Orangefield puts a vote of confidence in Cyprus with acquisition of Fidelico

After a torrid period for Cyprus, during which the Island has been battling hard to avoid the need for a bail-out primarily due to its exposure to Greek debt, things at least seem to be looking up a little for the territory as an offshore jurisdiction. 


In February the Russian Duma approved a double taxation agreement with Cyprus which will remove Cyprus from Russia’s “black list” of uncooperative territories. The black list was introduced following an amendment in the tax code which permitted the repatriation of dividends from foreign subsidiaries of Russian companies tax free, but not from countries which were on the black list.  As a jurisdiction which has historically done a lot of its offshore finance business with Russian entities, being on the black list had posed a significant problem for Cyprus.


The comprehensive DTA contains information exchange procedures based on the OECD model and preserves many of the beneficial tax arrangements that had previously existed under the existing Treaty between the two countries.  There is, however, one major change to the pre-existing Treaty which will not be so warmly welcomed by the finance industry and this relates to the taxation of capital gains on the sale of shares in real estate companies. The pre-existing Treaty provides for the country of residence of the selling entity to have the taxing right (e.g. Cyprus for Cypriot companies selling shares in Russian property companies), but under the new arrangements the gains should be taxable in the country where the real estate is situated.  This will not be good news for Cyprus, but there is a “grace period” of four years following the enactment of the DTA during which the new rules shall not apply.   Notwithstanding having had to concede ground on the property issue, it was still very much in the interests of Cyprus to enter in to the DTA and to secure the other Russian business which it conducts.


The DTA was signed as long ago as October 2010 and was (not surprisingly) quickly ratified in Cyprus, but the Russian Federation took some time before doing the same.  Even after the approval by the Duma, the wheels will continue to turn fairly slowly, as the DTA is expected to become effective only in January 2013.  Nevertheless, it is important for confidence in the long term prospects for the jurisdiction, and it appears that the positive message is working, with finance industry businesses continuing to invest in the Island.


Last month Orangefield, the mid-sized fund administrator and corporate services provider, acquired Fidelico, a Cypriot corporate service provider.  Orangefield Group now has approximately two hundred and fifty employees and its confidence in the future of Cyprus will be a welcome boost to the Island’s finance industry morale.