Nineteen years have passed since Russia first applied to the World Trade Organization (WTO). But after Russia's patriarch Vladimir Putin cleared the final hurdle last week, Russia will finally join the WTO on August 22nd. It is another milestone in the transition of the former Soviet Union, and an opportunity for investors.
In 2011, Russia was the world's ninth largest exporter, shipping $522 billion in goods and $54 billion in services to its trading partners. Last year, Russians imported $323 billion in goods and $90 billion in services. Under the agreement with the WTO, Russia has to lift or reduce many tariffs on these goods and services.
On average, the final legally binding tariff ceiling for the Russian Federation will be 7.8% compared with a 20111 average of 10% for all products. More specifically: the average tariff ceiling for agricultural products will be lowered 2.4 percentage points to 10.8%, and the ceiling average for manufactured goods will be 7.3% vs. the 9.5% average today on manufactured imports. A detailed overview can be found on the WTO website.
More importantly, foreign companies will receive market access to previously restricted sectors. Banking, insurance, telecommunications, transport & distributions will all be liberalized August 22nd or in the foreseeable future.
Russia also made commitments on government procurement arrangements, limiting corporate and agricultural subsidies and many more specific subjects.
Cyprus is uniquely positioned to benefit from Russia's liberalization policies. As we wrote in February: Russia imposes a withholding tax on outgoing dividends to most other countries of 15% and 20% on interest, but dividends to holding companies in Cyprus are taxed at a mere 5% (on investments in companies with more than $100.000 share capital). In addition, Cyprus does not tax holding companies that invest in this way; no corporate tax, no capital gains tax and no withholding tax if dividends are sent abroad. Neither does it have stringent thin capitalization rules or minimal interest requirements that could undermine the benefits just mentioned.
We have seen a steady increase in Russian clients and Non-Russian clients who invest into Russia. Moreover, any entrepreneur investing in Russia without using Cyprus would be shooting himself in the foot. Contact us today if you'd like to know more about these benefits.
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