would be subject to the law,
following their meeting with the Russian Union of Industrialists
and Entrepreneurs on June 18th. The directive includes
improving the procedure whereby companies will be recognized as
controlled foreign corporation if a Russian resident owns at least
50% of an entity plus 1 vote.
On the previous reading of the bill, as developed by the Finance
Ministry, Russian individuals and legal entities that control
offshore companies would be required to report and pay taxes on
their undistributed profits, if they had a stake of at least 10% in
an offshore company. Exempted from this reporting and tax
requirement would be companies which are either:
Listed on a recognised Stock exchange; or
Based in countries of the Eurasian Economic Union; or
Non-profit organisations and not entitled to distribute profits
to their members; or
Tax resident in a country included on the list for exchanging
tax information with Russia and pay tax at an effective rate of
more than 15%.
Deoffshorization plans are especially important to the Cypriot
services industry, given that Cypriot companies were among the most
popular investment vehicles into Russia. The impact which these
amendments to the Russian tax laws will have on the Cypriot economy
is yet unknown. It is certain that the rules of the game have
changed and Russian investors have a lot more to look for in their
investment vehicles than before.
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