Contributed by Vladislav Donchenko, tax partner in “Lex Alliance” law firm, Moscow
DTT Russia – Cyprus, Russia – Malta, Russia - Luxembourg
On September 8, authorized bodies of Russia and Cyprus signed a protocol on amending the Russian-Cypriot agreement on the avoidance of double taxation in terms of increasing the withholding tax to 15% in respect of dividends and interest.
The preferential dividend rate (5%) will remain for dividends received by Cypriot public companies if the following conditions are met simultaneously:
· 15% of the recipient company's shares must be traded on the open market;
· the share of the Cypriot public company in the capital of the Russian company-source of dividends is at least 15% within 365 days.
Pension funds and insurance companies will also be able to use the 5% dividend rate.
Thus, the distribution of dividends from Russia at preferential rates will be available only for large companies, at least 15% of whose shares are traded on the open market.
The interest income paid by a Russian company will be exempt from withholding tax if the recipient of such interest income is a pension fund, an insurance company or a Cypriot bank. In addition, interest on state bonds, corporate bonds and Eurobonds are exempted from withholding tax if such bonds are listing bonds.
The preferential withholding rate for interest income (5%) will be applied for interest income received by a Cypriot public company, which meets abovementioned criteria. Other interest income paid by Russian companies will be subject to withholding tax in Russia at the rate of 15%.
The amended version of DTT with Cyprus will be applied from January 1st, 2021.
On September 8, the Russian government issued Order 9.09.2020 № 2291-р instructing the Russian Ministry of Finance to sign a similar protocol with the state authorities of Malta to amend DTT between Russia and Malta. The amended version of this DTT is expected to come into force on the same date: January 1st, 2021.
Previously it was announced that Malta and Luxembourg had agreed to change the DTT with Russia. This information was published on the RBK website on August 7, 2020 with reference to Deputy Finance Minister Alexei Sazanov.
Russia introduces simplified form of progressive personal income tax
On September 17, the committee on the budget and taxes of the Russian lower chamber of parliament has introduced a bill proposing a 15% tax rate for individuals who receive income exceeding 5 million rubles (55 800 euro) per year. This will replace the existing flat rate of 13%.
According to the bill, a Russian tax resident will have to pay a fixed amount of tax 650 000 rubles (7 300 euro) and additionally 15% of the income which exceeds 5 million rubles. The first 5 million rubles per year will continue to be taxed at the rate of 13%.
The new rules will be applied to the following types of income of tax residents including but not limiting to:
· income from equity participation (dividends);
· income in the form of winnings received by participants in gambling and lottery participants;
· income from operations with securities and operations with financial derivatives;
· income from REPO operations, the object of which is securities;
· income from operations with securities lending;
· income received by participants in an investment partnership;
· income from operations with securities and from operations with derivative financial instruments recorded in an individual investment account;
· income in the form of controlled foreign company profit;
· other types of income, which is subject to tax at the rate 13%
The above-mentioned rule contains the following excluding: the tax rate 13% will continue to be applied in respect of income from sale of immovable property and income in the form of immovable property received as a gift from not from a family member.
Income of individuals who do not have status of Russian tax residents should be subject to the new rule if such income is received under a labor contract with a Russian entity. Taxation regime of other income of non-residents will not be changed. Particularly, general tax rate for dividend income of non-residents is 15% unless double tax treaty provides other rate. Other income of non-residents is subject to tax at the rate 30%.
Total taxable income at the end of 2021: 12 million rubles
Personal income tax: 5 million x 13% 7 million x 15% 650 000 = 1 797 500 rubles
It is expected, that the first period of application for the described amendments to the Russian personal income will be 2021.
Lex Alliance team will be glad to help you with structures adapting to changes in Russian and international tax field.Dated: [bxcode.pagedata.date]