Experts: Termination of Cyprus tax treaty will not affect the crypto industry

From August 3, the Russian Ministry of Finance began the process of terminating the agreement with Cyprus on the avoidance of double taxation.

In March, President Vladimir Putin proposed scrapping the preferential tax rates “for those who bring their income as dividends to overseas accounts.”

In April, Russia sent the Cypriot authorities a proposal to raise the tax rate on dividends and deposit interest to 15%.

Cyprus put forward its terms. The Ministry of Finance did not specify what they were; however, it said that they would “blur and render unattainable the expected effect of the measures designed to support the national economy and social programs.”

The ministry also noted that the terms proposed by Cyprus would facilitate “a tax-free outflow from the Russian Federation through the Cyprus jurisdiction of substantial financial resources of Russian origin.”

That the sides would not reach an agreement was expected, said Yuri Brisov, a member of the Commission on Legal Support for the Digital Economy of the Moscow Branch of the Association of Lawyers of Russia.

«Therefore most Russian companies that have specifically structured their tax chains taking Cyprus into account have already considered or moved to other jurisdictions,” he said.

According to Anton Kravchenko, CEO of Xena Financial Systems, the termination of the Cyprus tax treaty will not affect crypto-industry participants:

«Cyprus is not a key jurisdiction for the cryptocurrency market. There are no large exchanges in Cyprus, nor groups of companies with a primary focus on cryptocurrencies.”

Dmitry Machihin, CEO of Pay Super, also agrees.

«Cyprus does not grant cryptocurrencies an official status. The companies operating there are mainly registered as funds and use cryptocurrencies as one of the asset classes,” he said.

Yuri Brisov also noted that there are not many cryptocurrency and blockchain projects with Russian participation in Cyprus.

«Switzerland, Liechtenstein, Estonia, Malta are much more popular in this regard,” he said.

Other experts noted that cryptocurrency companies are not part of the Cyprus double taxation avoidance agreement, under which the denouncement process has begun.

Overall, breaking the agreement would negatively affect doing business with Cyprus and could push toward other jurisdictions because of double-taxation risks, according to Antonina Levashanko, head of the OECD standards competence and analysis center at RANEPA under the President of the Russian Federation.

Senior tax-practice lawyer at Bryan Cave Leighton Paisner LLP and Moscow Digital School lecturer Dmitry Kirillov stressed that as long as a final point in the Russia-Cyprus negotiations has not been reached — on August 3 the Cyprus Ministry of Finance stated that the final round of negotiations on this issue is scheduled for 10-11 August.

«In any case, owners of cryptocurrency and other businesses operating through Cypriot companies will have to consider restructuring their setups and diverting financial flows to more attractive jurisdictions,» Kirillov concluded.

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