Tax Thursday – Termination of double tax treaty between Russia and The Netherlands

Background

Russia has re-negotiated its Double Tax Treaties with Cyprus, Malta and Luxembourg. As a result, withholding tax rates were increased generally from 5% (dividends) and 0% (interest) to 15%. The renegotiation process with The Netherlands was less successful. Yesterday, President Putin has signed the bill to approve the termination of the Double Tax Treaty with The Netherlands.

Impact and consequences – Corporate

• In case the termination notice is served before 1 July  2021, the tax treaty may terminate as of 2022.
• Russian domestic withholding tax will be due on dividends (15%) and on interest and royalties (20%).
• Alienation of shares in companies directly or indirectly deriving their value mainly from the immovable property in Russia, would be also subject  to tax in  Russia.
• The Netherlands will start applying 15% withholding tax on dividend payments to Russian corporate recipients. 
• Russian shareholders of Dutch companies may face increased liability to Dutch taxes on dividend income and capital gains.
• Impact on tax credits/relief for double taxation •Etc.

Further development

• Russia is on the list for Double Tax Treaty negotiations of the Dutch Ministry  of  Foreign Affairs for  2021, so it might be expected that eventually a new Double Tax Treaty may be effective. However, there may be a gap of a few years.
• We advise to evaluate the impact of the changes.
• Quick tax driven solutions will most likely be tested by the Russian tax authorities.

Questions

If you have any questions, please contact: [email protected],  [email protected],
[email protected] or t.wiertsema