Cyprus-Russian Business Association Announcement about DTT with Russia

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Further to our previous notes, We write to update you on the current status of the discussions regarding the requested amendment to the Double Tax Treaty (DTT) with Russia.

The short summary is that the current DTT is in force, the discussions continue and will most likely be concluded this month.

Last April the Russian Government requested the revision of the Double Tax Treaty (DTT) between Cyprus and Russia.

Since then we are in continuous communication with the Ministers of Finance and Foreign Affairs of Cyprus, as well as the Director General of the Ministry of Finance. Furthermore, as already communicated to you, we expressed our views to the Ambassador of the Russian Federation to Cyprus.

The Russian government has requested an amendment to the DTT with Cyprus so as to increase to 15% the withholding tax rates on dividend and interest payments from Russia to Cyprus.

Based on the current provisions of the DTT between Russia and Cyprus: ● The withholding tax on dividends paid by a Russian company to a Cypriot resident company or individual is 5% if the Cypriot resident has directly invested at least Euro 100.000 in the capital of the Russian company. The withholding tax is 10% in all other cases. ● The withholding tax on interest arising in Russia and paid to a Cypriot resident is 0%. In accordance with Russian domestic legislation, in the absence of an applicable DTT, the withholding tax on dividends paid abroad is 15% and the withholding tax on interest is 20%.

The negotiations between the Ministries of Finance of the two countries started in June. A number of teleconferencing meetings have taken place, as well as exchanges of written proposals.

As has already been reported the matter was also discussed at the highest political level. -2- In the negotiations the Cyprus side, whilst fully respecting the decision of Russia to request amendments to the DTT, has put forward its own proposals with the objective of achieving certain exceptions to the applicability of the 15% tax rate as well as aiming to have a level playing field with other European countries. In the context of the ongoing discussions a meeting will take place in Moscow on 10 and 11 August.

The Cyprus delegation will most likely be headed by the Minister of Finance. Whilst the request to increase the withholding tax rate on dividends and interest to 15% is not a positive development we need to note that the reasons that Cyprus is used as a base for investments into Russia go beyond the provisions regarding withholding tax on dividends and interest.

As soon as we have a final outcome to the negotiations we will inform you of the agreed changes to the DTT.

Yours sincerely,

Evgenios Evgeniou/President