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News item The Russian Ministry of Finance has addressed the competent authorities of Luxembourg and Malta

On 13 April, information appeared on the official website of the Russian Ministry of Finance that a proposal had been sent to the competent authorities of Luxembourg and Malta to amend the double tax treaties with these countries:

https://m.minfin.ru/ru/press-center/?id_4=37027-minfin_rossii_napravil_pisma_ob_izmenenii_soglashenii_ob_izbezhanii_dvoinogo_nalogooblozheniya_s_lyuksemburgom_i_maltoi

According to the information published, the Russian proposals are similar to those which were sent to the Republic of Cyprus and about which we wrote earlier (Alert). As was the case with Cyprus, the proposal intends to increase the withholding tax rate on income in the form of interest and dividends paid to the beneficial owners of income who are residents of the other party to the treaty. In other words, the Russian Ministry of Finance proposes to tax these types of income at a 15% rate, instead of the current reduced rates (or tax exemption). It is likely that, as with Cyprus, Russia has mentioned that it has a right to terminate the treaties if its proposals are not accepted.

You can read more detailed comments on the possible changes and consequences (which are more far-reaching than it may appear at a casual glance) in our news item about the similar address to the Cypriot competent authorities (Alert).

The Ministry of Finance also writes that the changes will not affect an interest income paid out under Eurobond loans, bond-secured loans granted by Russian companies and loans granted by foreign banks. The relevant payments made out of Russia will be regulated by Russian tax legislation. We should note that the protocol sent to Cyprus does not contain such exceptions.

Importantly, the Russian side may terminate all three treaties (including the one with Cyprus), according to the rules set out in them, starting from 1 January 2021, using a rather simple procedure (by serving a notification).

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