New rules for paying dividends abroad

New rules for paying dividends abroad

LEGAL DIGEST \ 19.07.2019

In April 2019, Russia ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the “Convention”). Starting from 2020, this document should be referred to when dividends, interest and royalties are paid to countries that have ratified the Convention.

Starting from 2020, in addition to the provisions that are already included in double tax treaties, the following condition should be complied with when dividends are distributed: the period of holding membership interests (shares) in a company should be at least 365 calendar days, including the day when the dividends are paid. Russia will extend the rule to certain double tax treaties with such countries as the Netherlands, Spain and France.

For Russia, the Convention will come into effect starting from 1 October 2019 and will bring several more provisions into force:

  • If a company has residency in two countries at the same time, the tax authorities of such countries should themselves determine which country’s legislation will be applicable in the case at hand. Until then, the company may not apply tax benefits under the double tax treaty;
  • The list of cases has been extended when a company has the status of a permanent establishment in the country: now, activities carried out through a related agent in another country will give rise to a permanent establishment.

A number of countries such as the UK, Ireland, Israel, Luxembourg, Malta, the Netherlands, the UAE, Poland, Serbia, Singapore, Finland and France have already ratified the Convention. Several more countries are expected to also ratify it by the end of the year.

Please contact Acsour’s specialists for advice on the proper taxation of payments made abroad.