Cyprus: Cyprus - Russia's Business Gateway To The World

"Welcome to Cyprus", in Russian. Ten years ago, a phrase, hardly ever heard in Cyprus, now known and frequently used by almost everybody on the island. A small but symbolic change in the lifestyle of the Cypriots, but even more so, of the Russians.

The earth- shaking changes in Eastern Europe brought about far reaching new requirements and new opportunities. Yes, the doors in and out of this vast territory, for decades previously hermetically closed, were suddenly opened.

Millions of people in the ex Soviet republics were looking for ways to explore the outside world, to mingle with other peoples and to have a taste of what was, for them, forbidden fruit.

Similarly, people of the western countries and multinational business empires, found at last the opportunity to enter this formerly out of bounds territory. Investing in such volatile and dynamic new markets involved a high element of risk, but the returns could also be very high. What was needed was to find the optimum way in which to enter the new markets.

Cyprus is an island situated in the Eastern Mediterranean , at the meeting point of 3 continents: Europe, Asia and Africa. It has a long and remarkable history of seven thousand years. It became an independent Republic in 1960 after 82 years of British administration which left a strong mark on its way of life. The English language is widely used and the legal and financial system is strongly based on the British model. It has an open free market economy which has performed consistently well for more than 20 years, leading to a high standard of living for its people. Tourism has been and still is the backbone of the economy while the agricultural and manufacturing sectors make up a progressively smaller proportion. Cyprus has developed into a commercial, financial and maritime centre and this has led to the growth of related service industries. It has been the policy of all the governments in Cyprus in the last two decades to develop Cyprus as a centre for international business. The inherent advantages of the island, together with the legal and regulatory incentives introduced by its Government have attracted a large number of foreign investors, (including some of the best known giants), to use Cyprus as a base for their business. A series of political, military and other events which took place in the countries around Cyprus has strongly contributed to its development, since it has rightly been viewed as a safe base for businessmen fleeing the warring Middle Eastern countries, the destruction of Lebanon, the disintegration of Yugoslavia and finally the break up of the communist block in Eastern Europe. Cyprus, although politically and economically very much a part of the Western world, has always had remarkably friendly relations with the Soviet Union and other Eastern European countries, and this continues to date.

The advantages of Cyprus as an offshore business financial centre can be divided into two main categories. Those which are inherent in the nature of the island and its population (the Inherent Advantages) and those which are the result of specifically designed legal and regulatory measures taken by the Government of Cyprus (The Legal Advantages).

These can be summarised as follows:

Cyprus, lying as it does at the hub of three older continents, has a strategic location. This has been known for thousands of years and has been one of the reasons why so many different empires considered it important to use Cyprus as a regional base (Alexander the Great, The Roman, Byzantine, Ottoman and British Empires). Today, Cyprus may well be the easternmost bastion of the European Union and its base for the Middle East, North Africa and Eastern Europe. The island state, although certainly small, occupying 9.251 square kilometres, is a great deal larger than other well known offshore business centres. Its time zone is 7 hours ahead of New York and 7 hours behind Tokyo, allowing executives to work with the world's most important financial centres in the same working day.

The island's main international airport, Larnaca Airport, situated 50 kilometres from the capital, Nicosia, is served by a wide network of air-routes connecting Cyprus with Europe, Africa and Asia. There are frequent flights connecting with London, Athens, Moscow and other cities.

Cyprus, recognising the importance of telecommunications, has invested heavily in this sector. As a result, the island may claim to be amongst the most advanced countries in the world in this respect.

Cyprus has a well-educated work force, ranking very highly in terms of the proportion of university degree holders in relation to the population. Qualified technical, clerical and professional staff with fluency in English and other languages, including Russian, are available for employment at reasonable cost, considerably lower than that of other European offshore centres.

There are also good quality private schools which cater for the foreign speaking pupils. They offer tuition in English, French, Russian, Italian, Arabic, Armenian and other languages.

Legal, accounting, consultancy, computer and other professional firms, providing services to offshore enterprises, are of an internationally high standard.

Many of the island's lawyers are British educated, as are almost all the qualified accountants who are also members of the prestigious British Institutes of Chartered Accountants or other similar associations.

In recent years, multidisciplinary firms have been formed, grouping together all the disciplines (such as lawyers, accountants and economists) needed to provide a complete service to offshore business entities. This has greatly upgraded the quality of services available and compares favourably with other established centres.

In this respect, it is emphasised that prospective investors should be careful when selecting their consultants, to ensure that they engage a firm which can provide them with the correct advice and guidance.

There is an abundant supply of luxurious residential accommodation of all types, at remarkably low cost.

Foreign businessmen, their families and their employees, coming to live on the island will have no difficulty in selecting the accommodation which most suits their preference and needs.

Cost is obviously an important factor in business. A survey conducted by the Union Bank of Switzerland (UBS) to provide a number of rankings for some of the world's main business centres, including the best known offshore financial centres, showed that Nicosia (the capital of Cyprus) is one of the least expensive.

Cyprus has a remarkably peaceful and crime-free society. This may come as a surprise to those who tend to associate Cyprus with bad news concerning surrounding countries. Any foreigner who visits Cyprus will testify how safe it is to walk the streets, to leave cars unlocked and even windows open.

Quality of life is something which cannot easily be measured - it has to be "felt".

This combination of the characteristic features of Cyprus life gives inhabitants and foreigners alike a high quality of life. The numerous European, North American, Arab and Russian residents on the island verify this.

