Russia announces possible suspension of double tax treaties with 38 countries

The Russian government plans to temporarily stop the application of double tax treaties (DTTs) with 38 countries, including members of the European Union, the United States, Canada, the United Kingdom, Switzerland, Singapore and Japan. This decision was announced by the Russian Ministry of Finance. The list also includes Australia, Austria, Albania, Belgium, Bulgaria, Hungary, Germany, Greece, Denmark, Ireland, Italy, Iceland, Spain, South Korea, Cyprus and many other countries. This change may come into effect as early as June 2023.

As a result of this decision, Russia is expected to apply its domestic tax rates to income paid to non-residents. The tax rate on dividends will be 15%, on royalties and other types of income paid to corporate non-residents – 20%. Income of non-resident individuals will be taxed at 30%, and dividends at a rate of 15%.

It is likely that these tax rates will not be taken into account by tax treaty partners in excess of the DTTs, where rates are in many cases 5% for dividends and 0% for most other types of income.

Although the Russian government plans to temporarily suspend the use of DTTs, it has not announced a complete repeal of these agreements. This creates some uncertainty as DTTs do not provide for such a “suspension” and such a decision could be considered a breach of contractual obligations.

It is expected that the reaction and consequences from the affected countries remain unclear for the time being. This uncertainty may persist because official termination of the DTT with Russia requires six months’ notice prior to the end of the relevant calendar year under most DTTs. In fact, this means that the termination of these agreements is possible no earlier than 2025.

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