If you are a foreign national or a U.S. person with a foreign trust based in Russia, it is important to make sure that your state tax plan has been reviewed by an international U.S. tax attorney. Below is the list of countries with which Russia currently has effective permanent contracts: The Russian Ministry of Finance has sent its Swiss counterparts a proposal calling for amendments to the current double taxation agreement (DTA) between Russia and Switzerland. Information on this step was provided by the Deputy Minister of Finance, Alexey Sazanov. Unfortunately, there is no copy of the letter yet, but it can be assumed that the Ministry of Finance is proposing to revise the contract on the basis of the « Cypriot model ». This is the same structuring of the model as in the recent negotiations with the Netherlands. It should be noted that in Russia, the Otkrytoye Aktsionernoy Obshchestvo is an entity-type structure that cannot be ignored. Therefore, a Form 5471 usually has to be filed with the IRS every year, and failure to do so can result in very high fines and penalties. The most important change is an increase in withholding tax rates on dividends and interest in accordance with Articles 10 and 11 of the Treaty, respectively.
The main consequences of abolishing the agreement will result in significantly higher tax rates on dividend, interest and royalty payments. From 2022, dividend payments from Russia to the Netherlands will be subject to a withholding tax of 15% instead of 5%, while interest and royalties will be subject to a rate of 20% instead of 0%. In addition, it may no longer be possible to offset these higher rates with Dutch (corporate) income tax. This can lead to double taxation. Agreement between the Government of the Russian Federation and the Government of the Republic of Albania on the prevention of double taxation in the field of taxes on income and on capital It is still difficult to predict how the negotiations will unfold, but as Switzerland has traditionally tried to find compromises, a revision of the Treaty seems more realistic (as in the case of Luxembourg) than the more radical result of termination. as happened with the Netherlands. However, Swiss banks will not suffer from the change of permanent contract. The current or revised tax treaty provides for an exemption from withholding tax in the Russian Federation on interest paid to Swiss banks. Banks will be affected if Russia and Switzerland terminate the contract.
In this scenario, interest on loans from Swiss banks paid by a Russian company is taxed at 20%. In other words, it will no longer be profitable for a company to take out a Swiss loan. Russia intends to modify or even terminate the DVB-T with certain countries if these countries do not agree to increase the dividend and interest rates set in their contracts with Russia. The tax agreement between Russia and the Netherlands terminated on 1 January 2022 has been saved In some cases, double taxation after termination can still be avoided. One – this applies in particular to individuals – can rely on the Dutch unilateral rules on the elimination of double taxation (Besluit voorkoming dubbele belasting 2001). This applies, for example, to a Dutch entrepreneur with a permanent establishment in Russia. In addition, companies subject to corporation tax (IRS) can continue to apply the participation and holding exemption. It should also be noted that Russia`s renegotiation of its treaties with several countries creates a balanced environment.
In this regard, for example, Russia launched the process of terminating the treaty after the failure of its first round of talks with the Netherlands, although they reaffirmed their intention to renegotiate their tax treaty with Russia. For a foreign tax credit application, a person is required to provide supporting documents to the Russian tax authorities so that the credit for foreign taxes paid in the other country can be approved. This must be submitted to the Russian tax authorities within three years of the reporting period with the tax return. The Dutch State Secretary for Finance reacted to the letter of formal notice of termination. It underlines the continued efforts of the Dutch Government to find a solution and the mutual interest of the tax treaty. The following conclusions can also be drawn from this publication: Switzerland is rarely used by Russian companies to set up holding companies or financial companies, especially compared to Cyprus or the Netherlands. As a rule, Russian companies use Switzerland to register trading companies, for example, Russian metals, chemicals and oil companies have Swiss trading companies. After Cyprus and Malta, Luxembourg agreed to amend its treaty with Russia by signing the protocol on 6 November 2020. Russia has announced that it will soon start negotiations with Switzerland and Hong Kong. Although Russia has not officially signed a FATCA agreement, Russia has an alternative law to facilitate offshore relations. The main reason Russia has not formalized a « FATCA deal » with the UNITED States is that it could violate Russian law – not because Russia refuses to cooperate. To this end, there are nearly 1500 Russian foreign financial institutions identified on the IRS website that have agreed to comply with FATCA.
(The list can be found by clicking here) Aside from the recent issues affecting Russia and the United States, Russia generally has a large immigrant population in the United States (with several large Russian expat communities across the country). To this end, Russia has asked various countries to agree to change the terms of their treaty with Russia in accordance with this new policy. If renegotiations with a particular country fail, Russia will unilaterally terminate its treaty with that country. Interest payments may continue to be exempt from withholding tax if the beneficiary of the interest income is the beneficial owner of the interest and a tax resident of a Contracting State and if the beneficiary is one of the two: the absence of an agreement complicates the life of commercial enterprises for another reason – it will be impossible to conclude a transfer pricing (TP) agreement between the tax authorities of the FR and Switzerland. These TP agreements are becoming increasingly popular in practice for Russian groups with a foreign presence. This means that even if you are a U.S. expat or live abroad in Russia and earn all your money outside the U.S. (whether or not you`re a U.S. resident), you`ll need to file a U.S. tax return, report income, and generally pay taxes on the money.
It doesn`t matter where you live in terms of submission requirement.. .