Partial suspension of tax treaties

On August 8, 2023, Russian President Vladimir Putin signed an Executive Order to suspend certain provisions of Double Taxation Treaties with a number of countries[1] (respectively, the ‘Order’ and the ‘Treaties’). The Treaties that are subject to the Order are those with the EU countries, the USA, Korea, United Kingdom, Albania, Montenegro, Norway, Canada, Switzerland, Macedonia, Iceland, New Zealand, Australia, Singapore and Japan. The Order notes that the suspension of certain provisions of the Treaties comes into force on August 8, 2023 and is valid ‘until foreign states rectify violations that they are committing of lawful economic and other interests of Russia, and of rights of its citizens and legal entities.’

The suspension includes the main provisions of the Treaties that distribute the rights of states in relation to the taxation of various types of income. In particular, the suspension has affected the distribution rules for taxing profits received from commercial activities, and income from real estate, dividends, interest, royalties, income from employment, etc. One of the practical consequences is that Russian residents involved in commercial life who operate in these countries or residents of these countries operating in Russia will not be able to take advantage of reduced tax rates, while interest and royalties will be subject to a withholding tax.

However, a number of provisions have retained their effect. The introductory provisions of the Treaties, provisions establishing the procedure for determining residence, as well as the final provisions regarding tax administration (including the exchange of tax information) and the procedure for terminating the Treaties have remained in force. It is also important to note that neither did the suspension affect the provisions on the avoidance of double taxation: Russian tax residents should retain the opportunity of offsetting taxes paid abroad. Still, we admit that some offset criteria may be subsequently revised by amendments to the Russian Tax Code or through additional clarifications by the executive bodies.

It is worth noting that the President of the Russian Federation also ordered the Government of Russia to take measures aimed at reducing the negative consequences for the Russian economy caused by the partial suspension of the Treaties. We believe that, in the near future, initiatives will be implemented for Russian residents regarding the compensation of tax losses.

We will continue to monitor how the situation develops.

[1] Executive Order of the President of the Russian Federation dated August 8, 2023 “On the Suspension by the Russian Federation of Certain Provisions of International Tax Treaties of the Russian Federation.”

Anton Borisyuk

+7 921 593 68 90
St. Petersburg