Amendments to the Double Taxation Treaty with Cyprus

Type of income/subject matter of the Treaty

Current version of the Treaty

Amended version of the Treaty

Comments

1

Dividends

5% withholding tax applies to direct investment of at least USD 100,000, subject to all necessary requirements

5% tax rate applies to direct investment of at least EUR 100,000

Where direct investment is less than EUR 100,000, the 5% tax rate may be kept if investment is brought up to that level

2

Interest treated as dividends under Article 269 of the Russian Tax Code

Treated as interest

Treated as dividends for the purposes of the Treaty.

For the purposes of this provision of the Treaty, interest in excess of allowable limits under Article 269 of the Russian Tax Code (thin capitalisation) will be treated as dividends, and such interest being subject to Russian withholding tax will not be in conflict with the Treaty.

3

Rendering services with respect to one or several related projects through one or several authorised persons over 183 days during a 12-month period

No special provisions

Such activities give rise to a permanent establishment

Granting powers of attorney for conducting activities on behalf of a Cyprus company leads to increased permanent establishment exposure, especially in the case of management or advisory activities where the authorised person is a beneficiary and works actively in Russia on behalf of such company.

4

Income fr om a mutual fund established primarily for property investments

No special provisions

Such income is treated as property income and may be subject to withholding tax in Russia

Tax structuring has often involved using mutual funds for property investments. Once the amendments come into force, income received by corporate and individual non-residents from mutual funds will be taxed in Russia at 20% and 30%, respectively. In many cases, such structures will have to be modified.

5

Income on sale of equity interests in Russian companies which have over

50% of their assets in real estate

Exempt from Russian tax

Will be taxed at 20% in Russia

This provision is designed to combat the widespread way of selling property under the guise of selling equity interests. The provision will become effective 4 years after the Protocol itself comes into force.

6

Disclosure of information

The provision existed but did not work in practice because of bank secrecy and confidentiality

The amended article expressly provides that bank secrecy or confidentiality shall not be grounds for refusing to provide information

The Cyprus tax authorities will comply with duly made requests, with sufficient grounds, from the Russian tax authorities. It should be borne in mind that information on the business structure of a Cyprus company may in principle be available to the Russian tax authorities.

7

Tax collection assistance

The article existed but did not specify any rights or obligations

The article sets forth a more detailed procedure for tax collection assistance and applies to all types of tax

This article will allow the Russian tax authorities to send tax collection requests to the Cyprus tax authorities, who, subject to the applicable requirements, will have to comply with such requests without going through any further administrative or judicial procedures. The article will come into effect once Cyprus adopts the appropriate legislation.

8

Tax benefit restrictions

The article is not included in the current version of the Treaty

Under the article, benefits available under the Treaty may not be granted if obtaining benefits under the Treaty is the primary purpose or one of the primary purposes for which the company was established.

The provision does not apply to companies registered in Cyprus or in Russia. However, the provisions do apply, inter alia, to UK or BVI companies that have chosen to be tax residents of Cyprus. Income received by such companies may be taxed in Russia at rates specified by the domestic tax law, regardless of any benefits that may available under the Treaty