Russia has suspended most articles of double tax treaties with unfriendly countries, including the Czech Republic

In March this year, the Russian Ministry of Finance and the Russian Foreign Ministry came up with a joint proposal to suspend double tax treaties with all "unfriendly" countries. Subsequently, the ministries turned to the President of the Russian Federation with a request to issue the relevant decree. This occurred on 8 August 2023, when the President signed the decree. On the same day, Decree No. 585 was published and became effective. What does this mean for the countries concerned, including the Czech Republic?

The suspension affected double tax treaties with 38 unfriendly countries, including EU member states, the US, Japan, Australia and Switzerland. At the same time, only certain articles of the double tax treaty were suspended, most of which related to the granting of more favourable conditions than those applicable under Russian law. In particular, these include articles regulating the taxation of interest, dividends and royalties.

How will the decree be implemented in practice?

In particular, the payment of passive income to counterparties, i.e. tax residents of unfriendly countries, will now be taxed at source according to the rates set by the Tax Code of the Russian Federation without further possible reduction, i.e. as follows:

  • dividends: 15%;
  • income from international transportation: 10%;
  • interest, royalties and other types of passive income: 20%.

At the same time, many articles will continue to apply—among them, articles defining:

  • persons to whom the double tax treaty applies;
  • taxes covered by the treaty;
  • procedures for the elimination of double tax (which should preserve the right to a credit for taxes paid abroad);
  • information exchange;
  • the procedure for conducting the mutual agreement procedure.

The provisions of the decree also oblige the Government of the Russian Federation to “ensure the adoption of measures aimed at reducing the negative impact on the Russian economy”. A proposal to make these changes is expected in the near future. Earlier, for example, representatives of the Russian Ministry of Finance reported that certain benefits could be enshrined in the Tax Code of the Russian Federation – for example, exemption from withholding tax on interest paid to independent foreign banks.

The Czech Republic is waiting for the diplomatic note to respond

Regarding the Czech Republic’s reaction to the unilateral suspension of certain articles of the double tax treaty by the Russian Federation, an official diplomatic note with details from the Russian Foreign Ministry is currently awaited.

We will continue to monitor this area for you as the taxation of such income is very likely to change for entities with income originating in the Russian Federation.

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