The liquid funds of offshore companies can be held in Cyprus or anywhere in the world and are freely convertible and transferable.

The owners of offshore companies may, if they wish, keep their identity confidential. This is achieved by the use of nominee shareholders (trustees) and directors. Cyprus, being a country which implements the English system of law, fully recognises the concept of the "trust". It is worth mentioning that the Cyprus International Trust should be considered by all those who may find the use of a trust beneficial, as it achieves complete confidentiality and is very inexpensive.

Unlike many of the other successful offshore centres, Cyprus grants residence and work permits to foreign employees of offshore companies and their families readily.

Offshore companies, their owners and non-Cypriot employees may easily acquire property in Cyprus. It should be emphasised that sound professional advice should be sought prior to signing the relevant contracts in order to minimise the risk of facing unexpected legal and administrative problems later.

The events which took place in Russia and other Eastern European countries in the last 10 years and which were undreamed of fifteen years ago are well known to everybody. A new type of Russian businessmen began to emerge from the chaotic situation that prevailed in the transitional stages. They were eager to take the opportunities being presented and were looking for ways to proceed. They needed consultancy, legal and financial "tools" and a safe base from which to conduct business and to deal with the outside world. Cyprus was the perfect location:

• Situated only 3 hours by air from Moscow, with flights on a daily basis. There is no visa requirements for Russians visiting the island.
• Already a seasoned offshore financial business centre with all the expected incentives and a well developed business infrastructure.
• An excellent location in which to spend some time as it is one of the established tourist attractions in the Mediterranean.
• A peaceful and crime-free society, enabling the unhindered development of business.

As if the above was not enough to make Cyprus the perfect meeting place between Russian and Western businessmen, there was also the Treaty for the Avoidance of Double Taxation between Cyprus and the Soviet Union, signed in 1982 and re-confirmed by the Government of the Russian Federation after the disintegration of the USSR. This Treaty provided for zero withholding taxes on dividends, interest and royalties paid from Russia to Cyprus and vice versa. This provision, coupled with the offshore business incentives offered by the Government of Cyprus, made Cyprus a unique location for east-west business. North American and Western European multinationals used Cyprus as a gateway to enter into the vast new markets of Eastern Europe. Similarly, for Russians who wanted to invest abroad, Cyprus was the ideal springboard.

As seen above, Cyprus offered many advantages to Russian businessmen wishing to enter the international markets. We have touched upon some of them, e.g.

• Proximity and accessibility
• Offshore financial centre infrastructure
• Enjoyable environment
• Peaceful and crime-free society

These were the main initial reasons which brought the first Russians to Cyprus. Once they started coming, however, they discovered that Cyprus had a lot more to offer to them. From Cyprus, with the help of local professionals as well as already established international financial institutions and trading organisations, they could enter new worlds. At the same time they felt very welcome on the island at all levels; from the Government to the layman. Furthermore, a significant number of Cypriots, who are highly multilingual, could speak Russian. Inevitably, Russian businessmen were followed by some of their best known banks who established their Cyprus Offshore Banking Units. These aimed at securing some of the Russian business on the island, as well as being a window to the international market for the Russian banks back home.

In a short span of time, Cyprus was able to accommodate the Russian newcomers. This was not always seen with a favourable eye. Some hostile reports appeared, from time to time, in the international financial press, making reference to alleged money laundering activities by Russians through Cyprus. The Central Bank of Cyprus has stated repeatedly that such reports were completely unfounded as its own experience with Russian banks and offshore companies has been very satisfactory. Certainly Cyprus is not a place where money laundering can easily take place. Offshore companies and banks are subject to close supervision by the Central Bank of Cyprus and the controls are generally much tighter than those of many other places.

Similarly, the Russian press has reported on a few occasions that the confidentiality rules in Cyprus are not strictly adhered to. This again has been strongly denied by Cypriot authorities. The most likely explanations for such reports are:

In this respect it should be strongly emphasised that the setting up of offshore companies and similar business structures, anywhere in the world, requires careful planning in order to achieve optimum results and avoid pitfalls. The basic principle should be to obtain sound advice from qualified and experienced specialist professionals. Often this requirement is not fully observed by Russian investors.

The development of the newly formed Russian community of businessmen was as rapid as the events which led to the appearance of the need for this community. The Russian economy desperately needed the mechanisms to enable it to work. The role of the Central Government was drastically diminished and private businessmen had to fill in the gaps. They developed rapidly from confused and primitive beginnings in the early nineties to the composed and confident Russian executives of today, at ease with sophisticated structures and practices.

Their expectations are becoming more demanding; from the original simple trading company to complicated international tax planning schemes.

The Cypriot offshore financial services industry was able to meet these higher expectations and the Cyprus-Russian relationship has strengthened.

Cyprus, as an established and successful offshore financial centre, compares favourably with any of the other locations offering similar facilities and incentives. However, the Treaty for the Avoidance of Double Taxation with the USSR, makes Cyprus unique in the world with regard to investing in Russia (and some of the other CIS states). The Treaty was signed in 1982 and has been re-confirmed by the Russian Federation after the disintegration of the USSR. It provides for zero withholding taxes on dividends, royalties or interest payments from Russia to Cyprus.

Cyprus, in addition to Russia, has tax treaties with 25 other countries, including the main Western European and North American countries and almost all Eastern European countries.

(i) Dividends, interest and royalties are paid by Cyprus offshore companies without withholding tax in all cases;

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