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The Double Tax Treaty (DTT) Protocol between Cyprus and Russia

 

Following the ratification of the DTT Protocol between Cyprus and Russia, Cyprus has officially been removed from Russia’s “black list” of offshore jurisdictions meaning that dividends received by Russian companies from Cyprus subsidiaries can qualify for the Russian dividend participation exemption. The participation exemption provides that dividends received by a Russian company from an overseas subsidiary are tax free if the Russian company holds at least 50% of the share capital of the overseas subsidiary for at least 365 days and the overseas subsidiary is not in a black list jurisdiction.

The Protocol will come into effect from 1 January 2013 (with some provisions that will be effective from 1 January 2017). The major features of the Protocol are described below.

 

Withholding tax

Dividends- No changes have been made to the withholding tax rates on dividends which are set at 5% or 10%, but in order to apply the reduced 5% withholding tax rate, a direct investment of at least €100.000 in the capital of the company paying the dividends is required, instead of the existing investment of $100.000.

Interest and Royalties- No changes have been made to the 0% withholding tax rate on interest and royalties.

 

Capital gains on the sale of shares in real estate rich companies

The new provision states that capital gains arising on the sale of shares in companies which are real estate rich will be taxed in the country where the real estate is located. This provision will come into effect as from 1 January 2017.

 

Distributions from mutual investment funds

Distributions from mutual investment funds which have invested mostly in immovable property will be considered as income from the sale of immovable property and thus be taxed in the country where the real estate is located. This provision will come into effect as from 1 January 2017.

 

Exchange of information

The revised provisions are aimed at promoting greater transparency and are in line with the latest standards published by the OECD Model Treaty. The revised article provides clarifications with respect to the obligations and powers of the two countries regarding the exchange of information and cooperation in the collection of taxes.