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28.09.2020
Double Taxation Treaties - New Tax Rates
28.09.2020

Double Taxation Treaties - New Tax Rates

On 25 March 2020, the Russian President proposed to renegotiate some of the Double Taxation Treaties (DTT) between the Russian Federation and several countries to introduce the 15% tax rate for dividend and interest incomes, while the majority of DTTs allowed the application of 0% – 10% tax rate under certain conditions.

The first results of the negotiations regarding the amendment of the DTTs were achieved by the end of September and will affect the DTTs with Cyprus, Malta and Luxembourg.

1. CYPRUS – RUSSIA DTT

The additional protocol signed on 08.09.2020 (Protocol)1 to the current DTT between Russia and Cyprus2 (Cyprus-Russia DTT), provides the following amendments to the taxation of the dividend and interest incomes:

  • 15% tax rate on dividend payments instead of current 5% (in some cases – instead of 10%);

  • 15% tax rate on interest payments instead of current 0%.

The 5% tax rate on dividend payments may be applied by some legal entities and state authorities, which are listed in the amended article 10 (“Dividends”) of the Cyprus-Russia DTT:

  • insurance companies and pension funds – tax residents of Russia or Cyprus;

  • Government of Russia or Cyprus, or other state authorities of Russia or Cyprus;

  • Central Bank of Russia or Cyprus;

  • other tax residents of Russia or Cyprus, listed in the article 10 of the Cyprus-Russia DTT.

According to the Cyprus-Russian DTT, the standard tax rate on the dividend and interest incomes shall be 15% starting from 01.01.2021.

The 0% tax rate on interest payments can be applied to the legal entities and state authorities listed in the article 11 (“Interests”) of the Cyprus-Russia DTT:

  • insurance companies and pension funds – tax residents of Russia or Cyprus;

  • Government of Russia or Cyprus, or other state authorities of Russia or Cyprus;

  • Central Bank of Russia or Cyprus;

  • Banks – tax residents of Russia or Cyprus.

This tax rate can be also applied to the following securities, owned by the tax residents of Russia or Cyprus:

  • Eurobonds;

  • Government bonds;

  • Corporate bonds.

The 5% tax rate on interest payments can also be applied in some cases, named in article 11 of the Cyprus-Russia DTT.

The amendments to the Cyprus-Russia DTT, provided by the Protocol, will be effective from 01.01.2021.

2. MALTA, LUXEMBOURG AND OTHER COUNTRIES

According to the Ministry of Finance of the Russian Federation, Malta and Luxembourg has also agreed to amend the DTTs with Russia and to apply the 15% rate on the dividend and interest incomes. The amendments will probably be the same as those provided by the Cyprus-Russia Protocol. The current DTTs with these countries provide:

  • Malta: on dividend payments, the tax rate is 5% (in some cases – 10%); on interest payments, the tax rate is 5%;

  • Luxembourg: on dividend payments, the tax rate is 5%; on interest payments, the tax rate is 0%;

Russia will most likely amend its DTTs with Malta and Luxembourg, raising the tax rate on the dividend and interest incomes to 15%.

According to the information from the various Russian authorities, the Russian government is also going to start negotiations with the Netherlands, Switzerland and Hong Kong regarding the amendment of the acting DTTs.

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This newsletter shall not be viewed as legal advice. It is prepared for educational and informational purposes only. Mosgo & Partners is not responsible for any consequences of reliance on the information contained in this newsletter without specific professional advice.

© Mosgo & Partners. Moscow, 2020.


Protocol on amending of the Agreement between the Government of the Russian Federation and the Government of the Republic of Cyprus for the avoidance of double taxation with respect to taxes on income and on capital, dated 05.12.1998, signed in Nicosia on 08.09.2020.

Agreement between the Government of the Russian Federation and the Government of the Republic of Cyprus for the avoidance of double taxation with respect to taxes on income and on capital, signed in Nicosia on 05.12.1998.

Maxim Vaskin
Maxim Vaskin
Associate
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