Russia amends DTT with Malta and introduces taxation of notional CFC profit

DTT Russia – Malta
On October 1, a protocol was signed to amend the agreement on the avoidance of double taxation between Russia and Malta in terms of increasing the tax to 15% at the source of income in the form of dividends and interest. The ratification of the protocol must take place before the end of this year for its provisions to apply from January 1, 2021.
Dividends
The preferential dividend rate (5%) will remain for dividends received by
(i) Malta public companies (15% of shares are listing; controlled share in the capital of Russian company is not less than 15% within 365 days);
(ii) pension funds and insurance companies.
The next signing of a similar agreement is planned with Luxembourg. Negotiations with the Netherlands are ongoing.
Interests
The interest income paid by a Russian company will be taxed at the rate 5% at source if the recipient of such interest income is
(i) a pension fund;
(ii) an insurance company;
(iii) a bank;
(iv) public companies (15% of shares are listing; controlled share in the capital of Russian company is not less than 15% within 365 days).
In addition, interest on state bonds, corporate bonds and Eurobonds should be taxed at the rate 5% at source.
For other cases, 15% WHT rate should be applied.
Please note that DTT between Russia and Malta is subject to MLI convention that will be applied by Russian tax authorities starting from 2021.
Taxation of notional CFC profit
Russian Parliament developed a draft bill, which simplifies tax liabilities of Russian individuals with tax resident status who own controlled foreign companies.
According to the bill Russian individuals (tax residents) starting from 2020 will receive the right to pay fixed amount of tax from fixed CFC notional profit regardless of number of CFC companies and their taxable profit under financial statements.
Fixed amount of tax for the year 2020 will be 5 769 000 RUR (63 400 EUR) and for the periods starting from 2021 the fix amount of tax will be 5 100 000 RUR (56 000 EUR). The notional profit is 38 460 000 RUR (422 600 EUR) and 34 000 000 RUR (373 600 EUR) accordingly. Applicable tax rate is 15%.
An individual (Russian tax resident) will receive the right to apply described regime if he submits corresponding application to the Russian tax authorities before 31 of December of the year when he would like to start to pay fixed amount of tax from CFC notional profit.
It not permitted to change tax regime for CFC from notional profit taxation to fact profit taxation within 5 years.
Additionally the draft bill increases penalty for non-disclosing CFC from 100 000 RUR (1 100 EUR) to 500 000 RUR (5 500 EUR).
How we can help you
Lex Alliance tax team will be glad to assist you with the following issues:
· Analysis of international structures on tax risks arising due to changes in Russian DTT
· Analysis of possibility to apply look through approach within distribution of passive income from Russia
· Development of recommendations aimed on tax risks mitigation in respect of modification of international structures
· CFC compliance in Russia

Corporate Tax