Easing restrictions on Double Taxation Treaty

Legal Digest News
Amendments have entered into force in the Tax Code of the Russian Federation to mitigate the consequences of the suspension of double taxation avoidance agreements with foreign countries.

The amendments introduced mitigate the consequences of double taxation avoidance agreements (DTA) with foreign residents of countries that commit unfriendly actions towards the Russian Federation and its legal entities. The relaxations include:

  • Benefits for certain types of income, which include a zero tax rate, exemption from withholding tax from the source, or reduced rates. These changes apply to income paid from August 8, 2023.
  • Simplified requirements for income in the form of royalties, which area applied to intellectual property used by TV channels and objects of copyright, related, patent rights, know-how.

There are no requirements for these incomes by the date of conclusion of the contract — the benefit for them is also applicable if the contract was concluded after the suspension of the provisions of the DTA.

  • Benefits in the transport sector, which apply to income from leasing aircraft and ships, as well as international transportation. The relaxations are applied to contracts that are also concluded after the suspension of the DTA.
  • Benefits on interest paid to foreign banks and export credit agencies under contracts concluded before the suspension of the DTA.

The relaxations are valid until 2025 and apply when the company is able to confirm its tax residency and actual income generation in the country with which the suspended agreement was concluded. At the same time, the relaxations are not applied to transactions with related parties.

These changes are related to the effect of the Presidential Decree, which suspended a number of provisions of the treaty with "unfriendly" countries, for example: income from real estate, dividends, interest, royalties, capital, other income and so on.

But despite this, some articles have not stopped working yet. We are talking about articles:

  • elimination of double taxation
  • mutual agreement procedure
  • information exchange
  • employees of diplomatic and consular institutions.

In the matters of the use of DTA and transactions with foreign companies, please contact Acsour experts.