Revised DTT with Luxembourg Ratified by Russia

AO UniCredit Bank
Summary: 
The law ratifying the Protocol with the amendments to the existing DTT between Russia and Luxembourg was approved by the Council of the Federation and signed by the Russian President. The revised DTT introduces new withholding tax rates and provisions related to the exchange of information between the fiscal authorities of the two countries.
Tue, 08/01/2013

On 26 December 2012, the Protocol with the amendments to the existing Double Tax Treaty (DTT) between Russia and Luxembourg was approved by the upper chamber of the Russian Parliament - the Council of the Federation and the President of the Russian Federation subsequently signed the respective law ratifying the Protocol on 30 December 2012. The Protocol was initially signed by the Ministers of Finance of both countries on 21 November 2011. The below amendments are being introduced with the Protocol.

  • Reduction of the minimum withholding tax rate on dividends to 5%, which could be applicable if the beneficial owner holds shares representing at least 10% of the capital of the issuer and has invested at least EUR 80,000 in the capital of the issuer company (the current version provides 10% as the minimum withholding tax rate on dividends).
  • Extension of the dividends definition to the payments on units of mutual investment funds or any other collective investment vehicles and payments on depositary receipts.
  • Cancellation of the tax exemption for capital gains tax on income from the sale of shares of companies, over 50% of the assets of which comprise immovable property, with certain exemptions.
  • Provisions on the exchange of information between the fiscal authorities of both countries, allowing for the requesting of information on the citizens of both countries. According to the Protocol, the fiscal authorities should have power to enforce the disclosure of information held by banks, nominees or persons acting in an agency or a fiduciary capacity, as well as by other financial institutions.

With the present changes, the Protocol amending the DTT between Russia and Luxembourg has in many aspects brought the document in line with the new editions of the DTTs of Russia with Cyprus and Switzerland. The new provisions also bring the DTT in line with the Organisation for Economic Co-operation and Development (OECD) Model Convention on Taxation of Income and Capital.

The DTT should be ratified by both countries, each country should issue an official note following that and the later note date will be treated as the date as of which the DTT would enter into force. The application of the DTT provisions would commence in the calendar year following the year in which the DTT would enter into force.

Impact on investors: The new provisions of the DTT would introduce a more favourable mutual tax regime and contribute to the more efficient exchange of information between the two countries.