On September 8th of 2020, a protocol was signed between the Republic of Cyprus and the Russian Federation, introducing the newly negotiated amendments to the existing provisions of the Treaty for Avoidance of Double Taxation between the two signing states.
The main points that were revised are those regarding dividends and interest payments, while no adverse tax implications are going to affect Cyprus tax resident companies which pay interest and distribute dividends to Russian legal entities, due to the fact that the Cypriot legislation does not impose withholding tax on dividend distribution or payment of interest to non-Cyprus tax resident legal entities.
The newly introduced amendments, which are expected to enter into force on January 1st of 2021, are the following:
i) Dividends: the withholding tax rates on dividends are increased to a 15% rate, subject to exceptions;
ii) Interest payments: the withholding tax rates on interest payments are increased to a 15% rate, subject to exceptions;
As far as the exceptions on the aforementioned tax deductions are concerned, those include the above-listed cases:
i) A withholding tax rate of 5% shall apply in the event that the recipient or the beneficial owner of a dividend belongs to one of the following categories:
a) a legal entity whose shares are listed in a registered stock exchange, upon certain conditions;
b) the Central Bank
c) a regulated legal entity, such as an insurance undertaking or a pension fund;
d) the Government or a political subdivision or a local public authority
ii) An exemption from withholding tax is applicable on interest payments in the event that the beneficial owner belongs to one of the following categories:
a) the Central Bank;
b) a banking institution;
c) the Government or a political subdivision or a local public authority;
d) a regulated legal entity, such as an insurance undertaking or a pension fund
iii) An exemption from withholding tax is applicable on interest deriving from the following types of bonds:
a) Governmental bonds;
b) Corporate bonds;
c) Eurobonds.
iv) A maximum 5% rate on withholding tax is applicable in the event that the beneficial owner of the interest is a legal entity whose shares figure on a registered stock exchange; subject to conditions.
v)No Withholding tax is applicable to royalty payments
vi)No Withholding tax is applicable on royalty payments originating from the Russian Federation and directed to the Republic of Cyprus.
Similar Double Tax Treaties are elaborated between the Russian Federation and Malta, the Netherlands and Luxembourg, and are expected to enter into force simultaneously on January 1st of 2021.
The present article is for informational purposes only and does not, under any circumstances, constitute legal advice. For further information on the subject, please contact our firm and one of our attorneys shall be glad to assist you.
N. Kalifatidou
Advocate – Legal Consultant
Arsen Theofanidis LLC