Specifics of application of Double Taxation Treaties in Russia

1) Which principal Double Tax Treaties (DTTs) are currently in force in Russia?

Russia has an extensive network of double taxation avoidance agreements (DTTs) signed with over 80 countries. Key agreements are in force with Cyprus (1998, amended in 2010 and 2021), Netherlands (1996, updated in 2021), Luxembourg (1993, new version 2021), Germany (1996), France (1996), UK (1994), China (2014), as well as EAEU states. Revised agreements with Cyprus, Malta and Luxembourg (2021) are particularly significant as they increased source tax rates to 15% for dividends and interest. In 2022, Russia suspended the DTT provisions concerning dividends and interest with "unfriendly" countries. Applying DTTs requires analysis of residency status, income type and specific agreement provisions as terms may vary substantially. Correct application requires considering both the agreement text and domestic tax legislation.

2) What types of income are covered by Double Taxation Treaties?

Most often, double taxation treaties provide for the following types of income:  

• income from immovable property;
• business profits;
• income from international transportation;
• dividends;
• debt interest;
• royalties;
• capital gains;
• other income (such as fees, employment income, etc.).

3) How is tax residency determined for DTT purposes in Russia?

For the purposes of applying DTTs in Russia, tax residency is determined by the following key criteria:

• Individuals – are considered residents of staying in Russia for 183 or more days within 12 consecutive months (Art. 207 of the Tax Code). Critical exception: public officials posted abroad retain Russian residency.
• Legal entities – residency is granted to organizations managed from Russia (place of actual decision-making), even if registered abroad (controlled foreign companies – CFCs – may be excluded).

DTT-specific nuances:

• In case of dual residency, the tie-breaker rule from the specific agreement applies (usually – permanent home, vital interests, place of incorporation for companies).
• To access DTT benefits, residents must provide proof of residency (e.g., tax residency certificate).

Status is reviewed annually, and "simplified" residency (e.g., for offshore entities) has been restricted since 2021.

4) How to properly prove tax residency status to apply treaty benefits?

The status of tax residency is confirmed by a document issued by the competent authority of the relevant country. In Russia, the competent authority is the Federal Tax Service (FTS). Upon request, the FTS issues a certificate confirming tax residency.

5) How to determine which Double Taxation Treaty applies to a specific transaction?

Double taxation treaties are, as a general rule, concluded between two countries; therefore, the applicable treaty is determined based on the residency of the parties to the transaction.

6) Do the provisions of the DTT take precedence over domestic tax law?

DTT provisions take precedence over Russia's national tax legislation (clause 2, art. 7 of the Tax Code). This means treaty terms override domestic law in case of conflict. Key nuances:

1. DTT benefits apply only upon proving counterparty's residency and meeting agreement conditions (e.g., beneficial ownership);
2. Russia may apply domestic rules if more favorable (most favored nation principle);
3. Since 2022, restrictions for "unfriendly" countries have suspended specific DTT articles. Thus, DTTs are primary but require case-by-case analysis considering current legislative changes.

7) What tax obligations does a resident have when receiving income from abroad under a DTT? 

When receiving income from abroad, the tax consequences will depend on the type of income and the provisions of the applicable double taxation treaty.

8) How are tax rates on dividends, interest, and royalties applied under a DTT?

According to the Russian Tax Code, such types of income as dividends, debt interest, and royalties paid to a foreign organization are subject to reduced tax rates in the Russian Federation:

• Dividends received by foreign organizations from participation in Russian entities are taxed at a rate of 15% (subpara. 3 para. 3 art. 284 of the Russian Tax Code);
• Dividends received by foreign organizations from participation in Russian entities, where the shareholding exceeds 25% and the amount is not less than 100,000 euros or an equivalent sum in rubles, are taxed at a rate of 10% (subpara. "a" para. 2 art. 10 of the Model Convention);
• Income from copyrights and licenses and debt interest on obligations are taxed at a rate of 10% (para. 2 art. 11 of the Model Convention).

For a foreign company to benefit from reduced tax rates under a Double Taxation Treaty, it must submit two documents to the Russian company making the payment (the tax agent):  confirmation of the actual right to receive the income (art. 312 of the Russian Tax Code) and certificate of permanent location (tax residency) in the country with which Russia has concluded an international treaty.

9) What are the mechanisms for eliminating double taxation?

Taking into account the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI BEPS), the elimination of double taxation is achieved by crediting taxes paid in one country against similar taxes due in the other country.

An important aspect of applying DTT (double taxation treaties) is determining who is the actual beneficiary of the income. If income is paid to a mere intermediary, the provisions of the treaty cannot be applied. The characteristics of the actual income recipient are defined in paragraph 2 of Article 7 of the Russian Tax Code.

10) What is the dispute resolution process and Mutual Agreement Procedure (MAP) under a DTT?

If a dispute arises in connection with the application of a double taxation treaty, the taxpayer has the right to initiate a mutual agreement procedure (Chapter 20.3 of the Russian Tax Code).

The mutual agreement procedure may be initiated either at the request of the taxpayer or at the request of the competent authority of a foreign state (or territory) that is a party to the Russian Federation’s international tax treaty.

The taxpayer may submit an application within three years from the date of delivery of the act which, in the taxpayer’s opinion, leads to taxation of their income, profits, or property that is inconsistent with the provisions of the international treaty.

As a result of the mutual agreement procedure, the entity may adjust the amount of corporate profit tax and obtain a refund of overpaid amounts in accordance with Article 79 of the Russian Tax Code and Article 105.18-1 of the Russian Tax Code.

Authors: 

Alena Ivanova, partner, Aleksandra Levenkova, partner, Oksana Afanasyeva, partner