• Ilma Danielienė

Cyprus and Russia agree to change Double Tax Treaty

Updated: Aug 13

Financial relations between Russia and Cyprus have been uncertain since March due to Russia’s move to amend the Double Tax Treaty between the two countries. Russia’s intent was to add a 15% withholding tax on dividends remitted to Cyprus from Russia. Negotiations concluded this week confirm that goal, with a lower tax for regulated or listed entities.

Moscow, Russia: 10 August 2020



As stated in the Finance Minister’s Press Release, Russia had originally requested the amendment in two key elements of the Double Tax Treaty, namely the increase of the withholding tax levied by Russia on income from dividends and interest remitted to Cyprus to 15%.

According to the Cyprus Ministry of Finance, this has been agreed. This means that the tens of thousands of Russian-owned companies in Cyprus are now liable for a 15% withholding tax for any dividends or interest remitted from Russia.

However, some important exceptions were gained for regulated or listed entities, as well as for certain types of investments. The exception is that the following entities or income sources will be taxed at either zero or 5%:

  • Regulated companies such as pension funds and insurance undertakings;

  • Listed companies;

  • Interest income from corporate bonds, government bonds and Eurobonds.

Crucially, Cyprus and Russia agreed that the same terms would apply to the Russian double tax treaties with Malta, The Netherlands and other countries.

The changes are intended to take effect from 1 January 2021, assuming both sides ratify and implement the Agreement.

We would like to warn our readers of two points:

a. We only have a single source confirming this agreement: A press release by the Cyprus Ministry of Finance. It will be important to see the actual text of the revised Double Tax Treaty before concluding.

b. We do not yet know how the revised terms of the Treaty will actually be applied. Russia holds all negotiating power in this respect, as the origin of profits is located in Russia, and Russia has sovereign power to levy taxes (and decide court cases) within its own national jurisdiction.

For further information, please contact:

Philip Ammerman

Managing Director

info@navigator-consulting.com

Sources:

Amendment of the Agreement for the Avoidance of Double Taxation between the Republic of Cyprus and the Russian Federation

Ministry of Finance. 10 August 2020