Cyprus strikes a deal on Double Tax Treaty with Russian Government

The Republic of Cyprus and Russia had entered into a Double Tax Treaty (DTT) in 1998 in a joint effort to avoid the double taxing of income and capital generated in Cyprus, in order to promote the economic cooperation between the two countries. Since its introduction, the DTT has been the catalyst for Russian investment in Cyprus, being an attractive jurisdiction with regards to its tax benefits.

On the 25th of March 2020, President Putin had introduced numerous measures in an attempt to tackle the fiscal challenges which were brought about by the coronavirus pandemic. Among the measures, he had announced the Russian Federation’s intentions to amend the Double Tax Treaties that are in place with various countries. Cyprus was the first country to receive an official notification on the 1st of April, 2020.

Russia’s intentions

In his address, the Russian President instructed the government to initiate negotiations with foreign jurisdictions to amend Russia’s current DTTs and set the minimum withholding tax rate on dividends and interest payed from Russia at 15%. According to the Russian embassy in Nicosia, Cyprus had been selected as the first country for objective reasons, since 34% of the cumulative direct foreign investment in the Russian economy comes from Cyprus.

The proposed amendment to the DTT was the increase of withholding tax rates on dividend and interest payments from the current rates of 5% or 10%, to 15% capital of the Russian Company.

A new deal between Cyprus and Russia

Cyprus through its Finance Minister Mr. Constantinos Petrides has managed to secure the continuation of the DTT by signing on 10th of August 2020 an amendment to the Cyprus-Russia double-tax treaty.

The Cypriot side ensured, the exemption from a 15 per cent withholding tax on dividends for regulated entities, such as pension funds and insurance companies, as well as listed companies. In addition, interest payments from corporate and government bonds as well as Eurobonds are excluded from the 15 per cent withholding tax in the new Cyprus Russia Double Tax Treaty. Any other type of Cyprus-based entities will still be able to avoid double taxation, but at a higher rate of 15 per cent. In advance, the Russian side had assured the withdrawal of the termination procedures of the Convention. Furthermore, it assured that the same regulations will apply to other countries that maintain similar agreements from the same date that will apply to Cyprus, since it is a single fiscal policy. The signing will probably coincide with the arrival on the island of Foreign Minister Sergey Lavrov in September or October 2020.

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