Protocol amending the Cyprus - Russia Double Tax Treaty (DTT) / Сообщение Минфина Кипра

Scope

The Protocol to the Cyprus-Russia DTT which amends the withholding tax rate on dividend and interest payments was agreed yesterday by the competent authorities of the two States.
According to the press releases of the two sides, the withholding tax rate on dividend and interest payments will be 15%, with a number of exceptions where the lower rates of 5% or 0% respectively will continue to apply. No amendments have been effected on the provisions regarding royalty payments.
It is the intention of both States for the Protocol to be signed in autumn 2020, its ratification to take place before the end of 2020 and the above amendments to be applicable from 1 January 2021.
The Russian government is in the process of negotiation of similar amendments to its tax treaties with Luxembourg and Malta. Negotiation with the Netherlands is also being initiated.

In detail

Agreed amendments to the Cyprus - Russia DTT for dividends and interest
Following the address of the Russian Federation President Mr. Vladimir Putin on 25 March 2020, the Russian Ministry of Finance (MoF) sent a request to the Cyprus MoF to initiate negotiations for amending Articles 10 (dividends) and 11 (interest) of the Cyprus-Russia DTT (signed in 1998 and subsequently amended by a protocol signed in 2010) proposing to amend the withholding tax on dividend payments from the currently applicable 5% or 10% (depending on the case) tax rates to 15% and on interest payments from the currently applicable 0% tax rate to 15%.
Following a number of negotiation rounds between the two States and having reiterated the mutual intention of both States to maintain their business and economic relations, the Cypriot MoF and the Russian MoF each announced yesterday that an amending Protocol to the Cyprus-Russia DTT was agreed on 10 August 2020 in Moscow during a visit of a Cypriot delegation headed by the Minister of Finance of Cyprus.

The Cypriot MoF press release notes that as per the agreed amending Protocol the withholding tax rate on dividend and interest payments will be amended to 15% with certain exceptions provided for, as set out below. Furthermore there will continue to be a 0% withholding tax rate for royalty payments as is currently the case per the provisions of the Cyprus- Russia DTT.

Exceptions

Following certain proposals from Cyprus, the Cypriot MoF press release notes that both States have reached an agreement that lower withholding tax rates of 0% or 5% (as appropriate) should apply in respect of dividend and interest payments, in the following cases, where the recipient/beneficial owner amongst others are:
(a) certain regulated entities
(b) listed companies with specific characteristics

In addition, no withholding tax shall be applicable on interest payments arising on listed corporate bonds, government bonds and Eurobonds.

The precise details of the above mentioned exceptions will be available once the text of the agreed amending Protocol is released, which is expected to be upon the signing of the Protocol planned for autumn 2020.


Cyprus withholding tax rates remain at 0%
Despite the rates of withholding tax mentioned above on dividends and interest Cyprus will continue to apply no withholding tax on such payments, as per the local Cypriot domestic law there is no withholding tax on dividend and interest payments to non-residents of Cyprus.


Applicable date for the amendments
It is the intention of both States for the Protocol to the Cyprus-Russia DTT to be signed in autumn 2020, ratified by the end of 2020 and be effective from 1 January 2021.
The Russian Federation State Secretary - Deputy Minister, Alexey Sazanov, has confirmed that in the coming month, the negotiations with Luxembourg and Malta are planned to be completed on the same terms as agreed with Cyprus and also noted that the same terms will be offered to the Netherlands.
In addition, as per the Cypriot MoF press release, we understand that Russia wishes for the same effective date (i.e. as from 1 January 2021) to apply to the other Russian treaties that will be amended, as this reflects the fiscal and tax policy of the Russian Federation to raise government revenues.
The agreement announced by the Cypriot MoF and Russian MoF ends a short period of uncertainty and provides new opportunities to further enhance the economic relations between Cyprus and Russia.



The takeaway

The amended withholding tax rates on dividends and interest are in line with the publicly announced intentions of the Russian Government in the wake of the Covid-19 pandemic. The Russian side has confirmed that the same provisions will also apply to agreements that Russia has concluded with other treaty partners.
The exceptions agreed in the Protocol to the Cyprus - Russia DTT along with a number of the other non-tax considerations relating to Cyprus, such as the establishment of regional headquarters in Cyprus, easy access to international capital markets, access to EU markets, the common law system, continue to provide opportunities for investments into Russia and making international transactions through Cyprus entities.


Сообщение Минфина Кипра

Поправки к Соглашению об избежании двойного налогообложения между Республикой Кипр и Российской Федерацией

Министерство финансов сообщает о завершении сегодня, 10 августа 2020 года, переговоров по внесению поправок в Соглашение об избежании двойного налогообложения между Республикой Кипр и Российской Федерацией.

Российская сторона потребовала внести поправки в две ключевые статьи Соглашения, чтобы увеличить удерживаемый налог с дивидендов и процентов до 15%.

Кипрская сторона обеспечила, среди прочего, освобождение от указанной повышенной налоговой ставки для регулируемых организаций, таких как пенсионные фонды и страховые компании, а также для листинговых компаний с определенным рейтингом акций. Кроме того, процентные платежи по корпоративным и государственным облигациям, а также по еврооблигациям исключаются из удерживаемого налога. Кипрская сторона также обеспечила сохранения нулевой ставки налога у источника на роялти.

Цель обеих сторон - подписать Соглашение осенью 2020 года, чтобы оно применялось с 1 января 2021 года.

Российская сторона заявила о полной приостановке процедуры прекращения действия Соглашения. В то же время представители РФ заверили, что те же правила будут применяться при изменении соглашений об избежании двойного налогообложения с другими странами, с той же даты, которая будет применяться к Кипру, то есть с 01.01.2021, поскольку это меры в рамках единой налоговой политики РФ с целью увеличения государственных доходов.

Подчеркивается, что поддержание существующей сети соглашений об избежании двойного налогообложения является приоритетом для правительства, и поэтому их обновление в связи с меняющейся международной обстановкой является обязательным.