10 AUGUST 2023
On the 8th August 2023, Russia published a presidential Decree with immediate effect, suspending certain main articles of 38 double tax treaties concluded with countries that are deemed as "unfriendly" (i.e. that have adopted sanctions against Russia), including Cyprus.
Russia’s Foreign and Finance Ministries had proposed the suspension back in March. Shortly before that, the Council of the European Union had added Russia in its list of non-cooperative jurisdictions for tax purposes.
The suspension was justified by Russia as necessary, citing the need for urgent measures in connection with the commission of “unfriendly actions” by a number of foreign states against the Russian Federation, its citizens and legal entities.
According to the Decree, the suspension shall apply until the “unfriendly states” rectify the violations of economic and other interests of Russia, rights of its citizens and legal entities, or until the termination of the treaties.
What does it mean in practice
The suspension concerns articles of the treaties that allocate taxing rights between the countries that are party to the treaties. As a result, it will not be possible to apply the reduced withholding tax rates and exemptions prescribed by the treaties. Thus, payments (such as interest, dividends and royalties) made from Russia to the affected countries will be subject to withholding tax at the increased rates prescribed by the Russian tax legislation.
In practice, and in light of the fact that transactions with Russia have been reduced to a minimum as a result of the ongoing situation with Ukraine, the impact of the Decree for Cyprus is expected to be negligible.
For more information concerning this matter, please do not hesitate to get in touch with your usual contact person or at [email protected].