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Russia: Proposed withholding tax rate changes, income tax treaties to be renegotiated (COVID-19)

Russia: Proposed withholding tax rate changes

The Russian Ministry of Finance in April 2020 sent official letters to the Ministry of Finance of Cyprus and to the Ministry of Finance of Luxembourg requesting changes to the withholding tax provisions of the current income tax treaties between Russia and Cyprus and between Russian and Luxembourg.

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In March 2020, Vladimir Putin, president of the Russian Federation, announced measures to address the economic impact of the coronavirus (COVID-19) pandemic, and these measures included negotiations with foreign jurisdictions to amend Russia’s current income tax treaties to set the minimum withholding tax rate on dividends and interest paid from Russia at 15% (from the standard treaty-provided withholding tax rates of 15% for dividends and 20% for interest).

Cyprus was the first treaty partner to receive an official letter from the Russian Ministry of Finance regarding changes to the existing income tax treaty. A similar letter was sent to Luxembourg.

Regarding the tax treaty with Luxembourg, the intent is that effective 1 January 2021, the minimum withholding tax rate under the Russia-Luxembourg income tax treaty would be increased:

  • For dividends—to 15% (up from 5%)
  • For interest—to 15% (up from 0%)


KPMG observation

Russia has three jurisdictions on its “black list”—Cyprus, Malta, and Luxembourg—and these countries are often used when structuring investments into Russia. However, the list of jurisdictions with which Russia would like to amend the withholding tax rates contained in income tax treaties is at present unknown.

Read a May 2020 report prepared by the KPMG member firm in Luxembourg

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