The tax treaty between Luxembourg and Russia (hereafter ‘the Treaty’) has been in effect since 1 January 1998. However, it has been amended by protocol which entered into force as of 1 January 2014. The key points of the Treaty are summarised below.
The Treaty provides for a withholding tax rate (‘WHT’) of 5% if the beneficial owner is a company (other than a partnership) which (i) directly holds a participation of at least 10% and (ii) has invested at least EUR 80,000 or the equivalent in rubles. In all other cases, the WHT rate on dividends should be 15%.
I.1. A Luxembourg subsidiary distributes dividends to its Russian parent
Taxation in Luxembourg
For a Luxembourg subsidiary distributing dividends to its Russian parent company, the Treaty should have a limited impact since the WHT tax rate on dividends paid to a Russian parent company could be reduced to 0% provided that conditions for the Luxembourg participation exemption regime are met.
Taxation in Russia
Dividends received by the Russian parent company should be taxed at the Russian corporate income tax rate of 20%. However, dividends could be exempt from Russian corporate income tax (‘CIT’) provided that certain criteria set in the Russian tax law are met.
I.2. A Russian subsidiary distributes dividends to its Luxembourg parent
Taxation in Luxembourg
Dividends received by a Luxembourg parent from its Russian subsidiary should be fully exempt from Luxembourg CIT and municipal business tax provided that the conditions of the Luxembourg participation exemption regime are met.
Taxation in Russia
Based on the Treaty, the WHT rate on dividends paid
by a Russian subsidiary to its Luxembourg parent company could be reduced to 5%.
Taxation of dividends under the Treaty between Russia and Luxembourg and the domestic law of both countries
II. Capital gains
II.1. Capital gains realised by a Russian shareholder on the sale of its Luxembourg subsidiary
Capital gains realised by a Russian shareholder from the sale of its Luxembourg subsidiary (other than a property-rich company1) should be taxable in Russia at the Russian CIT rate of 20% and tax-exempt in Luxembourg.
II.2. Capital gains realised by a Luxembourg shareholder on the sale of its Russian subsidiary
Capital gains realised by a Luxembourg shareholder on the sale of its Russian subsidiary (other than a property rich company) are tax-exempt in Russia and could be tax-exempt in Luxembourg provided that the conditions of the Luxembourg participation exemption regime are met.
II.3. Capital gains realised from a property-rich company
Capital gains realised by a Russian shareholder from a Luxembourg property-rich company
Capital gains realised by a Russian shareholder from a Luxembourg property-rich company should be taxed in Russia at the Russian CIT rate of 20% and tax-exempt in Luxembourg.
Capital gains realised by a Luxembourg shareholder in a Russian property-rich company
Capital gains realised by a Luxembourg shareholder in a Russian property-rich company should be taxed in Russia at the Russian CIT rate of 20% and tax-exempt in Luxembourg.
III. Interest and royalties
The Treaty foresees a 0% WHT rate on interest and royalties.
IV. Exchange of information
The Treaty applies the international standard of exchange of information upon request as provided in the 2010 OECD Model Convention. In addition, it sets detailed requirements for information requests, so as to avoid the use of the OECD Model Convention for ‘fishing expeditions’.
For further information, please do not hesitate to contact us.
Russia Desk in KPMG Luxembourg
Luxembourg’s openness to the world and strategic location has already attracted a number of investors from Russia and the CIS region. For this reason, KPMG Luxembourg maintains a Russia Desk to support and facilitate Luxembourg-Russia bilateral business opportunities – for Russian businesses setting up in Luxembourg as well as Luxembourg businesses setting up in Russia. KPMG has built a market-leading position in delivering cross-border services between Luxembourg and Russia with a team which also includes Russian-speaking specialists and a strong presence of KMPG in Russia and the CIS
1 A company whose assets directly or indirectly consist of more than 50% immovable property
For queries please contact:
Senior, International tax
Phone: Tel. +352 22 51 51 5512
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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