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The UAE is ready to consider the ´'triple 10% WHT’ approach suggested by Russia only if the existing DTTs between Russia and Saudi Arabia as well as Qatar are revised accordingly.
In August 2023, the Russian President signed a Decree on partially suspending the double tax treaties ('DTTs') with 38 jurisdictions, including most of the EU member states, the US, Canada, South Korea, Australia, Singapore and Japan. As stated in the relevant Decree, the DTTs are suspended until "elimination by the relevant foreign states of violations of legitimate economic and other interests of the Russian Federation".
Earlier in mid-2022 the Russian Ministry of Finance ('MoF') launched a campaign to revise the DTTs with countries which did not support the sanctions against Russia (so-called 'friendly' or 'neutral' jurisdictions).
In February 2023, it was announced that Russia sent a proposal to renegotiate the DTT with the United Arab Emirates ('UAE'), which is currently applicable to government, state-owned corporations and sovereign funds only. Forbes wrote with reference to its sources that back in June 2023 Moscow and Abu Dhabi agreed on the withholding tax ('WHT') rates of 15% on dividends and 10% on interest, but failed to agree on the WHT rate for royalties.
It is reported that in the meantime Russia also suggested to adhere to the so-called '10–10–10 formula': i.e., to set the WHT rates at 10% for dividends, interest and royalties. However, the UAE, having initially insisted on the 5% WHT rate, is ready to apply this approach only if the existing DTTs between Russia and Saudi Arabia ('KSA') as well as Qatar are revised accordingly. As a federal official told Forbes, Russia "conceptually disagrees" with the UAE's proposal to renegotiate DTTs with other Arab states, though it is not abandoning its plans to conclude a new DTT with the UAE and negotiations will continue further. As confirmed by the the State Secretary, Deputy Minister of Finance, Alexey Sazanov, the next round of negotiations is scheduled for March 2024.
The DTTs with the KSA and Qatar currently offer the lowest WHT rates among the DTTs concluded by Russia, though it should be noted that the application thereof is subject to meeting all applicable conditions, including the principal purpose test ('PPT') as per the OECD Multilateral Instrument:
▪️5% WHT on dividends for private companies / 0% WHT for state-owned companies (the domestic WHT in KSA is also 5% while in Qatar - 0%; in Russia - 15%);
▪️5% WHT on interest on debt (the domestic WHT in KSA and Qatar is the same - 5%; in Russia - 20%);
▪️10% WHT on royalties for Saudi Arabia / 0% WHT - for Qatar (the domestic WHT in KSA is 15%, in Qatar - 5%; in Russia - 20%).
Last Friday the Russian business newspaper Vedomosti reported that the Russian MoF approached the KSA and Qatar to enter into negotiations to revise the respective DTTs. As confirmed to Vedomosti by Alexey Sazanov, the Ministry has already addressed the respective proposals and is awaiting a response.
The 'triple 10% WHT formula' was also suggested by Russia earlier last year when the Russian MoF started negotiations with the so-called 'friendly' and 'neutral' states to update existing DTTs or sign new ones. The main goal pursued by Russia is to prevent capital outflow as a result of tax abuse scenarios when foreign jurisdictions are used to set-up artificial corporate structures with the sole aim of obtaining lower WHT rates. The 'triple 10% WHT formula' is actually based on the domestic WHT rates in force in Russian special administrative regions (SARs).
In February 2023, Russia sent a proposal to start negotiations with Türkiye (though the existing DTT already adheres to the 'triple 10% WHT formula'), but no feedback was received. In the end of September 2023, the Deputy Minister noted that Türkiye is not interested in revising the DTT with Russia.
Last year the terms of the revised DTT was agreed with Malaysia (the existing DTT was signed back in 1987). The 'triple 10% WHT formula' was agreed and the last step that remains is to sign the revised DTT, which, according to Sazanov, is planned for January 2024. The 10% WHT will be applicable to dividend distributions provided that the ownership in the distributing entity exceeds 25% of the share capital or voting rights during the year; 10% WHT will be applicable to interest and royalties (WHT exemption with respect to dividends and interest income will be available for government and state-owned companies).
In addition to Malaysia, last year the Russian MOF also managed to agree on a new DTT with Oman: the DTT was signed on 8 June 2023 and will become effective as of 1 January 2024. The general WHT on dividends is set at 15%, but may be reduced to 10% provided that the ownership in the distributing entity constitutes at least 20% of the share capital during the year; the WHT rate on interest income and royalties is 10% (with WHT exemption with respect to dividend and interest income for government and state-owned corporations).
