11/01/22

MALTA: Russia places jurisdiction on blacklist of offshore jurisdictions.

As published on newsbook.com.mt, Tuesday 11 January, 2022.

The Russian finance ministry has included Malta in a draft blacklist of ‘offshore’ countries, which will deprive some of Russia’s largest companies of government support from next year unless they repatriate money invested abroad.

Previously Malta had been excluded from the blacklist after the two countries signed an agreement on the avoidance of dual taxation and prevention of tax evasion with regard to income tax in 2014.

However, according to reports in Russian media, Malta has been included in the blacklist as President Vladimir Putin attempts to curb murky tax avoidance schemes.

The move will see Russia ban businesses with significant offshore ownership from receiving government support as part of Moscow’s ongoing campaign to push Russian firms to bring their corporate headquarters back home.

Malta has been included on the blacklist together with 56 other countries which offer favourable corporate tax rates, including Cyprus, Ireland, Switzerland, and US states Delaware and Wyoming.

Russian firms in which offshore entities have a stake of at least 25% will not be eligible for emergency coronavirus relief or low-interest government-backed loans from 1 January 2023, the Russian finance ministry said.

In recent years, Moscow has taken steps in recent years to clamp down on Russian companies registered abroad in low-tax jurisdictions.

Analysts see the move as motivated both by a desire to bring funds back into the country — in line with international attempts to frustrate the use of low-tax jurisdictions by the world’s largest companies — and subjugate Russian firms to Russian laws and courts, and bring them under the Kremlin’s control.

Malta-based companies pay the lowest tax on profits of any country in the EU. Local businesses pay a 35% tax on profits, but foreign corporations pay as little as 5% thanks to a complex system where shareholders can receive a tax refund of up to six-sevenths of their tax paid in Malta. The average rate in the EU is around 22%.

Last year, Malta agreed to the global tax rate but holds reservations when it comes to companies which register €750 million or more in profit and corporations operating in certain sectors.

Multinationals registered in Malta could end up paying a 5% tax rate on the island and the remaining 10% tax to be paid in their home country, if the agreement is enforced globally.

Moreover, a large number of prominent Russian businessmen and politicians acquired Maltese citizenship, including the founder of search engine Yandex, Arkady Volozh.

Members of the Russian business elite have benefitted from Malta’s cash-for-passport scheme, and allowed them to move billions of rubles out of Russia.

These include several top Moscow real estate developers, a co-founder of the Kaspersky cybersecurity company, the heads of Russia’s biggest gold producer and one of the biggest energy utilities, one of the top owners of agricultural land, and the owner of Russia’s leading private vodka distiller.

Other notable Russians who became Maltese citizens are Boris Mints – chairman of the Board of Directors at the investment company O1 Group, Dmitry Doykhen and Nikolay Fartushniak – the founders of the leading sports equipment store chain, and the former governor of Amur Oblast, Leonid Korotkov.