Pre-Cyprus financial crisis the traditional structure for Russia-based groups was a Cyprus company holding the Russian operating subsidiaries using the Cyprus-Russia DTA for the exemption from capital gains and of dividends paid out by operating companies. There was no Cyprus withholding tax on pay-outs of distributions from the Cyprus holding company.
The post-Cyprus financial crash world has dramatically changed for Russian groups:
- Due to the financial crisis many now regard Cyprus as reputationally “tainted” from a general financial point of view following the fiasco regarding bank deposits there;
- The recent Russian legislation regarding “anti-offshore” structures paints Cyprus with the same brush as many traditional tax havens;
- Negative investor concerns have arisen regarding Cyprus holding structures where there are investors in a listed “top co”; and
- A clear investor protection treaty with Russia is lacking.
The UK, by contrast, ticks all the boxes. A UK “holding” company benefits from exemption from capital gains and exemption of foreign distributions subject to conditions. The UK is one of the leading financial centres of the world and highly popular with investors.