Russia’s finance ministry said on Monday it would scrap an agreement with Cyprus aimed at avoiding double taxation after talks to modify the deal failed, and that legal changes would make it more profitable for people to transfer money back to Russia.
The Mediterranean island has been an important destination for Russian business people because of its light regulation and taxes. A double taxation treaty with Russia had provided attractive incentives for Russians to use Cypriot banks.
Earlier this year, President Vladimir Putin said all interest and dividend payments that leave Russia should be subject to 15% tax, up from the current level of 2%, to combat capital outflows.
In a statement, Deputy Finance Minister Alexei Sazanov said that talks with Cyprus on changing the agreement in line with Putin’s request had failed.
“Unfortunately, today we have to admit that the talks did not yield results,” he said.
“Restructuring one’s holding structures through Cyprus will of course become disadvantageous. It will be more advantageous to transfer everything back to Russia.”
Sazanov added the ministry was working on improving the Russian legislative framework to facilitate the transfer of holdings to Russia.