On 10 August 2020 Cyprus and Russia agreed to amend their Double Tax Treaty (DTT) after extensive negotiations between the competent authorities of the two States and a revised protocol was signed on 8 September. The Protocol is to be ratified before the end of 2020 in order to apply as from 1 January 2021.
The Cyprus Minister of Finance stated on his personal Twitter account that “The agreement reassures economic ties between Cyprus and Russia, adding that it was an important and mutually beneficial deal.”
The Russian Federation State Secretary – Deputy Minister, Alexey Sazanov, confirmed that the negotiations with other treaty partners, such as Luxembourg, the Netherlands, Malta and Switzerland are planned to be completed on the same terms as agreed with Cyprus, and with effect from 1 January 2021, as this reflects Russia’s fiscal and tax policy to raise Government revenues.
Agreed amendments to the Cyprus – Russia DTT for dividends and interest
In accordance with the Protocol as published in the Official Gazette of the Republic, the withholding tax rate on dividend and interest payments will be at 15%, with a number of exceptions where the lower rates of 5% or 0% will continue to apply. Moreover, no amendments have been effected on royalty payments for which the zero withholding tax rate is maintained.
The Protocol allows a 5% withholding tax rate on dividends where the recipient is the beneficial owner and is:
(a) a pension fund or an insurance undertaking
(b) a company listed on a registered stock exchange with at least 15% of its voting shares in free float and which holds at least 15% of the paying company
(c) the Central Bank or the Government or local authorities or political subdivisions of the contracting state
The Protocol allows 0% withholding tax on interest where the recipient is the beneficial owner and:
(a) is a pension fund or an insurance undertaking
(b) is a bank
(c) is the Central Bank or the Government or local authorities or political subdivisions of the contracting state
(d) interest derives from listed corporate bonds, government bonds and Eurobonds.
Where a company is listed on a registered stock exchange with at least 15% of its voting shares in free float and which holds at least 15% of the company paying the interest, the withholding tax rate is at 5%.
Cyprus tax laws
Cyprus withholding tax rates remain at 0%. Cyprus will continue to apply no withholding tax on dividend and interest payments to non-Cyprus tax residents or Cyprus tax resident but non- domiciled individuals.
Applicable date for the amendments
The intention of both States is for changes in the Cyprus-Russia DTT to be effective as of 1 January 2021.
We expect the announced amendments to the Cyprus–Russia DTT would contribute to the further development of trade and economic relations between the two contracting states.
The exceptions agreed in the amending Protocol to the Cyprus-Russia DTT along with a number of the other non-tax considerations relating to Cyprus, such as the easy access to EU markets, the common law system, the asset security protection and the establishment of headquarters in Cyprus, continue to provide opportunities for inbound investments into Russia and making use of Cyprus as an international financial centre.
How We can Help
If you are a business affected by the above-mentioned amendments to the Cyprus-Russia DTT, please get in touch with us to arrange a meeting. Our expert tax team is at your disposal to discuss the effects of the amendments and to provide advice on the most appropriate tax structure.