Russia Ratified the Agreement on the Elimination of Double Taxation with Oman

28 December 2023
Dmitry Filippov
Junior Associate
Dmitry Kirillov
Counsel

On 12 December 2023, the President of the Russian Federation signed Federal Law № 571-FZ to ratify the Agreement between the Government of the Russian Federation and the Government of the Sultanate of Oman on the Elimination of Double Taxation in respect of Taxes on Income and Prevention of Avoidance and Evasion of Taxation and the Protocol thereto (hereinafter - the “Agreement”).

Subject to ratification of the Agreement by Oman and mutual notification of the parties of the ratification procedures by the end of 2023, the Agreement will enter into force as early as 1 January 2024.

The Agreement with Oman allows for preferential tax treatment of dividends, interest, and royalties under the 10-10-10 model (10% withholding tax rates on such income). The tax rate for dividends applies provided that the recipient owns the share of at least 20% in the capital of the source of income for at least 365 days prior to the date of dividend distribution. Otherwise the 15% rate applies.

It is important to note that state-owned institutional investors are exempt from withholding tax on dividends by the Agreement. This exemption is similar to that of the investment income tax treaty with the UAE. This exemption is also applicable to the interest income.

In the Russian Federation the said tax rates apply to both corporate and personal income tax, whereas in Oman, they apply to the income tax, which is mainly corporate.

These tax rates are in line with with the Model Double Tax Treaty1. However, the Russian Federation has previously entered into agreements with lower tax rates under the 5-0-0 model, such as with Qatar in 1998. The OECD Model Tax Convention allows for tax rates of 15% (or 5% in some cases) on dividends, and 0% tax rates on interest and royalties. The Agreement generally sets forth relatively high tax rates, which appears to be a new trend in international tax treaties concluded by the Russian Federation.

Separately, the Agreement mentions the procedure for taxation of corporate profits from the operation of ships and aircraft: these profits are taxable only in the state where the company is a resident. This exception is particularly important for companies planning to implement logistics projects in Oman.

The Agreement regulates the taxation of employment income.  In accordance with Clause 2 of Article 14 of the Agreement, Russian employees of Russian organizations who work remotely in Oman will only be subject to Russian personal income tax on income earned during a period or periods totally not exceeding 183 days in any 12-month period beginning or ending in the relevant tax year. Following this period, Russian employees may also be subject to Omani taxes on their income. However, as personal income is not currently taxed in Oman (unless it is passive or entrepreneurial income), Russian employers will keep withholding Russian personal income tax.

The general procedure for eliminating double taxation is as follows: if a resident of Russia or Oman receives income that can be taxed in Russia or Oman accordingly, the other party to the Agreement shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in the other country, whether directly or by deduction.

The Agreement also includes model terms for exchanging tax information and assisting in tax collection between Russia and Oman. This will make business between the two states more transparent and controllable.

Generally, the ratification of the Agreement by the Russian Federation is an important step towards economic restructuring, establishing supply chains, and parallel imports through interaction with friendly states.

Oman in this sense is not only friendly, but also economically interesting due to the rather low level of local taxation and the presence of various free trade zones with even more favorable taxation, especially in respect of foreign trade activities.

1 The model form is established by the Resolution of the Russian Government dated 24.02.2010 No. 84 “On conclusion of intergovernmental agreements on avoidance of double taxation and on prevention of evasion of taxes on income and property”.