Suspension of Double Taxation Treaties

Subject of Suspension

On 8 August 2023, the President of the Russian Federation issued Decree No. 585 (“Decree”), which suspends the most important provisions of 38 Double Tax Treaties (“DTT Provisions”) with “unfriendly” countries, including the following: 

1)	Albania	11)	Finland	21)	Lithuania	31)	Singapore
2)	Australia	12)	France	22)	Luxembourg	32)	Slovakia
3)	Austria	13)	Germany	23)	Macedonia	33)	Slovenia
4)	Belgium	14)	Great Britain	24)	Malta	34)	Spain
5)	Bulgaria	15)	Greece	25)	New Zealand	35)	Sweden
6)	Canada	16)	Hungary	26)	Norway	36)	Switzerland
7)	Croatia	17)	Iceland	27)	Poland	37)	USA
8)	Cyprus	18)	Ireland	28)	Portugal	38)	Yugoslavia (Montenegro)
9)	Czech Republic	19)	Italy	29)	Republic of Korea
10)	Denmark	20)	Japan	30)	Romania

Subject of the suspended DTT Provisions is the application of reduced rates and tax exemptions in relation to passive income (dividends, royalties and interest payments), international transportation fees, labor income, income from professional activities of physical persons and other similar activities.

At the same time, the rules of general character continue to be effective: definitions, rules for determining tax residency, mechanisms for double taxation avoidance, rules on exchange of information and some others.

We believe that the Russian tax authorities and courts will not apply DTT Provisions from 8 August 2023, although the Decree stipulates the need of a law to suspend the DTT Provisions. Furthermore, the Decree instructs the Government of the Russian Federation to take measures to reduce the negative impact of the Decree to the Russian economy, e.g. it will be reasonable regarding the possibility to set off foreign taxes paid abroad from Russian taxes for physical persons (please see below).

Consequences of Suspension

We recommend applying the following profit withholding tax rates for the below payments by a Russian legal entity to its holding with its main seat in one of the above-mentioned countries:

15% for payments of dividends,

10 % for payments for international transportation,

20% for other payments.

Furthermore, you should be aware of the following:

• Depending on each jurisdiction, the procedure for taxation of income from business activities may change, in particular, the taxation of income and the criteria for establishing a permanent establishment and construction sites.

Individuals, due to the limitation in the Russian Tax Code, will most likely not be entitled to enjoy tax credit in relation to taxes paid in the relevant foreign jurisdiction against personal income tax paid in Russia on income received. However, legal entities are not deprived of the right to a credit, as the Russian Tax Code does not impose such rules for them as it does for individuals.