Unofficial (Google) translation of the statement of Russian Ministry of Finance on the initiation of termination of Double Tax Treaty with Cyprus

The Ministry of Finance of Russia begins to denounce the Double Tax Treaty with the Republic of Cyprus

08/03/2020 12:50

The Ministry of Finance of Russia held negotiations with the Ministry of Finance of Cyprus to amend the Russian

Cyprus Agreement for the avoidance of double taxation in terms of increasing the withholding tax up to 15% for dividends and interest.

During the negotiations, Cyprus put forward its proposals, having analyzed which the Ministry of Finance of Russia concluded that, in essence, they blur and make the alleged

By the Russian side the effect of the measures taken to support the national economy and social programs, and will also contribute to tax-free withdrawal from the territory of the Russian

Federation through the Cyprus jurisdiction of significant financial resources of the Russian origin.

At the same time, taking into account the close economic and historical ties between the two states, the Russian side formulated options for a compromise solution to this issue and offered to promptly hold face-to-face negotiations in Cyprus during this week in order to to come to a solution, but was refused.

To fulfill the instructions of the President of the Russian Federation on taxation of income in the form of dividends and interest, paid from the territory of the Russian Federation to the Republic of Cyprus at a rate of 15%, the Ministry of Finance

Russia on August 3 this year begins the procedure for the denunciation of the Agreement.

On March 25, Russian President Vladimir Putin addressed the Russians in connection with the pandemic coronavirus and proposed a number of measures, including economic ones. In particular, he stated that all payments of income in the form of interest and dividends that go from Russia abroad to offshore jurisdictions, must be taxed adequately - at least 15 percent (as much is charged with non-resident individuals in Russia). To this end, he instructed to adjust the agreements on avoidance of double taxation with some countries, starting with those through which pass significant resources of Russian origin.

During the period of the Russian-Cyprus agreement, this jurisdiction was used by many

Russian companies. According to various estimates, more than 1.4 trillion rubles were withdrawn to Cyprus in 2018. rubles, and in 2019 - more than 1.9 trillion.

The existing tax agreement with Cyprus provides very attractive conditions with tax point of view. The rate when paying dividends to Cyprus can be reduced to 5 or 10%, and for interest on loans - up to 0%. This is more than half the corresponding rate in

Russia (13-15%). The Ministry of Finance proposed to colleagues in Cyprus to raise rates to 15% for both dividends and in terms of interest, however, the negotiations were unsuccessful: the partners tried to dilute the effect of the initiative on the Russian treasury with various exceptions. The Russian department was forced to begin the procedure for submitting a federal law on denunciation to the State Duma.

Additional revenues that budgets of different levels will receive from the revision of these agreements,

The President instructed to send payments to families with children, the unemployed, and temporarily disabled persons.