Russia suspended certain main articles of 38 DTTs concluded by Russia with so-called “unfriendly” states, including Cyprus. The list of 38 “unfriendly countries” encompasses a wide array of nations from different regions of the world.

The suspension of DTTs is justified by Russia’s need to respond to “unfriendly actions” taken by these nations against the Russian Federation, its citizens, and legal entities, in connection with the war in Ukraine.

Impact on International Taxation

The suspension concerns the DTT articles allocating the rights of the Contracting States (e.g. Cyprus and Russia) to tax all types of income and capital. Thus, it will not be possible to apply reduced tax withholding rates and tax exemption in respect of passive income, income from employment, professional and other similar activities.

The suspension pertains to the following provisions:

• Distributive rules, outlining the taxation of various items of income and allocating taxing rights between states. This includes articles addressing taxation of dividends, interest, royalties, income from permanent establishments, capital gains, employment earnings, and miscellaneous income.
• Provisions related to property taxation.
• Non-discrimination clauses.
• Limitation of benefits provisions stipulated in several treaties, namely: with Sweden, Luxembourg, the United Kingdom, Switzerland, Cyprus, Lithuania, Austria, and Malta.
• Provisions involving mutual assistance in tax collection for agreements with Belgium, Norway, Cyprus, Austria, and Japan.

Articles related to the elimination of double taxation, mutual agreement procedures, and the exchange of information remain unaffected.

Impact on Cyprus

Cyprus entities receiving dividends, interest, royalties, or other income subject to withholding tax from Russian entities will no longer be entitled to preferential withholding tax rates or exemptions as stipulated by the respective double tax treaty. Instead, withholding tax will be applied at the rates specified in the Russian Tax Code. Specifically, the tax rate for dividends will be 15%, and for interest, royalties, and other income subject to withholding tax, the applicable rate will be 20%.