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Treaty between Russia and Cyprus – Russian MoF clarifies tax treatment applicable to capital gains derived from sale of investment units

Recently, the Ministry of Finance published Letter No.03-08-05/46038 issued on 29 October 2013 clarifying the tax treatment applicable to the income received by a Cypriot company from the sale of investment units held in a closed mutual investment fund whose assets include immovable property located in Russia.
The Ministry of Finance pointed out that in principle any payments for the investment units held in mutual investment funds or similar collective investment vehicles shall be treated as dividends and, therefore, are subject to the rules provided by article 10 of the Russia - Cyprus Income and Capital Tax Treaty (1998), as subsequently amended, unless income is particularly mentioned in article 6(5) of the tax treaty.
However, according to article 6 of the tax treaty, income received by a resident of Cyprus through a real estate investment trust, a real estate mutual investment fund or a similar collective investment vehicle organized primarily for the purposes of investing in immovable property situated in Russia may be taxed in Russia.
Furthermore, the Ministry of Finance clarified that provisions of article 13 of the tax treaty shall also be considered. Pursuant to article 13(1) of the tax treaty, gains derived by a resident of Cyprus from the alienation of immovable property referred to in article 6 and situated in Russia may be taxed in Russia.
Consequently, the Ministry of Finance concluded that income received by a Cypriot company from the sale of investment units in a closed mutual investment fund whose assets include immovable property located in Russia may be taxed in Russia. .

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