Russia ratifies tax treaty with Cyprus

PUBLICATIONS / Newsletters / 2012 / Newsletter February
Russia ratifies tax treaty with Cyprus
Almost two years after Cyprus signed an amended tax treaty with Russia the latter has finally ratified it. Not that it posed a major obstacle for trade between the two countries, nor for Cyprus’ booming financial service industry. Cyprus is and has been for many years one of the largest foreign investors in Russia, which is all to the credit of the superior financial services that the island offers.The ratification only solidifies the special relationship between the two countries. 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.
Cyprus has established a vast tax treaty network and negotiated substantial reductions in withholding tax rates that would ordinarily apply. To cite some examples:
Bulgaria 5%
Hungary 5%
Moldova 0%
Poland 10%
Romania 10%
Russian 5%
Singapore 0%
Ukraine 0%
US 5%
Cyprus has concluded over 50 tax treaties, an unusually high number for a low tax jurisdiction. The islands’ EU membership gives it access to the entire EU on the basis of the Parent-Subsidiary Directive, the Interest/Royalties Directive and the Mergers Directive. Many treaties with other EU member states increase Cyprus’ appeal even further. If you do business within the EU and consider investing in Eastern Europe or more ‘exotic’ destinations such as India, consider the following list:
Azerbaijan, Armenia, Austria, Belarus, Belgium, Bulgaria, Canada, China, CIS (ex-USSR), Czech Republic, Denmark, Egypt, Germany, France, Greece, Hungary, India, Ireland, Italy, Kuwait, Kyrgyzstan, Lebanon, Moldova, Malta, Mauritius, Norway, Poland, Qatar, Romania, Russia, San Marino, Serbia and Montenegro, Seychelles, Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Tajikistan, Thailand, Ukraine, United Kingdom, United States, Yugoslavia.
Our office in Cyprus will be happy to assist you .


UAE removes obstacles for free enterprise
The idea of a free market that reigns free from government interference is often feared as a dog-eat-dog world where ruthless robber barons can get away with everything. This is far besides the truth. In fact, a truly free market is the ultimate democracy where rules of proper conduct are designed and revised constantly to fit current needs. The Free Zones of the UAE can be seen as an experiment to create the ultimate business environment. Free Zone authorities are in essence companies that sell legal frameworks for proper business conduct; they have to compete with one another for clients and experience minimal government oversight. For the ‘robber barons’ to be in business they’ll have to comply with the framework of the free zone authority of their choice, guaranteeing fair conduct. Free markets are as logical, complicated and natural as nature itself.
Outside the Free Zones however the UAE is not entirely open for business. Local companies that operate within the UAE experience more rules and regulations, and many business sectors are the exclusive domain of Emirati nationals. For this reason the UAE is not ranked highest among many annually published economic freedom indexes.
Yet the UAE government is taking steps to reform the most eye catching obstacle for doing business within the UAE: the 49% foreign ownership rule. Under the current Commercial Companies Law – UAE Federal Law No. 8 of 1994 – foreigners cannot own more than 49% of shares in a local UAE business. That means that foreign entrepreneurs depend on Emirati nationals for sponsorship arrangements – a good business for some locals, but an obstruction for many foreign investors.
A proposed amendment to the Companies Law would allow a foreign ownership percentage of more than 50% in some business sectors. Which business sectors it would apply to and what the allowed percentage would be is as yet unknown. Without a doubt that will stimulate foreign investments and remove the need for a representative office in Dubai proper for companies that now operate exclusively within the Free Zone. The measure is preceded by the abolished capital requirements of 300.000 Dirhams or roughly 60.000 Euro for limited liability companies. Combined it could drastically stimulate the small business sector which is already dominated by Indian and Pakistani entrepreneurs. The net result will be an increase in investments and competition will certainly increase living standards for all.
The Freemont Group incorporates local UAE companies as well as 100% foreign owned Free Zone and offshore companies.


