More details have now emerged of the recently-concluded protocol to the double taxation agreement between Russia and Cyprus. There will be no change to the current, extremely beneficial withholding rates of 5% on dividends (10% for investments below €100,000) and zero on interest and royalties under the existing treaty.
The protocol removes the uncertainty that previously existed concerning distributions from mutual funds and similar investments, making it clear that they will be subject to the normal withholding tax rates applying to dividends.
The most substantial change relates to disposals by a resident of one country of shares of companies which derive more than 50% of their value from immovable property situated in the other country, giving that country the right to tax any capital gain. This change will not take effect until four years after the date the protocol comes into force. Furthermore, Russia has undertaken to introduce similar provisions for capital gains in its tax treaties with all states which are regarded as main investors in Russia, before the new provisions take effect.
Following the signature of the protocol the Russian government is expected to announce the removal of Cyprus from the so-called blacklist, entitling Russian shareholders in Cyprus companies to benefit from the Russian participation exemption.
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