Introduction:

In response to a request from Russian authorities to amend the Cyprus-Russia Interest and Dividends Articles of the current Double Taxation Agreement, Cyprus authorities have diligently collaborated to finalize the agreed Protocol. Negotiations were concluded following four rounds of talks, coinciding with a visit to Moscow by a Cyprus delegation led by Mr. Constantinos Petrides, Minister of Finance of the Republic of Cyprus.

On the 10^th of August 2020, Cyprus-Russia concluded the negotiations of a new protocol to amend the existing provisions of the Cyprus-Russia “Double Tax Treaty”.

In this Article we will provide you the insights of the 2 Key-Amendments of the Cyprus–Russia Treaty.

What are the main Amendments:

1. 15% WHT on Dividend and Interest payments;

According to the agreement reached, the existing ‘Withholding Tax’ (WHT) rates on dividends and interest payments made from Russia to Cyprus will increase to 15% subject to certain exceptions noted below.

2. Exceptions from the 15% WHT;

The two countries have agreed that a 5% WHT should apply, where the recipient/beneficial owner of a dividend is:

• a regulated entity such as a pension fund or insurance undertaking;
• a company the shares of which are listed on a registered stock exchange (subject to conditions);
• the Government or a political subdivision or a local authority;
• the Central Bank.

3. No WHT applies on Interest Payments;

 In addition, the two countries have agreed that no WHT shall apply on interest payments if the beneficial owner is:

• an insurance undertaking or a pension fund;
• the Government or a political subdivision or a local authority;
• the Central Bank;
• a banking institution.

4. No WHT applies on Interest Earned from specific Bonds;

Furthermore, no WHT shall apply in respect of interest earned on the following listed bonds:

• corporate bonds;
• government bonds; and
• Eurobonds

Important Note: Where the beneficial owner of the interest is a company whose shares are listed on a registered stock exchange (subject to conditions), the WHT shall not exceed 5%;

5. Nil WHT on royalty payments;

The Nil WHT on royalty payments from Russia to Cyprus will not change.

When it comes into Effect?

The intention of both countries is for the revised WHT rates to be effective from 1 January 2021, through the signature of a protocol amending the existing tax treaty over the next months.

Concluding Remarks:

On the 25^th of March 2020, Vladimir Putin, president of the Russian Federation, proposed that Russia should withhold a higher percentage of taxes on dividend and interest payments leaving Russia, to mitigate the adverse economic effects of COVID-19.

The agreement reached between CYPRUS-RUSSIA is in line with the above plan and puts an end to the uncertainty triggered that Russia would denounce the CYPRUS-RUSSIA Double Tax Treaty.

Russia confirmed its intention to introduce similar provisions to its bilateral tax treaties with Malta, Luxembourg and the Netherlands with the same effective date (1^st of January 2021). In this way, Russia would provide a “level playing field” for European countries competing for investments into Russia.

Our Office:

Yiorkas Law boasts unparalleled proficiency in the realm of double tax treaties, positioning us as the premier destination for comprehensive consultation services.

With an extensive understanding of the existing double tax treaties involving in Cyprus, our seasoned team excels in deciphering their intricate nuances and practical applications. Drawing upon years of experience and a meticulous approach, we offer invaluable guidance to clients seeking to navigate the complexities of international tax law.