Denunciation of the Double Taxation Avoidance Agreement between Russia and the Netherlands

Denunciation of the Double Taxation Avoidance Agreement between Russia and the Netherlands

LEGAL DIGEST, NEWS \ 25.06.2021

The Kingdom of the Netherlands refused to accept the terms of the Russian Federation on amendments to the Double Taxation Avoidance Agreement relating to an increase of the at source tax rate to 15% in the form of dividends and interest.

Starting from January 1, 2022, the Law denouncing the Double Taxation Avoidance Agreements (DTAA) between the Russian Federation and the Kingdom of the Netherlands will enter into force. In connection with the abolition of this DTAA, it is necessary to impose profits tax on income in the form of interest and dividends at the new rates. For more information about the upcoming changes, see the table below.

Tax rate in 2021Tax rate from January 1, 2022
Tax rate on dividends paid from the Russian Federation
5% of the total amount of dividends, if the actual owner of the dividends is a company whose direct participation in the capital of the company paying the dividends is at least 25% and which has invested in it at least 75,000 ECUs or an equivalent amount in the native currency   15% of the total amount of dividends in all other cases.15% in the general case
Tax rate on interest paid from the Russian Federation

Earlier, the offer to increase the interest rate on this income was accepted by such countries as Malta, Luxembourg and the Republic of Cyprus.

We remind you that income received by foreign persons from sources in the Russian Federation is subject to tax in Russia. The tax agent for the calculation, withholding and transfer of tax is a Russian organization that pays such income.

However, tax agents may not withhold tax or withhold it at a reduced rate (compared to the rate established by Tax legislation) if there is a corresponding DTAA, as well as when income from tax sources in Russia is exempt from tax or is taxed at a reduced rate. In order to take advantage of this relaxation, it is necessary to comply with two conditions:

  1. The tax agent has a certificate confirming the residence of a foreign partner in the country with which the DTAA is concluded.
  2. The foreign person is the beneficial owner of income (BOI).

In addition to the terms contained in the DTAA, companies also need to check with the rules of the multilateral Convention on countering the base erosion and profit shifting (BEPS Convention) when paying income tax on which is withheld at source in the Russian Federation. The Convention is aimed at eliminating unjustified schemes for the application of benefits under the DTAA.

On the issues of the application of provisions of DTAA and the BEPS Convention, please contact Acsour specialists.