Tax haven for Russian oligarchs Cyprus seeks to change its economic model

07:10 June 9, 2022

At the end of May, the mercury is already at 30 degrees in the ground with “sour lemons” sung by novelist Lawrence Darrell in the 1950s, Cyprus, then the British colony that served as its backdrop, has since become a tax haven for oligarchs and other Russian wealth. After the collapse of the Soviet Union, more than 40,000 people left their suitcases and several yachts in the seaside town of Limassol. Cold capital is fueling the local economy and turning the island into offshore financing capable of laundering billions of rubles. The disaster, according to environmental MP Alexandra Attalides. “We want to put an end to kleptocrats who travel only for themselves, dirty money displaces pure money and true prosperity”she claims from her office in Nicosia.

Finish or try anyway. Friday in Limassol, second summit for business and investmentยป, combining the beautiful flower of finance and public authorities, worked on it. On the menu: continue to attract foreign direct investment and make the city the choice for the headquarters of global companies compared to other regional centers such as Dubai or Tel Aviv. Encouragingly, after Dublin, the Japanese financial group Mitsubishi (MUFG) decided to open its second European center in Limassol in late March.

Installations in the form of matryoshka dolls

But so far the elephant in the room still comes from Russia, a source of 25% of foreign direct investment on the island. Because Cyprus has been able to attract customers through the double taxation convention, which is a real impetus for crime for Russians seeking tax and financial asylum, with gold passports, which have been provided since 2007 to anyone investing 2.5 million euros in real estate, as well as very popular collections in the form of matryoshka dolls, which allow you to make screen companies and redirect camouflaged money to other countries, including Russia.

In 2020, Moscow will break the double taxation agreement with Nicosia, and this is a serious blow to Russian business

In 2013, this wonderful mechanism took the first shock. Cypriot banks, overflowing with Russian capital, are profiting from the debt crisis in Greece and are forced to close thousands of deposits when they do not go bankrupt. Authorities are repealing the rules on front companies. And non-European deposits of Cypriot banks – 80% of Russia’s source – are melting like snow in the sun, from 21.5 to 6.4 billion euros in ten years.

But the biggest shock will come from Vladimir Putin himself, who is determined to repatriate the capital, which has found refuge there. “In 2020, Moscow will break the double taxation agreement with Nicosia, and this is a serious blow to Russian business”, emphasizes Pascal Saint-Aman, head of the OECD tax department. In the same year, Cyprus, under pressure from Brussels, had to give up convenience passports. “With the entry into force by 2024 of the minimum global tax of 15% on corporations, they will have to create real economic activity, find meaning”continues Saint-Amanz, the main participant in the negotiations on the famous minimum tax.

Russian warnings

Since the beginning of the war against Ukraine, Nicosia has also applied economic sanctions against Moscow approved by the European Union. “We want to hit Putin, but not destroy our economy, but follow our Russian people who have lived here for decades.”, says Alexandra Attalides. In early March, Russia’s ambassador to Cyprus responded Famagusta News. “Russian tourists will not come here again. They will spend their money in Turkey. You have closed the airspace. You shot yourself in the leg “he warned before announcing the opening of a representative office in the northern part of the island, cut in two after the Turkish invasion in 1974.

We promoted the rentier economy and scared away business

Sophronis Clerides, a professor of economics at the University of Cyprus who is housed in a cafe in Nicosia, is saddened to see that Cypriot youth are seeking a career as accountants. “We contributed to the development of the rentier economy and hindered entrepreneurship and production investment”, he notes. According to him, the Russian elephant has mainly contributed to the enrichment of a narrow circle of lawyers, bankers, accountants and developers, instead of bringing greater benefits to Cypriots. “We are changing, but we also have to deal with bad practices of the past, which are still very ingrained, and with different pressures.”whispers an accountant who prefers anonymity.

And try to implement the Vision 2035 plan. “We have assets, maritime transport, tourism and young people with a good level of education. We still need to attract foreign companies, green and digitize our economy. “, developed by Alexandra Attalides. However, the upcoming arrival in Limassol City of Dreams Mediterranean, a giant casino with 1,000 slot machines and 100 tables for card games, is not really gaining momentum. Even if the project is powerful, it will attract almost 300,000 more tourists.