Proposal to suspend double tax treaties with unfriendly countries: what is known so far
24.04.2023
According to RBC news agency, the Russian Ministry of Finance and the Foreign Ministry proposed to President Vladimir Putin to issue a decree on the suspension of double taxation agreements (DTTs) with countries that have imposed sanctions against Russia.
Some experts argue that DTTs do not normally provide for suspension and can only be abrogated. The negative consequences of abrogation of DTTs would be felt by both companies and ordinary citizens. A number of news outlets have published analytical materials on this topic (also here and here).
What would be the implications of making such a decision?
If a foreign tax resident received income from Russia, he would have to pay both the Russian income tax (30%) and the tax abroad.
The same applies to Russian tax residents who receive any income from foreign sources.
Companies from “unfriendly” countries that have so far remained in the Russian Federation, when receiving passive income from Russia (dividends, interest, royalties, etc.), now pay taxes at preferential rates, for example, 5% for dividends, 0% for royalties and interest. They would have to pay at domestic Russian rates, 15% and 20% respectively.
A similar situation would await Russian companies that receive passive income from abroad.
The abolition of the DTT would affect not only companies, but also private investors, tax residents and non-residents - holders of securities issued in unfriendly countries, receiving passive income from these securities. Surprisingly, this includes many of the largest Russian companies listed as foreign - though few of them have been paying dividends lately.
Finally, Russians with real estate in unfriendly countries and tax residents of such countries who are trying to sell their real estate in the Russian Federation would also find themselves in a difficult situation.
The initiative is not routed through the Duma, so there isn't much in the way of follow up news. We will try to keep you up to date, meanwhile feel free to contact us if you have some specific questions.