This article talks about the close financial relationship between Cyprus and Russia which goes back to the 1990s. In particular there are large amounts of Russian money invested in the smallest economy of the euro zone. There is about $31 billion of money in Cypriot bank accounts , $12 billion from banks and the rest $19 billion from business and individuals. Cypriot banks have also loaned out about $40 billion to Russian companies which are based in Russia. The Germans suspect that most of the Russian money in Cypriot banks is from ill-gotten gains.
The reason why there is so much of Russian money is because Russian business take advantage of low corporate tax rate and favorable tax rates for profit and dividends in Cyprus. Another reason is Russia's tax treaty with Cyprus which means that a firm will not be taxed in both places. Another quite important reason why banks are full of Russian money because Cyprus doesn't ask many questions about the origin of their money, while other countries are more careful and go under full dept as to where the money arrived.
This bailout deal is going to hurt many Russians, those with more than 100,000 euros are expected to pay 9.9%. Which means that Russia would lose around $3 billion. Cyprus has already taken a loan of about 2.5 billion euros from Russia and have asked for ab additional 2 billion euros. This tax on savings is surely going to make the Russians think again weather they want to loan out another 2 billion euros to this country.
Now looking at this situation there is obvious fear that business would not be willing to invest in Cyprus and they will move their money somewhere else. Even though many measures have been put in place to stop the money from flowing out but most of it has already left.
http://www.bbc.co.uk/news/business-21831943
The reason why there is so much of Russian money is because Russian business take advantage of low corporate tax rate and favorable tax rates for profit and dividends in Cyprus. Another reason is Russia's tax treaty with Cyprus which means that a firm will not be taxed in both places. Another quite important reason why banks are full of Russian money because Cyprus doesn't ask many questions about the origin of their money, while other countries are more careful and go under full dept as to where the money arrived.
This bailout deal is going to hurt many Russians, those with more than 100,000 euros are expected to pay 9.9%. Which means that Russia would lose around $3 billion. Cyprus has already taken a loan of about 2.5 billion euros from Russia and have asked for ab additional 2 billion euros. This tax on savings is surely going to make the Russians think again weather they want to loan out another 2 billion euros to this country.
Now looking at this situation there is obvious fear that business would not be willing to invest in Cyprus and they will move their money somewhere else. Even though many measures have been put in place to stop the money from flowing out but most of it has already left.
http://www.bbc.co.uk/news/business-21831943
ie money laundering. The Russian mob has played a very important role in the financial sector of Cyprus. Due to the Cypriot discretion in accepting funds, and the somewhat remote location, it makes the perfect, and literal, offshore banking situation. I would really be curious to see the future political influence of the Russians if and when Cyprus is revived and reforms its regulation of the financial sector.
ReplyDeleteThat is absolutely true , because they Cyprus government has reached a conclusion in which they would levy some percentage on the accounts more than 100,000 euros which is going to hurt the Russians.
ReplyDelete