Further to the conclusion of negotiations which took place in Moscow on 10 August 2020, Cyprus and Russia have agreed to amend their Double Tax Treaty (“the Treaty”), following the request from Russia for an increase in the withholding tax on income from dividends and interest.
In a press release issued on the same date, the Cypriot Ministry of Finance expressed its satisfaction for the conclusion of the negotiations on the Treaty, and that Cyprus managed to secure certain exemptions, detailed below.
Background
A request was made from the Russian side in April 2020 for an increase of the withholding tax on income from dividends and interest to 15% (currently the Treaty provides for withholding tax of either 5% or 10% on dividends, and 0% on interest).
After what was perceived by the Russian side as a failure of the talks with Cyprus on amending the Treaty, the Russian Ministry of Finance announced on 3 August 2020 that it would initiate the process of denunciation of the Treaty.
Further to this, negotiations were scheduled to take place in Moscow for 10-11 August, in which large delegations from both side would be involved, with the Cypriot delegation being headed by the Minister of Finance.
Results of negotiations
Further to the conclusion of the negotiations on 10 August, it was agreed that certain types of regulated entities would be exempt from the 15% withholding tax on dividends, such as pension funds, insurance companies, as well as listed entities with specific characteristics.
Moreover, interest payments from corporate bonds, government bonds and Eurobonds will be excluded from the 15% withholding tax.
In addition, the exemption from withholding tax on royalty payments will continue to apply.
The Russian side has confirmed the termination of the process for denounciation of the Treaty. At the same time, it also confirmed that similar provisions will apply to other countries with which Russia has concluded similar treaties, from the same date that they will apply to Cyprus. This should place Cyprus on an even playing field compared with such countries, and should ensure a fair approach for all affected jurisdictions.
Entry into force
It is expected that the revised Treaty will be signed during the Autumn of 2020, so as to apply as from 1 January 2021.