Amnesty for tax cheats
Not every person of wealth seeks professional legal advice to lower their tax liability legally. Plenty of less prudent citizens opt to break tax laws and risk fines and supplementary taxation. Contrary to popular belief, the chances of actually getting caught for tax cheating have always been low and remain low today. Probably the most feared tax authorities in the world, the United States Internal Revenue Service only examined 2% of out of 7 million suspected tax cheats in the year 2008. And a large number of these cheats only had to pay for the difference without getting charged. The old image of an infallible all knowing tax office clearly isn´t working any more.One strategy to raise some revenue from tax cheats is offering an amnesty at a discounted tax rate. Opponents of such amnesty are quick to respond that such arrangement would give legitimacy to tax cheats and only encourage people to do so. But could it be an acknowledgement by governments that their tax rates are simply too high? Either way, the fact remains that some amnesty programs have been hugely successful in raising revenue and that many people are happy to rectify past decisions against a reasonable fine.
The tax amnesty for UK citizens who stash money in Liechtenstein, for example, has resulted in some 2,000 people coming forward and declare their taxes. While paying back taxes from 1999 onward plus a 10% fine does not seem like a reward, it is a small prize for legalizing funds and use them back home. The UK has slightly different amnesty arrangement for British citizens with assets in Switzerland (although disputed by the European Commission) and is preparing deals with other tax havens as well.
Enforcement and scare tactics are still on the book. Frequently tax officials claim they will have full access to this or that tax haven next year, even though they said the same thing ten years ago. But just as any dog trainer will tell you: rewarding good behavior works better than punishing bad.


Ron Paul’s race for delegates
The beginning of next month is seen as a breaking point for the Republican Party´s selection of who is going to run against president Obama. On ‘Super Tuesday’ ten states will hold their primaries simultaneously. Up until this point only nine states held primaries, resulting in a joint lead of Mitt Romney and Rick Santorum. That is, in the simplified media landscape where lack of understanding of the electoral process, wishful thinking and hidden agendas have distorted the election results. In fact, it is a two man race between Ron Paul and Mitt Romney.How can that be?
The Republican Party electoral process to select candidates is far more complicated than the media would like it to be. The procedures go back to a day and age when it would take days or even weeks to go from coast to coast in the United States. Instead of holding elections, declaring a winner and sending the results to the national convention, States would send delegations of delegates. While modern technology allows for real time communication, the system of electing delegates still offers protection against election fraud at the Republican Party´s national convention.
It´s all about delegates
In order to select delegates, the Republican Party holds elections on a state level. But here it becomes confusing: every state has slightly different rules. Some hold a primary, which is basically an election, while others hold a caucus: small town or neighborhood meetings. Some states allow non-republican party members to vote in primaries. Some states will assign delegates proportionately to the election results, while others have a ‘winner takes all’ arrangement. But most importantly: in well over a third of the states, the primaries or caucus are non-binding. This means that the delegates who are elected, usually on a very local level, do not have to vote for the winning candidate on a state or national level. In a caucus set-up Ron Paul performs best: his enthusiastic supporters are infiltrating the party and changing it from within.
Take for example Iowa, the first of the nation caucus state. Rick Santorum, Mitt Romney and Ron Paul came in first, second and third within a very small margin. Main stream media divided the delegates proportionately in many of their projections. However the Iowa Republican Party takes until June to select the delegates that go to the national convention. No delegates are selected at this point, and Ron Paul may very well win a more than proportional number.
In fact Ron Paul is expected to get a majority of delegates in caucus and non-binding primary states, and of course earn many delegates in other states too. He is well in the race and positioned to win, in spite of opposite claims by some media outlets.
Romney versus Paul
With only four candidates remaining, it becomes clear that it really is a two man race between Romney and Paul. Rick Santorum is doing well, but he did not qualify to get on the ballot in a number of states. His extreme Christian views are not likely to do well in more moderate states such as California and New York, which alone make up 11% of total delegate count. Newt Gingrich is experiencing similar problems: he did not qualify to be on the ballot in several states and skeletons in his closet are starting to cast a shadow on his campaign. Voters realize that someone who cheated and left his first wife when she got cancer, and cheated and left his second wife when she was diagnosed with MS, is not a very trustworthy or admirable person.
Should Ron Paul win the election then the world’s political leaders will be in for a shock of immense proportions. A withdrawal of the American government from virtually all international institutions, an end to the Federal Reserve, an end to cheap credit, phasing out government interference in health care and retirement provisions, a return to banking privacy, just to name a few small changes. And contrary to all other candidates which have used free-market rhetoric, Ron Paul has proven through his voting record that he doesn’t mind voting against or vetoing legislation even if he is standing alone. America would once again be the beacon of freedom and prosperity to the world it once was.
And likely, after America has withdrawn its troops from the 100+ countries it has a military presence in now, Americans would once again be beloved worldwide as well.

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