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Double Tax Treaties in Russia

Double Tax Treaties in Russia

Foreign investors who are operating a company in Russia are entitled to benefit from the provisions of the double taxation treaties signed by the representatives of the state. Russia signed several treaties for the avoidance of double taxation with various countries worldwide. The main aspects of a double taxation agreement (DTA) refer to various tax reductions or exemptions applicable to companies or natural persons, for matters such as royalties, dividends, capital gains, and many others. Our Russian team of company formation representatives can provide an in-depth presentation to investors who are interested in opening a company in Russia

DTAs signed by Russia  

Businessmen interested in company formation in Russia must know that the country signed numerous double taxation agreements

At the moment, Russia signed DTAs with the following contracting states:  Albania, Algeria, Argentina, Australia, Austria, Armenia, Azerbaijan, Belarus, Belgium, Botswana, Bulgaria, Canada, China, Chile, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kazakhstan, North Korea, South Korea, Kuwait, Kyrgyz Republic, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malaysia, Mali, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia, Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Qatar, Romania, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, Spain, South Africa, Sri Lanka, Sweden, Switzerland, Syria, Tajikistan, Thailand, Turkey, Turkmenistan, Ukraine, United Kingdom, United States of America, Uzbekistan, Venezuela, Vietnam. 

Our team of company formation agents in Russia can offer more details on the stipulations of the above-mentioned treaties. Plus, those who want to open a company in Russia are invited to discuss further details with our team of specialists in charge. We also have a team of accountants in Russia at your disposal.

Legal aspects related to the DTAs concluded in Russia  

The DTAs signed by Russia with other contracting states are drafted in accordance with the Model Agreements on Avoidance of Double Taxation of Income and Property.  At the same time, the Russian DTAs also take into consideration the provisions of the Model Tax Convention on Income and Capital imposed by the Organisation for Economic Cooperation and Development (OECD)

The documents refer to the taxation of residents and legal entitiestax residents of one of the contracting states mentioned above, and it prescribes the way in which it is applied for numerous aspects, such as: 

  • taxation of residents;
  • taxation on permanent establishments;
  • taxation of dividends and royalties.

News about DTTs signed by Russia

The year 2023 came with surprising news regarding varied agreements signed by Russia with countries worldwide. Here we are referring to the double taxation treaties that have been put on hold for the moment. It is also the case of DTT signed by Russia with the UK, and below you can find some details in this regard:

  • More than 38 DTTs signed by Russia were affected by this new measure imposed by the Russian government. This includes the treaty with the UK, according to recent information.
  • In the case of DTT signed with UK, the suspension involves everything related to treatments of interests, dividends, royalties, business profits, and capital gains.
  • However, the provision for the abolition of DTTs signed by Russia has not been entirely suspended. Thus, the suspension might refer to the fact that Russia will not respect any established limits on what may be the tax at source and that a single limited relief from DTT will be accessible in Russia.

On the other hand, the UK-Russia DTT does not permit this autonomous action, and the UK authorities reflect the agreement to stay in force, complying with its terms. It is also stated that Russia has suspended agreements signed with major offshore destinations like Malta, Cyprus, Switzerland, and Luxembourg.

More information about the news affecting the provisions of double taxation agreements signed by Russia can be provided by one of our specialists. Also, if you want to set up a company in Russia, feel free to contact us at any time.

The effects of the suspension of DTTs by Russia

Regarding the momentary suspension of some double taxation agreements signed by Russia with countries worldwide, there are immediate effects from a tax point of view. Broadly speaking, this means that there will no longer be advantageous tax rates delivered by the DTTs for payments of passive types of income from Russia to countries like:

  • US,
  • UK,
  • Canada,
  • Japanese,
  • EU, and other countries that executed punishments and restrictions against Russia.

As such, only standard tax rates will apply in the future, as follows:

  • 15% withholding tax rate for dividends (instead of 5% or 10%);
  • 20% withholding tax rate for interest and royalties payments (instead of tax exemption or lower rates);
  • 20% withholding tax rate for distribution of profit that is different from dividends (instead of exemption).

In this case, the latter change may have an undervalued effect. Thus, the tax authorities can have varied opportunities and fiscal motives to requalify any questionable expenditures with low economic explanation into delivery of profit which is subject to a 20% withholding tax rate at the basis of income in Russia.

Some aspects of the Russian economy

Although the current social context has reached proportions and closed some important doors for Russia, the country continues to attract foreign investors who want to prosper in this territory. Here are some important figures to analyze in this regard:

  • As a result of high oil prices and a post-pandemic revival, Russia’s annual economic growth rate surpassed 5%, by the end of 2021.
  • The year-end commodities export income reached a record of around USD 580 billion.
  • The share of mineral production in Russia expanded from 13.1% registered in 2021 to 14% in 2022.
  • In 2022, the unemployment rate stood at 3.9%.
  • Another interesting fact is that the real disposable money income of the population decreased by 1% in 2022, compared to 2021.

Persons interested in company registration in Russia are invited to contact our team of company formation consultants for more details on the main benefits deriving from this type of treaty.