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Cyprus, Russia Agree Tax Hike On Cross-Border Dividends, Interest

Monday, September 14, 2020

Russia's Ministry of Finance has announced that it signed a Protocol to amend its double tax agreement with Cyprus on September 8, 2020.

The Protocol will increase the withholding tax at source to 15 percent for dividends and interest income. The Ministry said ratification should be completed by the end of this year so that the provisions of the Protocol may apply from January 1, 2021.

The Russian Government confirmed the agreement contains concessions agreed earlier with the Cypriot Government. An earlier statement from the Cypriot Government, in relation to withholding tax on interest and dividends, said that the two parties had agreed: "[...] the reduction of the said withholding tax (to nil or five percent as appropriate) of regulated entities, such as pension funds and insurance undertakings as well as listed entities with specific characteristics. Additionally, exemption from the said withholding tax applies on interest payments from corporate bonds, government bonds, and Eurobonds. The Cypriot side has also secured the maintaining of zero withholding tax on royalty payments."

Russia is reviewing its network of double tax agreements to identify those agreements that do not permit taxation at source of dividends and interest income at at least a 15 percent rate. Malta and Luxembourg have already agreed to amend their pact with Russia and negotiations are said to be ongoing with the Netherlands. The Russian Government has highlighted that it intends to launch similar negotiations with Switzerland and Hong Kong.