The signing was the result of the campaign announced by the President of the Russian Federation on 25 March to combat the transfer of funds from Russia to offshore jurisdictions at minimum rates.
Events unfolded rapidly — within six months, Russia managed to hold several rounds of talks with Cyprus, announce termination of the DTA, persuade its Cypriot partners to accept its terms, and already publish and sign the Protocol.
What is changing?
Dividends
The general withholding tax rate will now be 15% (instead of the previous 5%).
The exemption for the 5% rate will be retained for Cypriot government bodies and banks, insurance companies, and pension funds. The exemption will also be retained for public companies — their shares must be listed on a “registered stock exchange”, and such a company must own at least 15% of the Russian company for at least 1 year.
For the most part, these exemptions are not relevant for the broad range of businesses — but public companies that went public through a Cypriot company will definitely benefit.
Interest
The general withholding tax rate will be 15% (instead of the previous 0%).
The preferential zero rate will also be retained for Cypriot government bodies and banks, insurance companies, and pension funds. The zero rate may be applied to interest paid on government and corporate bonds, as well as eurobonds. For creditors that are public companies, a rate of 5% is provided.
When does it enter into force?
The new DTA terms are expected to apply from 2021.
DTA with other jurisdictions
We would like to remind you that amendments to DTAs with a number of other countries are also being prepared:
Malta, Luxembourg — according to the Russian Ministry of Finance, the “amendments have been agreed”;
Netherlands — Russia has sent a proposal to amend the DTA, and a response is “expected by the end of September”;
Hong Kong, Switzerland — “intergovernmental approvals” are underway, and the proposal to amend the DTA with these jurisdictions is not yet ready.
How can we help?
We can assess the current ownership structure of private and business assets and evaluate the impact of the changes and the tax consequences.
We can propose options for action taking the changes into account, as well as assess the consequences of such steps.
