Russian – Cypriot Double Tax Treaty (Part. 3 – Resolution)

Government corridor

After a series of extended negotiations on the renewal of the Treaty for the avoidance of Double Taxation (“DTT”) between the Republic of Cyprus and the Russian Federation, the two countries managed to reach a conclusion which symbolizes the end to the uncertainty created by the Russian Government’s intention to terminate the DDT.

What was the final outcome?

This can be summarized to the amendment of two (2) essential elements of the Double Taxation Treaty, namely:

a) The increase of withholding tax on the dividend to 15%, and

b) The increase of withholding tax on the interest to 15%.

On the other hand, the Cypriot side managed to establish, inter alia:

a) A withholding tax exemption for Regulated Entities, such as Pension Funds, Insurance companies and Listed Companies with certain shareholders’ classification;

b) A withholding tax exemption of interest payments on Corporate / Governmental Securities and Eurobonds.

c) The rate of 0% withholding tax on royalties.

Future developments:

Both sides aim to sign the new DTT this Autumn, so as to apply from January 2021, while the Russian side assured that it will revoke the termination procedures of the DTT and that the same provisions will apply to other Country Counterparties in relation to the same subject.

The new DTT will allow the government of the Republic of Cyprus not to lose the competitiveness of the tax framework, to close an open front in the economy, and to focus on addressing the macroeconomic and fiscal challenges posed by the pandemic. Conversely, the Russian side is seeking, in this way, to increase the public revenue in a period of revenue loss from the international downward trend of oil and gas and the pandemic.

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