Amendments to some agreements of the Russian Federation for the avoidance of double taxation

The proposal of the President of the Russian Federation, in a televised address from March 25, 2020, on the need to amend the agreements for the avoidance of double taxationmade by the Russian Federation in terms of dividends and interest taxation, has been partially implemented.

On August 10, Russia and Cyprus agreed to increase the withholding tax rate applied to dividends and interest to 15%. The protocol ratification is scheduled for the end of 2020, and it will enter into force on January 1, 2021.

According to preliminary information, just Cypriot public companies will be entitled to the 5% withholding tax rate with respect to dividends provided that :

  • at least 15% of their shares are in public float, and
  • the ownership share in the Russian company paying dividends shall exceed 15%.

The tax exemption  for interest paid will be reserved only with respect to Eurobond loans.

Malta and Luxembourg also agreed to amend their double tax treaties with Russia and to raise the withholding tax rate with respect to dividends and interest deriving from Russia to 15%. According to the Ministry of Finance, on August 13, the competent authorities of Russia and Malta agreed on a draft Protocol on amendments to the tax agreement, according to which the withholding tax benefits will remain only in relation to a limited list of institutional investments.

On August 5, the Netherlands received a proposal to revise the current tax agreement with Russia. The Netherlands Ministry of Finance has confirmed receipt of this proposal and its intention to discuss this issue further in the framework of the ongoing negotiations.

Russia is expected to send similar proposals to Switzerland and Hong Kong in the near future.

The Emerging Markets Group experts recommend assessing the tax consequences of these changes in advance, and, if necessary, considering restructuring assets, planning payments on loans and dividends, considering options for applying  the look through approach, changing forms of financing, and options.