Russia and Cyprus signed a tax treaty on Thursday that is expected to boost bilateral business ties and reaffirm Cyprus's status as the primary source of foreign investment to Russia.
Russian President Dmitry Medvedev, on a fleeting visit to the east Mediterranean island, led a delegation which signed pacts ranging from an accord on avoiding double taxation to technology, health and tourism agreements.
"Our economic cooperation is developing very strongly, and it is not a one-way street," Medvedev told reporters after a meeting with Cypriot President Demetris Christofias.
Cyprus has a long history of links with Russia, and the former Soviet Union before that. Trade, which at one time involved bartering Cypriot wine exports for Russian tractors, is now worth billions of dollars.
With one of the lowest corporate tax rates in the European Union, Cyprus is now an important springboard for investments into Russia. Some 20.5 percent of the $262.6 billion invested there since the collapse of the Soviet Union has been via Cyprus.
Thousands of offshore companies registered on the island are Russian, which re-invest profits back into Russia. The island, with a population of less than 1 million, has about 60,000 Russian speakers and the EU's only communist head of state, Soviet Union-educated Christofias, a fluent Russian speaker.
"There is a lot of momentum to strengthen and expand our ties," the Cypriot leader said.
The tax deal effectively takes Cyprus off a Russian "black list" of jurisdictions where authorities failed to adequately cooperate with Russian tax collectors.
The agreement replaces an existing one and seeks to curb any potential loophole in Russia's attempts to tackle tax evasion. Most of the money invested from Cyprus had left Russia in the turmoil of the 1990s.
"Cyprus is perceived by our businessmen as a very convenient platform to make investments," Medvedev said.
"The amendments to the agreement on avoiding double taxation that have just been signed are aimed at making this area more predictable, transparent and understandable for the authorities regulating it."
The deal ensures that companies registered in Cyprus but with activities in Russia do not have to pay tax in both jurisdictions, and calls for enhanced exchange of information between tax authorities of both countries.
