Cyprus charms: English law more than low taxes

There’s a popular notion that most of the Russian money in Cyprus banks is “mafia funds” or “dirty money” or “gangster cash.” Some is, sure enough, but hardly all and probably not even most of it (unless all Russian money is dirty by definition). First, Russia has had a double-taxation treaty with Cyprus for twenty years, so having accounts in Cyprus is apparently OK with the Russian government. Second, registering a Cyprus firm to function as the holding company for Russian subsidiaries made perfect sense (until very recently) for many reasonable, law-abiding Russian businesses.

Not so much for the lower taxes. The Russian subsidiaries will pay Russian taxes all the same. Only the dividends moved from Russia to Cyprus – from the subs to the holding co – would be taxed at 5% rather than 9%. But Cyprus law, based largely on English law, is well-suited for mergers and acquisitions, for setting up trust funds, for going public, and so on. Plus, Cyprus courts are preferable to Russian courts when it comes to commercial disputes. So no wonder that Cyprus emerged as Russia’s Delaware.

Having a Cyprus firm is not the same, of course, as keeping large deposits in Cyprus banks – the money can be (and I suspect lots of Russian money has indeed recently been) moved to other jurisdictions with Cyprus only an intermediate location. Curiously perhaps, two major privately-owned Russian companies, Lukoil and Novatek (both LSE-traded, BTW), are currently doing share buybacks via their Cyprus subsidiaries. It’s not because there’s anything “dirty” with them – it’s just a matter of legal convenience. I wonder if any of the buyback funds is stuck in the BoC or Laiki.

Now though, things must be looking up for the British Virgin Islands, the Cayman Islands and St. Kitts and Nevis. There was a Nevis Independence Movement in the 1980s – it’s about time to revive that.

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