When addressing his nation regarding the Covid19 pandemic, Vladimir Putin made an unexpected announcement regarding Russian Double Tax Treaties: all dividends which are withdrawn to foreign accounts will suffer a 15% withholding tax. This is opposed to the current 5% rate applicable when the recipient of the dividends invests at least EUR 100,000 in the capital of the payer company; otherwise, the rate is 10%.
The Russian Ministry of Finance remarked that the dividend tax will be in force in 2021 and that the changes will affect only the alleged transit jurisdictions with lowered tax rates. Russia is planning to put into effect the above amendment to double tax treaties with all its treaty partners to reflect this unilateral decision but such amendment seems to be more of a procedural matter without leaving much room for negotiation.
According to the Russian embassy in Nicosia, Cyprus had been selected as the first country for objective reasons. “Thirty-four per cent of the cumulative direct foreign investment in the Russian economy comes from Cyprus,” the embassy told the Cyprus News Agency (CNA).
For Cyprus – which has taken immediate measures to support the economy due to the pandemic – this comes as an additional hit to its financial sector which has been for supported by Russian entrepreneurs for many years now, and hopes for a renegotiation with Russia which would allow more time for its service industry to adjust to the new circumstances.
Our tax team in Cyprus will continue to monitor this developing story and provide timely updates and advice. For any questions on how this impacts your business please contact us at firstname.lastname@example.org