Non-performing loans (NPLs) are the real headache for the Cyprus banks which were irresponsibly crediting Cyprus residents while sitting on a pile of deposits until the Cyprus financial crisis of 2013. Recently, the Bank of Cyprus has announced the sale of NPLs in the value of €1b to PIMCO to be completed in the first half of 2021, subject to the conditions.
Bank of Cyprus has managed to reduce the share of NPLs from 30% to 22% as of June 2020. The banks in Cyprus are in a difficult position as the opening and maintenance of bank accounts for the offshore companies are becoming challenging.
The Cyprus economy is hit by the COVID-19 pandemic as most of the hotels are remaining closed. The recent decision of the Russian Government to denounce the Double Tax Avoidance Agreement between Cyprus and Russia will severely affect the service industry represented by accountants, lawyers and service providers as the payment of dividends from Russia based subsidiaries of Cyprus holding companies will be taxed at 15% instead of 5%-10%.
Many Russian businesses will undoubtedly have a second thought about Cyprus as a holding company jurisdiction. Only three jurisdictions, namely the Republic of Cyprus, Malta, and Liechtenstein, are affected by the Russian Government’s decision. However, countries like Singapore are still enjoying the privilege of the reduced withholding tax rate of 5%-10% on dividends received from Russian subsidiaries.