30. 11. 2023
Termination of the double taxation treaty with Russia and its impact on taxation
On 11 August 2023, Russia announced the suspension of selected articles of its double taxation treaties with the Czech Republic. The proposal to suspend double taxation treaties with 38 hostile countries was presented by the Russian Federation in March. The above took effect in the Czech Republic on 29 September 2023.
The suspension concerns Articles 5 - 22 and Article 24, which regulate, for example, the rules on permanent establishment, taxation of interest, royalties, profit shares, etc. The Ministry of Finance has indicated that the suspension of selected articles also affects Article 23 (elimination of double taxation) and Article 25 (resolution of cases by agreement).
Impact on taxpayers
The articles contained in the Double Taxation Treaty take precedence in application over the Russian legislation. This means that if the rate of taxation on dividends under the Treaty was lower than the rate resulting from local Russian law, the lower rate defined by the Treaty applied. This advantage cannot now be claimed and the income of tax residents of the hostile countries will automatically be taxed at the rates set by Russian legislation.
Thus, in the case of distributions of profit shares or income from the sale of shares, they will be taxable income from the effective date of termination. Thus, it will not be possible to use the exemption of the income in question under Article 19(9) of the Income Tax Act.
If you have income from a source in the Russian Federation and are interested in the tax consequences, please do not hesitate to contact our company and we will be happy to assist you with this issue.
Author: Barbora Plšková - Junior Tax Consultant
15. 11. 2023