On August 8 President Putin signed Decree No. 585 on the suspension of a number of double taxation agreements with unfriendly countries.
The agreements have been suspended until these countries eliminate violations of the legitimate economic and other interests of Russia, the rights of Russian citizens and legal entities. This means that tax agreements with "unfriendly" countries are not denounced, but only suspended in part of certain provisions. The most important point of the agreements remains in force, that the payment in another country can be reduced by the amount of taxes paid in one country.
Other clauses of the agreements that remain in force:
1. Determining the status of a tax resident;
2. Exchange of information;
3. Mutual agreement procedures;
4. Income of diplomats.
Among suspended agreements are agreements with Poland, USA, Sweden, Luxembourg, Hungary, South Korea, Romania, Bulgaria, Great Britain, Hungary, Slovakia, Ireland, Albania, Belgium, Slovenia, Canada, Croatia, Switzerland, Czech Republic, Italy, Denmark, Montenegro, Germany, France, Finland, Cyprus, Macedonia, Spain, Portugal, Lithuania, Iceland, Greece, Austria, Australia, New Zealand, Singapore, Malta and Japan.
At the moment, the important question is what other countries will do in response: will they suspend agreements symmetrically or terminate agreements completely. In the latter case, the problem of double taxation will arise.
What are the consequences of the suspension of these agreements for a Russian tax resident (a person who spent more than 183 days in Russia during a calendar year)?
- Russian residents who have invested in foreign assets through a broker or management company will pay increased withholding tax;
- If an investor has become a tax resident of an “unfriendly country”, but is a client of a Russian broker or management company, then, depending on the asset, he is either required to pay high taxes on income from a Russian source, or is not required to pay if the source is outside the Russian Federation;
- If a non-resident receives dividends on foreign shares and/or interest on debt obligations of foreign states or companies, or if he sells shares/bonds of a foreign organization, the tax is not levied under the rules of Russian tax legislation;
- For individuals earning a salary abroad or selling foreign real estate, foreign taxes are subject to full Russian personal income tax credit as before (amendments to the Tax Code of the Russian Federation were also recently adopted, according to which personal income tax for remote workers remains at the level of 13-15% regardless of resident status)
The government was instructed to prepare relevant bills, and the Ministry of Foreign Affairs was instructed to notify foreign states of the suspension of agreements.
Nadmitov, Ivanov & Partners Law Firm will monitor the development of the situation and will notify about the adoption of the relevant federal law, as well as response measures from countries. Our firm will help you optimize your income structure in a way that minimizes the impact of tax treaty suspensions.
See: Decree of the President of the Russian Federation of 8 August 2023 No. 585 “On the suspension by the Russian Federation of certain provisions of international treaties of the Russian Federation on taxation issues”
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