Month: December 2020

After having pressed Cyprus, Malta and Luxembourg to renegotiate their Double Taxation Treaties (DTT) for a withholding tax rate of 15% to be applied to most dividend and interest payments, Russia failed to reach a similar agreement with the Netherlands and is now threatening to denounce the Russian-Dutch DTT.

The DTT termination between Russia and the Netherlands would result in:

• Upturn of the tax burden for Dutch residents (20% for interest and royalty payments and 15% for dividends);
• Difficulties with getting a foreign tax credit (no foreign tax credit would be granted to natural persons and legal entities in regard to dividend income, getting a foreign tax credit for further passive income would require extended documentation obligations);
• Increase of tax obligations for Russian companies and natural persons, as Dutch tax reliefs would cease to apply vice versa

Last week the Ministry of Finance of the Russian Federation announced the initiation of a draft law regarding DTT termination. Given the existing denunciation procedure (notification should be done at least 6 months prior the termination year), the new taxation reality might become effective as from 2022. Therefore, taxpayers would still have one more year to consider the effects on their business and restructuring possibilities.

Furthermore, there is still a chance both countries will come to a mutual agreement. The same announcements were published earlier after the negotiations with Malta ended in deadlock. However the parties finally managed to find a compromise and the Russian-Malta DTT was revised. The  day after this announcement the Russian Ministry of Finance confirmed they were still ready to find a compromise with the Netherlands and did not fully exclude further rounds of negotiations.

We will keep you updated on the topic and will be glad to provide further information upon request.

Foreign businesses will no longer need to register a separate company in Russia. The Ministry of Economic Development is planning to allow the branches of foreign companies in Russia to obtain a license without the need to establish a separate Russian entity. The draft law would apply to a wide range of business spheres and should facilitate the access of foreign investors to the Russian market.

At the present moment the grant of license is only possible to the companies established in Russia and registered with the Unified State Register of Legal Entities (USRLE). Branches of foreign legal entities are registered in a separate “Register of accredited branches and representative offices of foreign companies” (Accreditation register), which is kept by the Russian Federal Tax Authority. Currently more than 2000 branches are registered with it. Because of this difference, in case a foreign company is planning to carry out business in Russia, which falls under licensing regulation, it is forced to establish a Russian subsidiary. Thanks to the law amendments Russian and foreign businesses will gain equal opportunities without additional administrative burden.

The draft will enable the branches of foreign companies to obtain licenses based on their registration number and the date of registration in the Accreditation register. 52 types of activities would fall under the new regulation, among which are education, medicine, passenger traffic and pharmaceuticals.

The measure is advertised as stimulating foreign enterprises to expand, invest money into Russian economy and create new jobs. However, not all foreign entities would enjoy the facilitation of market entry. For example no changes are due for the financial sphere: The Central Bank of Russia will not issue a license to carry out banking activities to foreign companies.

If you wish to know more about doing business in Russia, proper choice of the legal form for your activities, advantages and disadvantages of having a Russian subsidiary vs. a foreign branch, envisaged costs, legal and reporting obligations in this regard we would be glad to provide you with detailed advice.