The protocol amending the tax treaty between Cyprus and the Russian Federation was signed on 8 September during an official visit by Russian Foreign Minister Sergey Lavrov to Nicosia. The amendments to the treaty should be effective as of 1 January 2021, provided that the Protocol is ratified by both parties by the end of 2020.
The text was finalised in August, after four rounds of negotiations. In March, Russian President Vladimir Putin announced the increase of withholding tax rates on dividends and interest paid from Russia to a number of foreign jurisdictions. This was followed by an official request from the Russian Ministry of Finance to modify the existing tax treaty.
The signed protocol increases the withholding tax on dividends and interest income to 15% respectively, while excluding certain regulated entities, such as pension funds and insurance companies, as well as listed entities with specific characteristics. Additionally, exemption from the withholding tax applies for interest payments from corporate bonds, government bonds and Eurobonds. Withholding tax on royalties remains unchanged at 0%.
The Russian Ministry of Finance said that work is underway to make similar amendments to tax treaties with other jurisdictions. Equivalent changes have been agreed with Malta and Luxembourg, while negotiations continue with the Netherlands.
The Ministry estimates that the amendments to its treaties with Cyprus, Malta and Luxembourg could generate an additional RUB130-150 billion in revenue per year.