Under the general provisions of the RTC, income earned by an FLE and not attributed to a PE in Russia is subject to WHT in Russia (to be withheld at source). WHT rates are as follows:
- 15% on dividends and income from participation in Russian enterprises with foreign investments.
- 10% on freight income.
- 20% on certain other income from Russian sources, including royalties and interest.
- 20% of revenue or 20% of the margin on capital gains (from the sale of immovable property in Russia or non-listed shares in Russian subsidiaries where the immovable property in Russia accounts for more than 50% of assets).
Taxation of margins (rather than gross income received from the types of sales listed above) may be applied only if expenses are properly documented.
Income of foreign organisations (not performing activities in Russia through a PE) from the sale of certain listed securities of Russian entities (and their derivatives) is not regarded as income derived from sources in Russia subject to WHT.
The list of exempt income (not subject to WHT) also includes: (i) interest payments on Russian government securities; (ii) interest payments on tradable bonds, issued in accordance with the laws of foreign countries; and (iii) payments made by Russian companies to finance coupons on Eurobonds issued by special purpose vehicles (SPVs) incorporated outside of Russia.
Tax should be withheld by the tax agent and paid to the Russian budget. WHT rates may be reduced under a relevant DTT, provisions of which may be applied based on confirmation of tax residency, which is to be provided by a foreign company to the Russian tax agent prior to the payment date (no advance permission from the Russian tax authorities is required) and also as long as general conditions are fulfilled (proof of beneficial ownership, etc.).
The Russian tax authorities recognise the terms of treaties concluded by the Union of Soviet Socialist Republics (USSR) until they are renegotiated by the Russian government. Furthermore, the list of effective tax treaties is continuously updated.
Russia has ratified amendments to DTTs with Cyprus and Luxembourg, and amendments to the DTT with Malta are expected to be ratified. The main points are increasing tax rates for dividends and interest. Maximum rate will be 15% both for dividends and interest, but there are some exemptions (5% and 0% rates will be applied in some cases). Tax rate for royalties will remain at 0% (5% with Malta). The amendments to the DTT with Cyprus apply from 1 January 2021. The amendments to the DTTs with Malta and Luxembourg will likely apply from 2022 (ratification process has not been completed). The ratification process of the protocol with Malta is also not completed. Application of new rates under the DTT with Malta in 2021 has to be clarified by the Ministry of Finance. In addition, Russia has announced about denunciation of the DTT with the Netherlands (but, in 2021, the DTT would still remain in force). Other DTTs with transit jurisdictions historically used for investments into Russia may also be revised.
Russia has ratified the MLI. Russia has chosen 71 DTTs, including DTTs with Austria, China, Cyprus, France, Hong Kong, Ireland, Latvia, Luxembourg, the Netherlands, Singapore, and the United Kingdom. When assessing the MLI’s applicability, it is necessary to consider whether the other party to the DTT has signed the Convention.
On 30 April 2020, Russia notified the OECD that it had completed its national procedures for implementing the MLI for 27 DTTs, and Russia notified about completing national procedures with 7 more jurisdictions on 26 November 2020. Consequently, the MLI may become effective as early as 1 January 2021 for 27 DTTs applying to all taxes and for 7 DTTs applying only to WHT. The MLI will be applied to these 7 DTTs for all taxes from 1 January 2022.
Russia expressed the intention to adhere to the strictest possible approach and impose the maximum limitations on providing tax benefits. However, the final approach depends on what choice the other party to a particular DTT makes.
Simplified Limitation of Benefits was the option selected by Russia, but most other countries selected Principle Purpose Test (PPT), thus, in most cases, Simplified Limitations of Benefits will not apply. Instead PPT will be applied in most cases; a treaty's benefits shall not be granted if obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.
Dividends: WHT reduced tax rate is applicable only if the period of holding the shares or interests of the company paying the dividends is equal to or exceeds 365 days (the existing participation criteria will remain in place).
