Russian and Cyprus companies

On September 18, 2014 at the Hilton Hotel in Nicosia, the Cyprus-Russia Business Association, Withers LLP and Chryssafinis & Polyviou LLC organized a conference entitled “The future of Cyprus for Russian companies”. To quote an excerpt from the recent conference:

The rules of Russian controlled foreign companies (CFC) and the relocation strategy that are affecting Cypriot structures. The implications of these rules will become more apparent in the long term as in the present more Russian companies are still using cyprus as their base of operations.

I think that statement hits the nail on the head firmly, ‘at PRESENT most Russian companies STILL use Cyprus as their base’. It makes no mention of the situation after the CFC rules are implemented. I think this year we have already seen some Russian companies wind up in Cyprus, however there still seems to be a ‘let’s wait and see’ thing. attitude that prevails here in Cyprus, and this can only increase the detrimental impact of the CFC legislation.

Unfortunately for Cyprus, the rest of Europe is not ready to sit back and wait, they not only offer advice on how to mitigate the effects of the Russian CFC rules, but also actively promote them in an attempt to attract business outside of Cyprus. CFC can be seen as a challenge for Cyprus and a great opportunity for those countries that have always envied the strength of Russian and Cypriot cooperation. Opportunities do not really come to those who wait, they are seized by those who dare to attack, and we are already under attack!

The point is that CFC will have a big impact if it is left as a weapon in the hands of our competitors, who already present themselves as the saviors of Russian businessmen, and show that Cyprus does not seem to have any adequate solution to relocation. ! The only written advice I have seen so far in Cyprus is that a private listing on the ‘Startup Market’ would be an easy route to alleviate potential problems for Russian residents and protect businesses here in Cyprus. However, the ECM is generally viewed as a “unregulated market“as it is not subject to the obligations imposed on regulated markets by the Cyprus Securities and Exchange Commission (CySec).

This may or may not be the reason why the UK HMRC Say this about the Cyprus ECM: ‘The Cyprus Stock Exchange has opened a new market called the Emerging Companies Market. This market will be a Multilateral Trading Facility (MTF) and securities admitted to trading on this market will not meet HMRC’s definition of ‘listed’.

I would assume that if Mr Putin seeks to collect more tax then he will follow the British and refuse to accept a listing on the ECM for meeting the requirements.

Regardless of what the media and other governments say, the banking world outside of Cyprus is not in the healthy position that the rest of Europe would have us believe. Cyprus is at the forefront of correcting past banking mistakes and should combine this strength with some practical steps to reassure the business world that measures are already in place to maintain the security and tax efficiency that Cyprus has always provided them in the past.

There is a fully compliant way of dealing with CFC legislation that has been tested across Europe and is now available in Cyprus. Private placement life insurance has certain advantages over a trust, but it can be used to add substance to an existing trust if necessary.

Some of the more astute corporate service providers here in Cyprus are now taking active steps to at least inform their clients that they have a fully compliant solution available to them in Cyprus and that they are ready to take action as soon as necessary. This not only strengthens your relationships with existing clients, but also acts as a strong proposition to attract new business to Cyprus.

The CFC legislation is a threat to Cyprus and now is the time to take action. Please don’t sit by and let the rest of Europe ‘support’ our businesses here the same way they did our banking sector!