Earlier in mid-2022 the Russian Ministry of Finance ('MoF') launched a campaign to revise the DTTs with countries which did not support the sanctions against Russia (so-called 'friendly' or 'neutral' jurisdictions).
In February 2023, it was announced that Russia sent a proposal to renegotiate the DTT with the United Arab Emirates ('UAE'), which is currently applicable to government, state-owned corporations and sovereign funds only. Forbes wrote with reference to its sources that back in June 2023 Moscow and Abu Dhabi agreed on the withholding tax ('WHT') rates of 15% on dividends and 10% on interest, but failed to agree on the WHT rate for royalties.
It is reported that in the meantime Russia also suggested to adhere to the so-called '10–10–10 formula': i.e., to set the WHT rates at 10% for dividends, interest and royalties. However, the UAE, having initially insisted on the 5% WHT rate, is ready to apply this approach only if the existing DTTs between Russia and Saudi Arabia ('KSA') as well as Qatar are revised accordingly. As a federal official told Forbes, Russia "conceptually disagrees" with the UAE's proposal to renegotiate DTTs with other Arab states, though it is not abandoning its plans to conclude a new DTT with the UAE and negotiations will continue further. As confirmed by the the State Secretary, Deputy Minister of Finance, Alexey Sazanov, the next round of negotiations is scheduled for March 2024.
The DTTs with the KSA and Qatar currently offer the lowest WHT rates among the DTTs concluded by Russia, though it should be noted that the application thereof is subject to meeting all applicable conditions, including the principal purpose test ('PPT') as per the OECD Multilateral Instrument:
▪️5% WHT on dividends for private companies / 0% WHT for state-owned companies (the domestic WHT in KSA is also 5% while in Qatar - 0%; in Russia - 15%);
▪️5% WHT on interest on debt (the domestic WHT in KSA and Qatar is the same - 5%; in Russia - 20%);
▪️10% WHT on royalties for Saudi Arabia / 0% WHT - for Qatar (the domestic WHT in KSA is 15%, in Qatar - 5%; in Russia - 20%).
Last Friday the Russian business newspaper Vedomosti reported that the Russian MoF approached the KSA and Qatar to enter into negotiations to revise the respective DTTs. As confirmed to Vedomosti by Alexey Sazanov, the Ministry has already addressed the respective proposals and is awaiting a response.
The 'triple 10% WHT formula' was also suggested by Russia earlier last year when the Russian MoF started negotiations with the so-called 'friendly' and 'neutral' states to update existing DTTs or sign new ones. The main goal pursued by Russia is to prevent capital outflow as a result of tax abuse scenarios when foreign jurisdictions are used to set-up artificial corporate structures with the sole aim of obtaining lower WHT rates. The 'triple 10% WHT formula' is actually based on the domestic WHT rates in force in Russian special administrative regions (SARs).
In February 2023, Russia sent a proposal to start negotiations with Türkiye (though the existing DTT already adheres to the 'triple 10% WHT formula'), but no feedback was received. In the end of September 2023, the Deputy Minister noted that Türkiye is not interested in revising the DTT with Russia.
Last year the terms of the revised DTT was agreed with Malaysia (the existing DTT was signed back in 1987). The 'triple 10% WHT formula' was agreed and the last step that remains is to sign the revised DTT, which, according to Sazanov, is planned for January 2024. The 10% WHT will be applicable to dividend distributions provided that the ownership in the distributing entity exceeds 25% of the share capital or voting rights during the year; 10% WHT will be applicable to interest and royalties (WHT exemption with respect to dividends and interest income will be available for government and state-owned companies).
In addition to Malaysia, last year the Russian MOF also managed to agree on a new DTT with Oman: the DTT was signed on 8 June 2023 and will become effective as of 1 January 2024. The general WHT on dividends is set at 15%, but may be reduced to 10% provided that the ownership in the distributing entity constitutes at least 20% of the share capital during the year; the WHT rate on interest income and royalties is 10% (with WHT exemption with respect to dividend and interest income for government and state-owned corporations).
Source : https://intertaxnews.ru/
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Vera is an international tax advisor having held tax consultant roles in a Big 4 firm as well as in-house tax roles and currently solving tax advisory and compliance matters for clients on an independent basis.