Capital gains from transfer of shares or interests of entities deriving their value principally from real estate: These gains may be taxed at the jurisdiction of the real estate location if at any time during the 365 days preceding the transfer these shares or comparable interests derived more than 50% of their value from such real estate.
Eliminating double taxation: Russia selected tax deduction method, as it is now (the same as set out in most of the DTTs with Russia).
Concept of 'beneficial ownership'
The concept of the actual owner of income (i.e. the 'beneficial owner') was introduced into Russian tax legislation by the so-called 'Deoffshorisation' Law. It determines the ability to apply lower tax rates under a DTT.
There is no clear test on beneficial ownership in the Russian tax legislation to be applied by tax agents, which means that Russian tax agents cannot be entirely comfortable applying reduced tax rates on income paid abroad. In making any payments, they need to consider the risk of additional tax and penalties to be paid at their own expense.
According to the law, a tax agent has to request confirmation that a foreign entity is a beneficial owner of income. If the actual beneficial owner is known, the tax agent may apply the 'look through' approach (to use a treaty with the country where this beneficial owner resides). If the beneficial owner is located in Russia or a non-treaty country, the income paid is taxed under the RTC rules (note that a zero tax rate on dividends applies under special criteria).
The list below indicates the WHT rates mentioned in treaties. Russia has launched revision of the WHT rates on dividends and interest in a number of treaties with the aim to increase them up to 15%.
|Recipient||WHT (%)||Construction site duration before creation of PE (months)|
|Algeria/Russia||5 (2)/15||0/15||15||6 months and an aggregated period of more than 3 months in any 12-month period for furnishing services|
|Belarus/Russia||15||0/10||10||No special provisions in the relevant DTT; local tax legislation provisions should apply|
|Canada/Russia||10 (6)/15||0/10||0 (7)/10||12|
|Chile/Russia||5 (2)/10||15||5 (8)/10||6|
|Cuba/Russia||5 (11)/15||0/10||0 (12)/5||12|
|Cyprus/Russia||5 (13)/15||0 (14)/5 (15)/15||0||12|
|Czech Republic/Russia||10||0||10||12 months and an aggregated period of more than 6 months in any 12-month period for furnishing services|
|Denmark/Russia||10||0||0||12 months and an aggregated period of more than 365 days in any 18-month period for a drilling rig|
|Ecuador/Russia||5 (16)/10||0/10||10 (17)/15||10|
|Egypt/Russia||10||0/15||15||6 months and an aggregated period of more than 6 months in any 12-month period for furnishing services|
|Finland/Russia||5 (18)/12||0||0||12 months and an 18-month period for particular types of construction work|
|France/Russia||5 (19)/10 (20)/15||0||0||12|
|Hong Kong/Russia||0 (22)/5 (23)/10||0||3||12|
|India/Russia||10||0/10||10||12 (may be extended on agreement with the competent authorities)|
|Japan/Russia (24)||5 (27)/10/15 (28)||0/10 (29)||0||12|
|North Korea/Russia||10||0||0||12 months and an aggregated period of more than 6 months in any 12-month period for furnishing services|
|South Korea/Russia||5 (30)/10||0||5||12 (may be extended up to 24 months upon agreement with the competent authorities)|
|Kuwait/Russia||0 (22)/5||0||10||6 months and an aggregated period of more than 3 months in any 12-month period for furnishing services|
|Latvia/Russia||5 (31)/10||0/5 (32)/10||5||9|
|Lithuania/Russia||5 (24)/10||0/10||5 (8)/10||9|
|Malaysia/USSR||15||0/15||10 (34)/15 (35)||12 months and more than a 6-month period for installation or assembly projects|
|Mali/Russia||10 (36)/15||0/15||0||No special provisions in the relevant DTT; local tax legislation provisions should apply|
|Malta/Russia (53)||5 (13)/15||5 (15)/15||5||12|
|Mongolia/Russia||10||0/10||rates in accordance with local legislation||24|
