Solid balance of payments in 2020, additional support secured in 2021 by amended double taxation treaties

RUSSIA ECONOMICS - In Brief 11 Aug 2020 by Alexander Kudrin

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As the Russian government continues fine-tuning of its taxation system, move to renegotiate with several countries agreements on avoidance of the double taxation looks natural and reasonable. Earlier the government decided to impose a 15% tax on interest on bank deposits (if total deposits of an individual taxpayer exceed the certain limit) as well as increase personal income tax to 15% from a flat 13% rate for the wealthiest part of the population. Most recently Russia decided to increase withholding tax on dividends, paid to foreign subsidiaries of the Russian companies to the same 15% (up until now this rate remains much lower, and in the case of Cyprus, for instance, it varies from 0% to 5% depending on particular businesses).Various speculations about Russia’s exit from such agreements with various countries, which circulated in recent months, eventually didn’t materialize. As a result of a visit of the Cypriot Finance minister to Russia on August 10, Russia and Cyprus agreed to amend the existing agreement and increase withholding tax to the aforementioned 15%, but with some exemptions. For instance, this rate won’t be applied to dividends of the listed companies, on pension funds and insurance companies, on interest on corporate and government bonds. These exemptions look reasonable as without them market capitalization of the listed companies, many of which are partially state-owned, could have fallen dramatically. Overall, the Russians authorities estimated that the federal budget can get additional R130-150 bn (around $2bn) after these amendments come into effect in 2021.It was announced that similar agreements with Malta and Luxemburg will be finalized in th...