What does this mean?

It should be emphasized at once that the DTTs have not been suspended in full, but only to the extent that they allow a reduced tax rate or full exemption from taxation in Russia.

This means that income received by individuals and legal entities that are not tax residents of Russia from sources in Russia will be taxed under the general procedure established by the Tax Code at the following rates:

For individuals*:

• Certain employment income (for example, for highly qualified personnel) – 13% and 15%;

• Interest on deposits in Russian bank accounts – 13% and 15%;

• Dividends – 15%;

• Other income (including coupons, interest and sale of real estate) – 30%.

For legal entities*:

• Dividends – 15%;

• Other income – 20%;

*The list of rates is incomplete and provided for informational purposes only. The applicable rate depends on the specific type of income and the status of the recipient, and must be assessed on a case-by-case basis.

Accordingly, if an individual has lost Russian tax resident status and has acquired residence in a country with which the DTT provisions have been suspended, their income from sources in Russia will be subject to more burdensome taxation.

Are there any positive developments?

On the positive side, the suspension of the DTTs did not affect the provisions that allow Russian tax residents to credit in Russia the tax paid in a foreign jurisdiction with which the suspended DTT had been concluded.

Thus, if, for example, an individual who is a tax resident of Russia received income from renting out real estate in Spain, the tax withheld in Spain may be credited in Russia when declaring that income.

It should also be emphasized that the suspension of only part of the DTT provisions, rather than the suspension of the DTTs in their entirety (as, for example, with the DTT with Latvia), will have virtually no effect on persons controlling CFCs. Since the DTTs, albeit only in part, remain in force, controlling persons still retain the ability, for example, to claim an exemption from CFC profit taxation on the basis of the so-called “effective tax rate”. Moreover, controlling persons may still refrain from submitting an audit report together with the financial statements, unless otherwise provided by the personal law of the CFC. However, it is necessary to await official guidance from the tax and financial authorities.

Which DTTs exactly have been suspended?

Australia, Italy, Slovakia, Austria, Canada, Slovenia, Albania, Cyprus, the USA, Belgium, Lithuania, Finland, Bulgaria, Luxembourg, France, the United Kingdom, North Macedonia, Croatia, Hungary, Malta, Montenegro, Germany, New Zealand, Czech Republic, Greece, Norway, Switzerland, Denmark, Poland, Sweden, Ireland, Portugal, South Korea, Iceland, Romania, Japan, Spain, Singapore.

To what extent have the DTTs been suspended?

As stated in the Decree, the suspension will last “until the foreign states remedy the violations they have committed of the economic and other lawful interests of the Russian Federation, the rights of its citizens and legal entities, or until these DTTs cease to apply in respect of the Russian Federation.”

What should be done?

For individuals who are non-residents of Russia and receive income from Russia, it is necessary to consider restructuring the ownership of Russian assets. For example, the assets may be transferred into trust management to a person from a “friendly” country.

For individuals who are tax residents of Russia and hold Russian assets through “unfriendly” persons, it is also necessary to consider changing the ownership structure and the payment of income from sources in Russia.

ALPINE Tax specialists are ready to assist you in analyzing the above issues and concerns, as well as to work out possible ways to resolve them in each individual case.