Luxembourg: Protocol amending tax treaty with Russia | KPMG | GLOBAL

Luxembourg: Protocol amending income tax treaty with Russia

Luxembourg: Protocol amending tax treaty with Russia

A Protocol amending in the income tax treaty between Luxembourg and Russia (1998) has an entry into force date of 1 January 2014. The following is provided as a review of some of the measures from the Protocol.

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Withholding tax measures

  • The provisions of the Protocol include a rate of withholding tax (at 5%) on dividends if the beneficial owner is a company (other than a partnership) that: (1) directly holds a participation of at least 10%; and (2) has invested at least €80,000 or the equivalent in rubles. The withholding tax rate on dividends paid by a Russian subsidiary to its Luxembourg parent company could be reduced to 5%. In all other instances, the withholding tax rate on dividends is 15%. 
  • Other withholding tax measures affect a Luxembourg subsidiary distributing dividends to its Russian parent. In such instances, the withholding 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.
  • The withholding tax on interest and royalties would be at 0%.

Corporate income tax

  • In Russia, dividends received by the Russian parent company would be taxed at the Russian corporate income tax rate of 20%. However, dividends could be exempt from Russian corporate income tax, provided that certain criteria set in the Russian tax law are met.
  • Dividends received by a Luxembourg parent from its Russian subsidiary would be fully exempt from Luxembourg corporate income tax and from municipal business tax, provided that the conditions of the Luxembourg participation exemption regime are met.

Capital gains taxation

  • Capital gains realised by a Russian shareholder from the sale of its Luxembourg subsidiary (other than a “property-rich” company) would be taxable in Russia at the Russian corporate income tax rate of 20% and would be tax-exempt in Luxembourg.
  • 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.
  • Capital gains realised by a Russian shareholder from a Luxembourg “property-rich” company would be taxed in Russia at the Russian corporate income tax rate of 20% and tax-exempt in Luxembourg.
  • Capital gains realised by a Luxembourg shareholder in a Russian “property-rich” company would be taxed in Russia at the Russian corporate income tax rate of 20% and tax-exempt in Luxembourg.

Exchange of information

The international standard of exchange of information upon request as provided in the 2010 OECD Model Convention applies. In addition, there are detailed requirements for information requests, so as to avoid the use of the OECD Model Convention for “fishing expeditions.”

 

Read a November 2016 report prepared by the KPMG member firm in Luxembourg

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