Russia Double Taxation Avoidance Agreements

The main purpose of these treaties is to protect the investor from being double taxed for the same income in two different countries and to prevent tax discrimination against a signatory country abroad.  Especially the interest, royalties, pensions, dividends are subject to this double tax treaties.

Since 2002, when the new profit tax law came into force, it changed the tax regime applied to the foreign companies doing business in Russia. The former extremely bureaucratic procedure is now replaced with a much-simplified procedure which allows the investors to take advantage faster of the double taxation treaties signed by Russia with different countries over the years.

Below, our lawyers in Russia explain how double taxation treaties work in this country.

The benefits of double tax treaties

A foreign company may beneficiate from the tax exemptions in Russia if it’s bringing relevant proves that it’s already paying taxes in the country part of the treaties. Treaties of exchange of information are signed between the countries. Every year, the signatory states make the exchange of lists of investors who claim to be exempt from different taxes, on the ground of double taxation treaties. This list must be checked very carefully, and additional documents may be claimed from the investors.

There are two ways to profit from the double tax treaties exemptions: without tax deducted or with tax deducted at a reduced rate of tax as agreed in the double tax treaty.

Permanent establishments in Russia

One of the most important provisions of Russia’s double tax treaties is related to permanent establishments which can take the form of:

• -       fixed business places, such as branch offices of foreign companies in Russia;
• -       various places of management which must be established in Russia for specific periods of time;
• -       offices, factories, industrial and construction sites can also be considered permanent establishments;
• -       quarries, mines, oil and gas wells and other locations where natural resources are extracted from can be deemed as permanent establishments.

Our Russian lawyers can offer more information on the permanent establishment status. Permanent estabishments can also benefit from the EORI numbers obtained by their parent companies.

What do Russian double tax conventions contain?

Most of the Russian double taxation treaties contain provisions for the following elements composing the income to be taxed, such as:

•          -      the income derived from business profits, in the case of Russian and foreign companies,
•          -      the income generated by the payment of dividends to corporate and non-corporate shareholders;
•          -     the taxation of interest payments in the countries which have signed double tax treaties with Russia;
•          -      the taxation of capital gains, also known as income derived from owning or selling real estate;
•          -      the taxation of individuals and companies on incomes derived from royalties payments;
•          -      the taxation of income derived from employment, directorships and sports activities.

Most of Russia’s double tax agreements contain provisions on the permanent establishment status, which allows foreign companies to set up operations in this country under various forms. Under this status, foreign companies can benefit from advantageous tax conditions.

Following the Organization for Economic Co-operation and Development Model Convention, Russia has introduced tax information exchange clauses in its agreements.

Countries Russia signed double taxation agreements with

For the moment, Russia has signed treaties with 79 countries and 78 of them were enforced. Russia has also signed other treaties which are currently pending ratification. Here is the list with the signatory countries: Algeria, Austria, Armenia, Australia, Azerbaijan, Belarus, Belgium, Botswana, Brazil, Bulgaria, China, Albania, Croatia, Canada, Cuba, Cyprus, Denmark, Egypt, Czech Republic, Finland, Germany, Luxembourg, Greece, Hungary, France, Iceland, India, Iran, Ireland, Israel, Italy, Japan, Kazakhstan, Indonesia, North Korea, South Korea, Kuwait, Kyrgyz Republic, Lebanon, Lithuania, Macedonia, Malaysia, Mali, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia, Netherlands, New Zealand, Norway, Romania, Philippines, Poland, Slovenia, Portugal, Qatar, Saudi Arabia, Serbia, Singapore, Slovakia, Spain, Switzerland, South Africa, Sri Lanka, Sweden, Syria, Tajikistan, Thailand, Turkey, Turkmenistan, Ukraine, UK, USA, Uzbekistan, Venezuela, Vietnam.

Avoidance of double taxation in Russia’s agreements

Most of Russia’s double tax conventions provide for the following mechanisms for avoiding double taxation:

• -       Russian companies and individuals will benefit from tax credits granted for the taxes paid in the other country;
• -       tax exemptions are also available where tax credits cannot be offered;
• -       reduced tax rates are applicable in certain cases, especially in the taxation of dividend, interest and royalties payments;
• -       other provisions can be enabled depending on the particularities of each double tax treaty.

Foreign investors who are running businesses in Russia and who are interested in finding out more information about avoiding the double taxation may contact our lawyers in Russia.