Changes in Russian legislation on taxation

At the end of 2023, two federal laws were adopted and published, provided for by cl. 3 of Decree of the President of the Russian Federation dd. 08.08.2023 No. 585 "On Suspension by the Russian Federation of Certain Provisions of International Tax Treaties of the Russian Federation" (hereinafter - "Decree No. 585"):

I.    Federal Law No. 598-FZ dd. 19.12.2023 "On Suspension by the Russian Federation of Certain Provisions of International Tax Treaties of the Russian Federation" (hereinafter - "Law No. 598-FZ"). It comes into force on 30.12.2023 and fully duplicates cl. 1 of Decree No. 585, suspending the specified provisions of double tax treaties (hereinafter - "DTTs") with 38 jurisdictions.

The list includes European Union countries, as well as Albania, Canada, Iceland, Japan, Montenegro, New Zealand, North Macedonia, Norway, the Republic of Korea, Singapore, Switzerland, the United Kingdom, and the USA.

Earlier in the news review we analysed the implications of Decree No. 585.

II.     Federal Law No. 539-FZ dated 27.11.2023 "On Amendments to Parts 1 and 2 of the Russian Federation Tax Code, Certain Legislative Acts of the Russian Federation and Repealing Certain Provisions of the Russian Federation Legislative Acts" (hereinafter - "Law No. 539-FZ"), in accordance with s-cl. 2, cl. 3 of Decree No. 585 provides for the following measures aimed at reducing the impact on the Russian economy of the consequences of the suspension of the above-mentioned DTTs:

1.    Tax agents are exempt from the obligation to withhold tax from the following income paid to foreign entities under contracts concluded before 08.08.2023:

1.1.    Interest income paid to export credit agencies and banks under agreements establishing or modifying debt obligations;

1.2.    Income from leasing or subleasing of marine vessels under contracts concluded with foreign lessors (charterers);

1.3.    Income from international transportation under contracts concluded with foreign entities; as well as

1.4.    Rental (lease) payments under contracts concluded before 05.03.2022 for aircraft (including auxiliary power units and/or aircraft engines) registered or subject to registration in the State Register of Civil Aircraft of the Russian Federation;

1.5.    Revenues from the use / granting of rights to use the results of intellectual activity for broadcasts;

1.6.    Remuneration for the use / granting of the right to use objects of copyright and (or) related rights;

1.7.    Income from the sale of marine vessels registered with the Russian Maritime Register of Shipping and located in Russia.

The exemption will apply if the following conditions are met:

• The mentioned types of income were not taxable under the provisions of DTTs, which were suspended by Decree No. 585;
• Russian payer and foreign recipient of income are not interdependent persons;
• the foreign entity has provided proof of beneficial ownership in the income and permanent residence in the state with which a DTT is concluded.

2.    In the event that the provisions of the DTT, the effect of which was suspended by Decree No. 585, provided not for exemption from taxation, but for reduced tax rates, the tax agent is entitled to apply them to the payment of income specified in cl. 1.1, 1.4, 1.5, 1.6. of the above list.

3.    0% tax rate is introduced on income received by foreign entities under agreements on settlement of insurance claims and claims arising from contracts for the rent (lease) of aircraft (including auxiliary power units and/or aircraft engines), registered or subject to registration with the State Register of Civil Aircraft of the Russian Federation, concluded before 05.03.2022, provided that: 1) the contracts provide for the transfer of ownership of these objects to a Russian entity; 2) the foreign and Russian entities are not interdependent.  

The said measures are temporary in nature and will remain in force until 31.12.2025 in respect of income paid by the tax agent from 08.08.2023 onwards.