Cyprus Crisis Burns Russian Investors
March 28,2013
For years, construction companies in Cyprus lured Russians to invest in the Mediterranean island. Over the last decade, 40,000 Russians moved to Cyprus. They now make up five percent of the population.
But the lure was more than just trading Moscow's cold winters for fun in the sun. Cyprus offered low taxes, low regulation, and the security of the euro zone.
While the glass office towers of Moscow City, Moscow's new financial district, languish half-empty, Russians now have $32 billion deposited in banks in Cyprus.
Tiny Cyprus is now the largest foreign investor in Russia, a nation with an economy 75 times larger.
Minimizing taxes
Mark Galeotti, an international affairs professor at New York University, tracks Russian money movements. He explains why some Russians have chosen to place their money in Cyprus banks. "It's been the den for all kinds of dirty money, criminal money, but also money just avoiding tax in Russia. Secondly, it has been a turntable for a lot of Russian oligarchs. Rich Russians move money out of Russia and then reinvest it to take advantage of a lower corporate tax rate,” he said.
For Russia's ultra rich, Cyprus was a key to minimizing taxes. Galeotti said Cyprus also emerged, though, as a safe banking haven for Russia's new middle class.
“It is a place where you can go, and enjoy a nice holiday and perhaps also stash a little bit of your money, so you feel you have something safely outside of Russia, just in case,” he said. “There was a sense that Cyprus gave you security, as well as a suntan.
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