EXEMPTION OF RUSSIAN COMPANIES FROM PAYMENT OF INCOME TAX ON DIVIDENDS PAID TO FOREIGN COMPANIES UNDER CERTAIN CONDITIONS AND AMENDMENTS TO THE INTERNATIONAL TREATY BETWEEN RUSSIA AND CYPRUS FOR THE AVOIDANCE OF DOUBLE TAXATION
05.05.2021
05.05.2021
In parallel with the amendments to the international treaty between the government of the Russian Federation and the government of the Republic of Cyprus for the avoidance of double taxation with respect to taxes on income and on capital of 5 December, 1998, the amendments were also made to the Tax Code of the Russian Federation, providing the exemption of Russian companies from income tax on dividends paid to foreign companies under certain conditions.:
In accordance with the par. 84 of the Art. 217 and par. 1.1 of the Art. 208 of the Tax Code of the Russian Federation, Russian companies are exempted from paying of income tax on dividends paid to a Cyprus company or any other foreign company provided that:
The Article 217 of the Tax Code of the Russian Federation «Income which is not subject to taxation (exempted from taxation)» was supplemented by the paragraph 84 «the income specified in the section four and eight of the par. 1.1 of the Article 208 of the Code in the form of dividends out of share capital, depositary receipts certifying the rights to shares, shares of foreign organizations or income in the form of distribution of profits of a foreign structure without forming a legal entity, received by a taxpayer, if, in accordance with the par. 1.1 of the Article 208 of the Code, the income in the form of dividends specified in the par. 1.1 of the Article 208 of the Code, the income in the form of dividends specified in the subpar. 1.1 of the par. 1 of the Article 208 of the Code are recognized as declared by the taxpayer in tax declaration".
The Article 208 of the Tax Code of the Russian Federation was supplemented with the par. 1.1 in accordance with which the dividends paid to a foreign organization whose permanent location is the state (territory) with which there is an international treaty of the Russian Federation on taxation issues, with the exception of the state (territory) included in the article 25.13 -1 of this Code, a list of states (territories) that do not provide the exchange of information for tax purposes with the Russian Federation, on shares (stakes) of a Russian organization, may be reflected by the taxpayer in the tax declaration as part of income in the amount of dividends before withholding corporate income tax at the source payment of income in the Russian Federation in the part corresponding to the share of indirect participation of the taxpayer in such a Russian organization through the specified foreign organization as of the date of determining the persons entitled to receive these dividends (as of the date of the decision on the distribution of profits of the limited liability company), taking into account the specifics provided for in this paragraph.
If these conditions are not met, then in respect of Cyprus holding companies the tax rates provided by the international treaty shall be applicable.
DIVIDENDS
The par. 2 of the Article 10 "Dividends" was amended. The tax rate on dividends paid by Russian companies to Cyprus residents was raised from 5% (in accordance with the previous version) of the gross amount of the dividends if the beneficial owner has directly invested in the capital of the company not less than the equivalent to at least USD 100,000) and 10 % (in accordance with the previous version 10% of the gross amount of dividends in all other cases) was raised to 15%, with the exception of some cases when the rate of 5% remains, namely provided that:
I. the beneficial owner is a resident of the other Contracting State and such person is an insurance institution or pension fund; or
II. the beneficial owner is a resident of the other Contracting State and such person is a company whose shares are listed on a listed stock exchange, provided that at least 15 per cent of the voting shares in such company are in free float, and which directly owns at least 15 percent of the capital of the company paying the dividend for a 365-day period including the date of the dividend payment; or
III. the beneficial owner is a resident of the other Contracting State and such person is the Government of that Contracting State or its political subdivision or local authority; or
IV. the person beneficially entitled to dividends is a resident of the other Contracting State and such person is the Central Bank of that Contracting State.
INTEREST
Amendments were made to paragraph 1 of Article 11. The rate of 15% and 5% was also set on the interest paid in some exceptions in accordance with paragraphs 3, 4, 6 and 7 of Art. 11 international agreements.
