Russia could terminate a tax Treaty with Cyprus, media reported

Talks about changing the tax agreement with Cyprus still in stalemate, and it may be terminated, wrote in a Friday newspaper "Vedomosti" referring to Federal officials and several consultants who know about it from officials.

The President of Russia Vladimir Putin in the end of March was offered to tax at 15% income dividends transferred to accounts abroad. This requires an adjustment of agreements with other countries for avoidance of double taxation. The President warned that Russia would unilaterally be released from such agreements with those countries that will not accept its proposals.

Now when paying dividends to natural persons - tax residents of the Russian Federation is taxed at 13%, and non - residents 15%. In April Russia informed Cyprus about the change of the agreement for avoidance of double taxation. Appropriate notices were also sent to the ministries of Finance of Luxembourg, and Malta.

Cyprus – the most popular Russian business low-tax jurisdiction, through which capital is transferred to offshore and back to Russia. As the newspaper notes, citing data from the Central Bank in 2019, Russia has invested in a Cyprus company of $ 14.5 billion, and received $ 8.1 billion of direct investment. The agreement with Cyprus allows you to reduce the taxes paid abroad dividends and interest on loans to 5% and 0%, 15% and 20% respectively.

The sources say that the Ministry of Finance of Cyprus has not yet agreed to revise the agreement. According to one of the consultants, Cyprus has proposed to maintain rates, tightening control over foreign entities of the Russian business, to the technical layer could not save on taxes.

Russian Ministry of Finance has received confirmation that its proposals are considered, there is no turning back, and in the coming months if negotiations reach a deadlock, Russia will be forced in the autumn to initiate the adoption of laws on denunciation of the agreement, said the representative of the Ministry. The representative of the Cypriot Ministry of Finance has not responded to the request of the newspaper.

The publication notes that the termination of the agreement with Cyprus could lead to even higher tax costs than its revision.