On the 8th of August 2023, the Russian President Vladimir Putin signed a Decree for the suspension of certain provisions of the Double Taxation Avoidance Agreement (hereinafter ‘the Agreement’) between the Russian Federation and the Republic of Cyprus.
The suspended provisions of the Agreement include Articles 5-22, 24, 27, and Article 29. From the issuance of the Decree, the application of reduced tax rates or tax exemption in relation to incomes covered by double taxation avoidance agreements is suspended and will continue to be until foreign countries address violations of Russia’s economic interests, as well as the rights of Russian citizens and legal entities.
This decision reflects as a political and economic move by Russia to jurisdictions it considers ‘hostile’ in order to exert pressure and to address what it perceives as infringements on its interests. The suspension of tax-related provisions could have implications for businesses and individuals conducting cross-border transactions with Russia, as it might lead to potential double taxation and changes in the taxation landscape between Russia and the affected countries.
The Russian Federation has already implemented bans on currency exports and payments to jurisdictions it deems “hostile” due to sanctions, including Cyprus. These sanctions have also led to the reduction of economic and trade relations between Russia and European countries.
It is estimated by the experts, that the non-application of the Double Taxation Avoidance Agreement’s provisions might not have further significant consequences for Cyprus, as the existing sanctions and restrictions have already impacted economic relations between the two countries.
Given the complexity of international agreements and the potential impacts on various stakeholders, it’s recommended that individuals and businesses affected by this Decree consult legal and financial professionals to understand how these changes might specifically impact their situations and to explore potential strategies for navigating through the evolving taxation environment.