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15 September, 2020

The Government of the Russian Federation has approved amendments to the tax agreement with Malta.

The Russian Government has approved draft amendments to the Double Taxation Agreement (DTA) with Malta. The new terms provide for an increase in the tax rate on dividends and interest to 15%. The document also includes exceptions for a number of companies.

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The relevant order was signed by Russian Prime Minister Mikhail Mishustin.

Rate increase and exceptions

A preferential tax rate of no more than 5% will be maintained:

  • dividends and interest payments from insurance and pension funds;
  • dividends and interest payments of public companies listed on a registered stock exchange. There are 2 conditions for such companies:
  1. ownership of at least 15% of the capital of a business that pays dividends for at least 1 year;
  2. 15% of the shares of such companies are in free circulation.
  • Interest from government, corporate and Eurobonds that are listed on the registered stock exchange.

The exceptions are due to the absence of risks. It is assumed that organisations that meet these conditions do not use foreign jurisdiction for tax evasion.

All other income that is transferred as dividends, interest and royalties from Russia to Malta will be subject to withholding tax at an increased rate of 15%.

The changes are similar to those made to the Cyprus tax agreement. By doing so, the Russian side complies with the agreement on equal tax conditions with all jurisdictions.

The change in the DTA between Russia and Malta

The revision of the double tax agreement is being conducted on behalf of Russian President Vladimir Putin.

Earlier, we said that in his address on 25 March 2020, Vladimir Putin pointed to the too low tax rates that are levied on funds transferred from Russia abroad. In this regard, the President instructed  to review tax agreements with states where dividends and interest are subject to rates below 15%.

On 13 April 2020, a letter notifying the change in DTA was sent to the Government of Malta. If the Maltese side refused, the Ministry of Finance was preparing to denounce the tax agreement. As a result of the cancellation of the DTA, tax rates on dividends, interest and royalties would increase to 15-20%.

Following the results of 2019, Malta was ranked 2nd in the ranking of foreign countries where Russians become tax residents. Cancellation of the DTA would have significantly affected businesses conducted by Russian citizens on the island. Having assessed the risks, the Government of Malta decided to accept the proposed amendments to the DTA with exceptions. 

The Russian Ministry of Finance will now have to conduct final negotiations with the Maltese side and sign a protocol of amendments. It is expected that the new DTA between Russia and Malta will come into force on 1 January 2021.

Amendment of the DTA with other countries

Today Russia has double tax agreements with 84 countries. The Ministry of Finance of the Russian Federation should review all DTA and prepare draft amendments by 25 December 2020.

Changes in tax agreements have primarily affected the EU countries. On 8 September 2020, Russia signed a new DTA with Cyprus. Luxembourg has already announced that it agrees to the amendments on similar terms, a response is expected from the Government of the Netherlands. It is expected that Switzerland and Singapore will be next in line.

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The Government of the Russian Federation has approved amendments to the tax agreement with Malta.