Recent announcement of Russian Minfin reveal a rather concerning scenario regarding Russian double taxation treaties (DTTs). The chances of suspending these treaties as soon as in June 2023 are high.
The list of affected countries includes Australia, Austria, Albania, Belgium, Bulgaria, United Kingdom, Hungary, Germany, Greece, Denmark, Ireland, Italy, Iceland, Spain, Canada, Cyprus, South Korea, Latvia, Lithuania, Luxembourg, Malta, North Macedonia, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, United States, Sweden, Switzerland, Finland, France, Japan, Croatia, Czech Republic, and Montenegro.
The consequences are that most likely Russia will apply domestic withholding rates which ar 15% for dividends, 20% for royalties, interest and certain other types of income and 10% on freight fees paid to corporate non-residents from the affected countries. Income of non-resident individuals is taxed at 30% in most cases, while dividends at 15%.
Most likely these taxes at source would not be credited by tax treaty partner countries in excess of tax treaty rates which in many cases would be 5% on dividends and zero for most of other types of income.
While announcing these intentions to “suspend” applications of DTTs, there was no announcement of intention to terminate these double tax treaties. This makes situation somewhat uncertain as such “suspension” is not envisaged in DTTs and most likely will be regarded as non-compliance with treaty obligations.
Therefore possible response and consequences thereof from the affected countries are still uncertain.
This uncertainty may continue for a while as the proper termination of DTTs with Russia will require notification of at least 6 month before the end of relevant calendar year under most of the affected DTTs, effectively allowing proper termination of these DTTs only as of 2025.
How Crowe Kazakhstan can help you:
1. We could help the affected taxpayers from the listed countries to coordinate the assessment of impact of the developments above on their currents structures and contracts.
2. Affected taxpayers willing to maintain their presence in the region may need to consider alternative solutions including restructuring or full or partial reallocation of its activities to other countries, e.g. such a Kazakhstan, tax treaty with which are not included in the list.
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