Royalties for the use of the intellectual property subject, as before, is taxed only in the Contracting State recipient of the income.
The amendments to the international treaty affected only income in the form of dividends and interest.
In accordance with the par. 84 of the Art. 217 and par. 1.1 of the Art. 208 of the Tax Code of the Russian Federation, Russian companies are exempted from paying of income tax on dividends paid to a Cyprus company or any other foreign company provided that:
- de facto recipient of dividends shall Russian resident, who receives dividends on a bank account, which shall be reported to the Russian tax authorities within 180 days after receiving of the dividends;
- the foreign company is not in the blacklist of offshore jurisdictions of the Ministry of Finance of the Russian Federation.
The Article 217 of the Tax Code of the Russian Federation «Income which is not subject to taxation (exempted from taxation)» was supplemented by the paragraph 84 «the income specified in the section four and eight of the par. 1.1 of the Article 208 of the Code in the form of dividends out of share capital, depositary receipts certifying the rights to shares, shares of foreign organizations or income in the form of distribution of profits of a foreign structure without forming a legal entity, received by a taxpayer, if, in accordance with the par. 1.1 of the Article 208 of the Code, the income in the form of dividends specified in the par. 1.1 of the Article 208 of the Code, the income in the form of dividends specified in the subpar. 1.1 of the par. 1 of the Article 208 of the Code are recognized as declared by the taxpayer in tax declaration".
The Article 208 of the Tax Code of the Russian Federation was supplemented with the par. 1.1 in accordance with which the dividends paid to a foreign organization whose permanent location is the state (territory) with which there is an international treaty of the Russian Federation on taxation issues, with the exception of the state (territory) included in the article 25.13 -1 of this Code, a list of states (territories) that do not provide the exchange of information for tax purposes with the Russian Federation, on shares (stakes) of a Russian organization, may be reflected by the taxpayer in the tax declaration as part of income in the amount of dividends before withholding corporate income tax at the source payment of income in the Russian Federation in the part corresponding to the share of indirect participation of the taxpayer in such a Russian organization through the specified foreign organization as of the date of determining the persons entitled to receive these dividends (as of the date of the decision on the distribution of profits of the limited liability company), taking into account the specifics provided for in this paragraph.
If these conditions are not met, then in respect of Cyprus holding companies the tax rates provided by the international treaty shall be applicable.
DIVIDENDS
The par. 2 of the Article 10 "Dividends" was amended. The tax rate on dividends paid by Russian companies to Cyprus residents was raised from 5% (in accordance with the previous version) of the gross amount of the dividends if the beneficial owner has directly invested in the capital of the company not less than the equivalent to at least USD 100,000) and 10 % (in accordance with the previous version 10% of the gross amount of dividends in all other cases) was raised to 15%, with the exception of some cases when the rate of 5% remains, namely provided that:
I. the beneficial owner is a resident of the other Contracting State and such person is an insurance institution or pension fund; or
II. the beneficial owner is a resident of the other Contracting State and such person is a company whose shares are listed on a listed stock exchange, provided that at least 15 per cent of the voting shares in such company are in free float, and which directly owns at least 15 percent of the capital of the company paying the dividend for a 365-day period including the date of the dividend payment; or
III. the beneficial owner is a resident of the other Contracting State and such person is the Government of that Contracting State or its political subdivision or local authority; or
IV. the person beneficially entitled to dividends is a resident of the other Contracting State and such person is the Central Bank of that Contracting State.
INTEREST
Amendments were made to paragraph 1 of Article 11. The rate of 15% and 5% was also set on the interest paid in some exceptions in accordance with paragraphs 3, 4, 6 and 7 of Art. 11 international agreements.
Royalties for the use of the intellectual property subject, as before, is taxed only in the Contracting State recipient of the income.
The amendments to the international treaty affected only income in the form of dividends and interest.