|Namibia/Russia||5 (37)/10||0/10||5||9 months and more than a 6-month period for furnishing services and installation projects|
|Philippines/Russia||15||0/15||15||183 days and an aggregate period of more than 183 days in any 12-month period for furnishing services|
|Poland/Russia||10||0/10||10||12 (may be extended up to 24 months upon agreement with the competent authorities)|
|Saudi Arabia/Russia||0 (22)/5||0/5||10||6 months and an aggregated period of more than 6 months in any 12-month period for furnishing services|
|Singapore/Russia||0 (22)/5 (40)/10||0||5||12|
|South Africa/Russia||10 (41)/15||0/10||0||12|
|Spain/Russia||5 (42)/10 (43) /15||0/5||5||12|
|Sri Lanka/Russia||10 (11)/15||0/10||10||6 months and an aggregated period of more than 183 days in any 12-month period for furnishing services|
|Switzerland/Russia||0 (22)/5 (45)/15||0||0||12|
|Syria/Russia||15||0/10||4.5 (46) /13.5 (47)/18 (48)||6|
|Tajikistan/Russia||5 (2)/10||0/10||0||24 (may be extended on agreement with the competent authorities)|
|Thailand/Russia||15||0/10||15||6 months and an aggregated period of more than 3 months in any 12-month period for furnishing services|
|United States/Russia||5 (6)/10||0||0||18|
|Venezuela/Russia||10 (4)/15||0/5 (50)/10||10 (51)/15||9|
|Vietnam/Russia||10 (52)/15||10||15||6 months and more than a 12-month period for furnishing services|
Information is provided for reference purposes. Please review the relevant DTT for full information.
- In most cases, a 0% tax rate applies to interest payments to the governments of contracting states and to payments guaranteed by the government.
- If the beneficial owner of the dividends directly holds at least 25% of the capital of the company paying the dividends.
- If the following conditions are met:
- Dividends are paid to a company (other than a partnership) that directly holds at least 10% of the capital of the company paying the dividends.
- The resident of the other contracting state has invested a minimum of 700,000 Australian dollars (AUD), or an equivalent amount in Russian rubles, in the capital of that company.
- If the dividends are paid by a company that is resident in Russia, the dividends are exempt from Australian tax.
- Royalties for the production or reproduction of any literary, dramatic, musical, or other artistic work (but not including royalties for motion picture films or works on film or videotape or other means of reproduction for use in connection with television broadcasting).
- Royalties for the use of, or the right to use, computer software.
- Royalties paid to an unrelated party for the use of, or the right to use, any patent or any information concerning industrial, commercial, or scientific experience.
- Where the beneficial owner of the dividends has invested in the company paying the dividends, irrespective of the form or the nature of such investments, a total value of at least 500,000 French francs (FF) or the equivalent in another currency; as the value of each investment is appreciated as of the date it is made.
- Where that beneficial owner is a company that is liable to tax on profits under the general tax laws of the contracting state of which it is a resident and which is exempt from such tax in respect of such dividends.
- The beneficial owner of the dividends is a company (other than a partnership) that has invested at least ECU 100,000 or its equivalent in any other currency in the capital of the company paying the dividends.
- Those dividends are exempt from tax in the other contracting state.
Since 1 January 2021, the MLI will be entered into force for 34 Russian DTTs as follows:
|Application to all taxes||Application only for WHT|
|1. Australia||1. Cyprus|
|2. Austria||2. Czech Republic|
|3. Belgium||3. Indonesia|
|4. Canada||4. Kazakhstan|
|5. Denmark||5. Korea|
|6. Finland||6. Portugal|
|7. France||7. Saudi Arabia|
|17. New Zealand|
|23. Slovak Republic|
|26. United Arab Emirates|
|27. United Kingdom|