News › Weekly Alert Article

Real estate companies with Russian-Cypriot cross-border tax structures may need to rethink

The initialisation of Protocol to the Double Tax Treaty between Cyprus and Russia was successfully completed on 16th April 2009. It introduces changes regarding the taxation of capital gains resulting from the sale of shares in real estate companies.

The article on taxation of capital gains is amended to include the provision whereby Russia is being granted the right to tax company gains resulting from the alienation of shares deriving more than 50% of their value from immovable property located in Russia.

This provision shall take effect in the calendar year following a four year period from the actual date the Protocol is being enforced. This provision is not applicable to gains deriving from the alienation of shares undertaken due to a corporate reorganisation or where shares have been listed on a recognised stock exchange.

The new Limitation of Benefits (LoB) article (click here for more information) would become applicable before the four year term, so solutions involving the alienation of shares in companies holding Russian real estate could be tested earlier under the LoB provisions.

The Protocol is a comprehensive 9 page document amending a number of key articles of the Double Tax Treaty. This draft is expected to be finalised and signed by the end of this year. To find out more about the Limitation of Benefits and Exchange of Information article amendments please click here.

 

Taxand's Take

Clearly a large number of currently incorporated Russian-Cypriot cross-border tax structures may need to revise their current structures as a result of the upcoming Treaty changes. Real estate companies should be seeking advice now to plan their future restructuring carefully. To find out more your global Taxand real estate tax team is here to help. Either contact your nearest Taxand real estate tax advisor or our Russian or Cypriot experts for in-depth local insight:

Andrey Tereschenko
Russia
T. + 7 495 967 0007
E. a.tereschenko@pgplaw.ru

Roustam Vakhitov
Russia
T. + 7 495 967 0007
E. r.vakhitov@pgplaw.ru

Sophie Stylianou
Cyprus
T. + 357 22 699 222
E. sophie.stylianou@eurofastglobal.eu

Phani Tillirou
Cyprus
T. + 357 22 699 222
E. phani.tillirou@eurofastglobal.eu

Taxand's Take Author