Signing of the Protocol is a response to COVID19 fiscal challenges and opens a new era in Russia-Cyprus business relationships. As has been highlighted by Russian representatives, the level playing field will be maintained and similar changes will be made to the treaties with other countries in order to be effective also as of 1 January 2021. In a snapshot, Cyprus remains an attractive jurisdiction for institutional and regulated businesses as well as for a large number of investors, such as asset managers, family offices, private equity and others. Businesses are therefore encouraged to review and critically examine, in detail and at an early stage, their structures and arrangements in light of the new treaty provisions in an attempt to assess the level of impact and whether there is a need to take any actions.
On September 8th, 2020, the Republic of Cyprus and the Russian Federation signed the Protocol to amend the double tax treaty between the countries. The amendments to the Treaty should be effective as of January 1st, 2021 (provided both parties ratify the Protocol by the end of 2020).
The Russian Federation assured the Republic of Cyprus that the changes are purely fiscal measures and, moving forward, they would discontinue any actions aimed at terminating the Treaty and that, to maintain a level playing field, they would seek the same agreement with other countries and to also be effective on January 1, 2021.
The primary changes have been made concerning withholding tax on dividends and interest. Ordinary withholding tax rate under the Treaty is increased to 15 percent (provided the recipient is a beneficial owner of the dividend income). Reduced 5 percent withholding tax is applied, amongst others, to the following categories:
- If the beneficial owner of the dividends is a company whose shares are listed on a registered stock exchange provided no less than 15% of voting shares of that company are in free float and which holds directly at least 15% of the capital of the company paying the dividends throughout a 365 day period that includes the day of payment of the dividends, or
- If the beneficial owner of the dividends is an insurance undertaking or a pension fund.
As for withholding tax on interest payments
- Ordinary withholding tax rate under the Treaty is increased to 15 percent (provided the recipient is a beneficial owner of the interest income)
- Reduced 5 percent withholding tax is applied if the beneficial owner of the interest is a company whose shares are listed on a registered stock exchange provided that no less than 15 percent of voting shares of that company are in free float which holds directly at least 15 percent of the capital of the company paying the interest throughout a 365 day period that includes the day of payment of the interest.
- Reduced 0 percent withholding tax is applied, amongst others,
to the following categories:
- Insurance undertakings or pension funds
The interest on government bonds, corporate bonds, Eurobonds listed on a registered stock exchange.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.