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Overview of new amendments in the double taxation treaties with Russia in 2016


Earlier legal update by Lidings dated 11 March, 20161 covered a number of the double tax treaties, as well as the protocols hereto, amending the current treaties, executed between 2014 and 2016. Further to the above mentioned review the survey set forth below  specifies key changes in the same area, which entered into force in 2016 or will take effect shortly.

1.    Hong Kong

In early 2016 the first Treaty2, establishing a preferential tax regime between Russia and Hong Kong was signed. The Treaty is aimed at providing for taxation of income, derived from business activities, usage of property, marine and air transportation, taxation of passive income, income received by individuals.

The Treaty establishes, that the income from dividends is taxed at a preferential rate of 5%, if the dividend recipient is a company possessing not less than 15% of the capital of the company-payer. The tax rate on income from copyright and licenses (royalty) will be 3%.

he Treaty and Protocol were ratified by the Federal Law No. 234-FZ of 3 July 2016.

The Letter of the Russian Ministry of Finance dated 9 August 2016 No. 03-08-06/46561 states, that the Treaty entered into force on 29 July 2016 and is applicable in the Russian Federation since 1 January 2017.

2.    People’s Republic of China

On 9 April 2016 the new Treaty3 between the Russian Federation and the Government of the People’s Republic of China entered into force.

The tax rate for income from interest under the new Treaty is reduced from 10% to 5%, for income from royalties - to 6% subject to certain requirements. In some cases, for income in the form of dividends the reduced preferential rate of 5% is applicable.

In accordance with paragraph 1 of Art. 28 of the Treaty, it will be applied in respect of income, received for the tax years beginning on 1 January or after 1 January of the calendar year following the year, in which the Treaty enters into force, i.e., from 1 January 2017.

3.    Singapore

On 17 November 2015 the Russian Federation and Singapore signed the Protocol4, which introduced a number of amendments to the Treaty between the Russian Federation and the Government of the Republic of Singapore for the avoidance of double taxation dated 9 September 2002.

The Protocol establishes, that the dividends will be taxed at the rate of 5%, if the company owns less than 15% of the capital of the company paying the dividend, and at the rate of 10% in all other cases.

The Protocol was ratified by the Federal Law No. 184-FZ of 23 June 2016, however as of December 2016 it has not entered into force. The provisions of the Protocol shall apply to the incomes, derived in tax periods starting from 1 January and after 01 January of the calendar year, following the year of the Protocol enactment.

4.    Cyprus

On 1 January 2017 a new version of the Treaty5 between the Russian Federation and the Government of the Republic of Cyprus comes into force. The new version takes into account the changes made to the relevant Protocol6.

In Article 13 of the Treaty, which governs the specificities of taxation of income from the alienation of property, new provisions were introduced:

  • income of a resident from the alienation of shares and similar rights, more than 50% of which are represented by immovable property, located in the other contracting state, can be taxed in that other state;
  • income from the alienation of shares does not include income from the disposal of shares, resulting from the company reorganization, and the proceeds from the disposal of shares listed on a registered stock exchange;
  • the provisions of this Article shall not apply to income from the alienation of shares, if the recipient is a pension fund, provident fund staff and the Government of any of the two states.

The above changes will apply staring from 1 January 2017.

The provisions of Article 27 on the assistance of contracting states in the collection of taxes come into force upon adoption of the required legislation by Cyprus.

Execution of aforementioned tax treaties generally complies with the overall trend for development of legal framework for avoidance of double taxation including said framework in the relations of the Russian Federation and countries of

Asia-Pacific. The treaties are aimed at promoting direct foreign investments, they will also allow Russian companies benefit from companies in Asian jurisdictions.

_____

1http://www.lidings.com/ru/legalupdates2?id=269
2Treaty between the Government of the Russian Federation and the Government of the Hong Kong Special Administrative Region of the People's Republic of China “On the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income” dated 18 January 2016
3Treaty between the Government of the Russian Federation and the Government of the People's Republic of China “On the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income” dated 13 October 2014
4Protocol amending the Treaty between the Government of the Russian Federation and the Government of the Republic of Singapore “On avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income” dated 9 September 2002
5Treaty between the Government of the Russian Federation and the Government of the Republic of Cyprus of 5 December 1998 “On the avoidance of double taxation with respect to taxes on income and capital”
6Protocol of 7 October, 2010 “On Amendments to the Agreement between the Russian Federation and the Government of the Republic of Cyprus for the avoidance of double taxation with respect to taxes on income and capital of 5 December 1998”



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