Cyprus and Russia added exceptions to the tax treaty, Malta and Luxembourg agreed to increase the rate to 15%

August 14, 2020
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Cyprus and Russia made changes to the new DTA project
Photo: Adobe Stock
The new Double Taxation Agreement (DTA) between Russia and Cyprus will provide for a number of exceptions. Some companies will be exempted from tax increases in Russia up to 15%. Also, the tax rate will remain the same when paying interest on bonds.

Minister of Finance of Cyprus Constantinos Petrides announced that the amendments were agreed upon.

The tax rate will not increase for dividends:

  • regulated organizations, such as pension funds and insurance companies;
  • listed companies (whose shares are traded on the exchange).

The former will remain the tax rate in the Russian Federation for interest payments on corporate, government and Eurobonds.

Interest and dividends of all other companies that are transferred from Russia to Cyprus will be subject to withholding tax at 15%.

New tax agreement between Russia and Cyprus

The new DTA between Russia and Cyprus envisages an increase in taxes on dividends and interest in Russia from 0-10% to 15%. The Cypriot side proposed some exceptions.

The Russian side first took a negative view of the amendments proposed by the Cypriot government. Therefore, on August 3, 2020 Russia began the procedure of denunciation of DTA.

Deputy Finance Minister Alexei Sazanov (Алексей Сазанов) said that the government will not change its position on revision of the tax agreement. He expressed hope that Cyprus colleagues will still choose the second option between denunciation and amendment.

As a result, the parties were able to reach an agreement and the termination of the agreement was cancelled. Termination would be a serious problem for the Cyprus economy. Now Russian business is unlikely to leave the country.

The signing of the agreement must take place by autumn 2020 for it to enter into force on 1 January 2021. The RF Ministry of Finance plans that additional revenues to the Russian budget as a result of the new agreement will amount to 130-150 billion rubles per year.

Changing the DTA between Russia and other countries

Before making amendments to DTA, the Cypriot side demanded that Russia treat all jurisdictions equally. The Russian Government has already taken the appropriate steps.

Malta and Luxembourg have agreed to amend the tax treaties with Russia. The withholding tax rate for the transfer of dividends and interest from Russia to these countries will be 15%. It is not specified whether 一 will include exceptions in these DTA.

It is expected that the new DTA with Malta and Luxembourg will also enter into force on 1 January 2021. This is due to the unified tax policy pursued by Russia to attract funds to the budget of the country.

A letter proposing changes to DTA has already been received by the Ministry of Finance of the Netherlands. The country has been offered the same conditions as Cyprus, Malta and Luxembourg. It is expected that changes in tax relations will affect Switzerland, Singapore.

Earlier we said that Russian President Vladimir Putin stated in his address on March 25, 2020, that tax rates on interest and dividends that are transferred from Russia abroad are too low. He suggested that the DTA should be revised.

Cyprus and Malta are among the top 3 countries where Russians preferred to become tax residents in 2019. This is due not only to the loyal tax policy but also to citizenship programs for investment. We expect that they will not lose popularity due to revision of tax agreements. The main advantage of Malta and Cyprus passports is the opportunity to live, study and work in any EU country.

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