Cyprus and Russia agreed on a Protocol to amend the double tax treaty between the two countries

On 10 August 2020 in Moscow, the Cypriot Minister of Finance and the Russian Deputy Prime Minister agreed to sign a Protocol to amend the existing double tax treaty between the two countries to become effective as from 1 January 2021.
The two changes agreed is the introduction of a 15% withholding tax on dividends and interest. Currently, under the treaty there is either 5% or 10% withholding tax on dividends and 0% withholding tax on interest.
Based on the announcement of the Cypriot Ministry of Finance, there are certain exemptions to the 15% withholding tax, which could be summarised as follows:

5% on dividends, if the beneficial owner of the dividend is:

• A publicly listed company, with minimum participation of the public at large
• Pension funds and insurance companies
• The Government, a political subdivision, a local authority or the Central Bank of the other Contracting State

0% on interest, if the beneficial owner of the interest is:

• Banks, pension funds and insurance companies
• Government bonds, corporate bonds and Eurobonds listed on a registered stock exchange
• The Government, a political subdivision, a local authority or the Central Bank of the other Contracting State

5% on interest, if the beneficial owner of the interest is a publicly listed company, with minimum participation of the public at large.
It should be mentioned that the withholding tax on royalties remains at 0%.

The changes in the withholding taxes to the Cyprus / Russia double tax treaty based on public announcements so far are as below (the final text of the amending protocol has not been published yet).

It is worth mentioning that Russia has assured Cyprus that Russia will introduce similar provisions in respect of other double tax treaties concluded by Russia, which provide similarly reduced withholding taxes on dividends and interest as in the case of Cyprus, so that these changes are also introduced as from 1 January 2021, thus there is a level playing field between the various treaty partners of Russia.
Countries which have 5% or 10% withholding tax on dividends and 0% withholding tax on interest are:
• Austria
• Luxembourg
• Malta
• The Netherlands
• Switzerland
• United Kingdom
Since then, the Russian Government announced that they are already in the process of making similar changes to be effective as from 1 January 2021 in the double tax treaties with Luxembourg, Malta, the Netherlands and possibly Switzerland and Hong Kong.

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