Monthly Newsletter

The Russian Foreign Ministry’s annual report for 2007, issued March 18th, contains favourable comments on the policy followed by the Cyprus government and on Cyprus-Russian relations generally, the Cypriot government has revealed.

According to an announcement made the Cyprus government website on Wednesday, Moscow's report praised the "collaborative character of relations with Cyprus", which has allowed the substantive discussion of sensitive bilateral and international matters.

"Joint work continued on ensuring transparency in the money flow from the island to Russia and vice-versa (including investigations through the bodies of capital control and the Ministry of Justice)," the report stated.

The report also noted that the Cypriot government has suggested to the European Union that Russians should once again be allowed to enter Cyprus without the need for a visa.

In making the announcement, the Cypriot government is perhaps seeking to allay concerns within the jurisdiction's financial services industry that Cyprus has been branded by the Russian government as an uncooperative tax haven.

These fears followed reports earlier in the year that the Russian tax authority had drawn up a blacklist of territories in a bid to deter Russian companies from setting up offshore and repatriating income back to Russia tax free.

Cyprus is one of the largest sources of investment into Russia, thanks in large part to a favourable bilateral tax treaty and Cyprus's own attractive tax regime and in 2006, 21.6%, or USD28 billion, of the USD130 billion total accumulated investments in Russia came through Cyprus.

However, tax experts played down the impact of the Russian move at the time, pointing out that it is designed to catch repatriation of dividend payments from foreign subsidiaries of Russian companies, not payments from Russia to Cyprus holding companies, as is mostly the case.