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Luxembourg Tax Alert 2020-07

Luxembourg Tax Alert 2020-07



Philippe Neefs

Partner, Head of Transfer Pricing

KPMG in Luxembourg


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Russia to amend tax treaty with Luxembourg

At the beginning of April 2020, the Russian Ministry of Finance – upon instruction from the president of the Russian Federation – sent an official letter to the Ministry of Finance of Cyprus requesting changes to the provisions of the current double tax treaty (DTT).

Information provided recently by the press office of the Russian Ministry of Finance shows that the same official letter was also sent to the Luxembourg Ministry of Finance.

What happened?

In March 2020, Vladimir Putin, president of the Russian Federation, addressed the nation to announce the main measures being taken to tackle coronavirus.

As part of the address, Putin instructed the government to quickly initiate negotiations with foreign jurisdictions to amend Russia’s current DTTs to set the minimum withholding tax rate on dividends and interest payed from Russia at 15%. It is worth recalling that the standard Russian withholding tax rates on dividends and interest are 15% and 20%, respectively.

Cyprus was the first to receive an official letter from the Russian Ministry of Finance regarding these amendments to the current DTT. The Russian Ministry of Finance has also sent the same letter to Luxembourg. Thus:

  • the minimum withholding tax rate on dividends under the Russia–Luxembourg DTTs may be raised from 5% to 15%; and
  • the minimum withholding tax rate on interest under the Russia–Luxembourg DTTs may be raised from 0% to 15%.

The intention of the Russian Government is that the 15% withholding tax rate on dividends and interest payments would be applicable as of 1 January 2021.

What should you do?

To date, Russia has three jurisdictions on its “black list” (Cyprus, Malta, and Luxembourg) that are often used when structuring investment going to Russia. However, the list of jurisdictions with which Russia would like to amend DTTs is still unknown.

As such, we recommend the following:

  • Assess the influence of the amendments to the DTTs on the current structure of your group, and consider your options to minimize or mitigate additional tax burdens;
  • Assess whether it is possible, considering the current situation, to make dividend / interest payments from Russia applying the reduced tax rates provided by the DTT currently in force.

For queries please contact:

Alona Gavrylova
Manager, International tax, Russian desk
Phone:  +352 22 51 51 5512

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