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Treaty between Russia and Cyprus – Russia clarifies terms of application of lower withholding tax rates on dividends

Details of the official clarification by the Russian Ministry of Finance, dated 6 June 2008, regarding application of the lower withholding tax rates on dividends of the income and capital tax treaty between Russia and Cyprus, have become available.

Under Art. 10 of the treaty, the maximum withholding tax rate on dividends is 5% if the beneficial owner is a company that has directly invested in the capital of the company paying the dividends, an amount not less than the equivalent of USD 100,000.

It had previously been agreed between the competent authorities in respect of the treaty that the condition on minimal threshold must be satisfied at the time of the primary investment, without annual reappraisal on the dividend distribution day. However, the treaty does not provide that application of the lower withholding tax rates on dividends is possible only in the case of a single investment at the levels prescribed by the treaty. Thus, residents of Cyprus may reach the required investment threshold in respect of both a single, and several, investments.

Based on the above, the Ministry, as the competent authority in relation to the treaty, officially announced that the time of the primary investment is the moment the required threshold is reached, and that application of the 5% withholding tax rate on dividends is possible from that time.

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