President Vladimir Putin signed Decree No. 585 dated August 8, 2023, suspending certain provisions of double tax treaties with 38 countries.
Among them are such countries as the USA, Canada, Germany, France, Italy, Spain, Belgium, Sweden, Luxemburg, Romania, Cyprus, Hungary, Irland, Croatia, Bulgaria, Poland, Slovakia, Slovenia, Albania, Montenegro, Czech Republic, Switzerland, Denmark, Norway, Finland, Macedonia, Lithuania, Iceland, Austria, Portugal, Greece, Australia, New Zealand, Singapore, Malta, The United Kingdom of Great Britain and North Irland, South Korea and Japan. All of them, as you know, from the list of "unfriendly". The decree was published on August 8 and entered into force on the same date.
Tax agreements with "unfriendly" countries are not denounced (not canceled completely), but certain provisions are suspended. In addition, suspension did not affect, for example, articles on the elimination of double taxation, the exchange of information, mutual agreement procedure and employees of diplomatic missions and employees of consular offices.
Despite the fact that the agreements suspend the operation of the articles "Permanent establishment" and "Profit from commercial activities", the Tax Code of the Russian Federation contains the same provisions in terms of permanent establishments. Therefore, for foreign companies doing business in Russia through a permanent establishment, in most cases nothing will change.
An exception will be the period determined for the purposes of taxation of the construction site. In most agreements, this is 12 months, while in the tax code, the period is calculated from the moment the construction site of a foreign company in Russia begins work.
Tax agreements with "unfriendly" countries are not denounced (not canceled completely), but certain provisions are suspended. In addition, suspension did not affect, for example, articles on the elimination of double taxation, the exchange of information, mutual agreement procedure and employees of diplomatic missions and employees of consular offices.
Despite the fact that the agreements suspend the operation of the articles "Permanent establishment" and "Profit from commercial activities", the Tax Code of the Russian Federation contains the same provisions in terms of permanent establishments. Therefore, for foreign companies doing business in Russia through a permanent establishment, in most cases nothing will change.
An exception will be the period determined for the purposes of taxation of the construction site. In most agreements, this is 12 months, while in the tax code, the period is calculated from the moment the construction site of a foreign company in Russia begins work.
For legal entities with foreign capital, the changes will affect:
- dividends — the rate under the tax code will be 15% (in some agreements, this rate was preferential 5% or 10%)
- royalties and interest — the rate is 20% (the agreements usually provide for full exemption from taxation of royalties and interest in the country of source of payment)
- international transportation — 10% (previously not withheld at the source in the Russian Federation)
The decree was issued on August 8 and takes effect immediately, but it requires the subsequent adoption of the relevant federal law. With its adoption, the picture of the tax consequences of the suspension will be fully formed.
The tax implications for Russian residents will depend on how countries will respond to the measures taken.
The tax implications for Russian residents will depend on how countries will respond to the measures taken.
