Cyprus Leader Aims To Discuss Tax Code

When Cypriot President Dimitris Christofias arrives for talks in Moscow on Tuesday, the global economic meltdown is likely to overshadow Russia's efforts to plug holes in offshore regulation.

But Christofias will also be lobbying to have Cyprus pulled from a list of 41 countries that were essentially blacklisted in January by a raft of amendments to the Tax Code tightening regulations on Russian companies repatriating their dividends tax-free.

President Dmitry Medvedev and Prime Minister Vladimir Putin will individually meet with Christofias on Wednesday, although the ongoing deadlock in negotiations means that any agreements coming out of the visit will most likely be of a technical nature.

The most significant of them is expected to be a memorandum of understanding between the Federal Service for Financial Markets and the Cyprus Securities Commission, said Renos Christoforou, an official at the Cypriot Embassy in Moscow.

A joint program on developing tourism — another big draw for Russians to the Mediterranean isle — will also be signed, Christoforou said.

Up to 200,000 Russians visit Cyprus yearly, according to the Russian Association of Tourist Agencies.

"Cyprus remains one of the biggest sources of foreign direct investment for Russia, therefore its role as an offshore haven would top the agenda for a Christofias-Medvedev meeting," said Vladimir Osakovsky, chief economist at UniCredit Bank in Moscow.

"It is paramount for Cyprus to continue to push for an easing of Russian regulations to allow freer capital movement between both countries," he said.

Last month, the Federal Service for Financial Markets issued a directive asking investment and other financial companies, including offshore players, to release the names of shareholders with stakes of more than 5 percent, Kommersant reported Monday.

For the first time, such a directive may meet little resistance, the report said, as the financial crisis has made companies, especially those relying on state bailout measures, more compliant.

And while the changes to the Tax Code do not interfere with a bilateral double-taxation treaty, experts said they did tarnish the image of a business haven that Cyprus has sought to project.

Since the early 1990s, Cyprus has drawn Russian companies and businesspeople seeking to capitalize on the double taxation treaty, which prevents earnings from being taxed in both countries and more relaxed business regulation.

Christofias will meet with State Duma Speaker Boris Gryzlov early Wednesday before his talks with Medvedev and Putin, said Christoforou, the embassy official.

The meetings will focus on furthering bilateral relations and boosting trade and financial cooperation, Christoforou said, as well as reunification of the island, which has been split into Greek- and Turkish-controlled areas.

On Thursday, Christofias is scheduled to meet with Mayor Yury Luzhkov to discuss intercity cooperation between Moscow and Nicosia.

Christofias will cap his visit with a lecture at the Moscow State Institute of Foreign Relations, or MGIMO.