On 8 August 2023 the President of Russia signed Edict No. 585 ("the Edict") suspending the effect of certain articles of double taxation treaties with "unfriendly" countries. The Edict was issued in accordance with the provisions of clause 4 of Article 37 of Federal Law No. 101-FZ of 15 July 1995 "Concerning International Agreements of the Russian Federation" ("Law No. 101-FZ") owing to "the need to take urgent measures in response to unfriendly actions undertaken by a number of foreign states in relation to the Russian Federation and its citizens and legal entities". The Edict was published on the official portal of laws and regulations on the same day.
At the time of the publication of the Edict, Russia had double taxation treaties with 84 countries. The Edict applies to tax treaties signed by Russia with 38 countries, including Poland, the USA, South Korea, Bulgaria, Sweden, Luxembourg, Romania, the UK, Hungary, Ireland, Slovakia, Albania, Belgium, Slovenia, Croatia, Canada, Yugoslavia (as applied by Montenegro), Switzerland, Czechia, Denmark, Norway, Italy, Finland, Germany, France, Macedonia, Cyprus, Spain, Lithuania, Iceland, Austria, Portugal, Greece, New Zealand, Australia, Singapore, Malta and Japan.
According to the Edict, it enters into force from its publication date and will remain in effect until "the foreign states concerned remedy the violations committed by them of the lawful economic and other interests of the Russian Federation and the rights of its citizens and legal entities". Clause 3 of the Edict requires the Government of the Russian Federation to submit to the State Duma of the Federal Assembly of the Russian Federation a draft federal law suspending the effect of relevant provisions of double taxation treaties with "unfriendly" countries. In turn, clause 4 of Article 37 of Law No. 101-FZ provides that, if the State Duma rejects a bill proposing the suspension of an international agreement of the Russian Federation, the agreement in question will resume force with immediate effect.
Unlike the Presidential Edict of 26 September 2022 concerning the suspension of the double taxation treaty with Latvia, the Edict suspends particular provisions of treaties with the countries concerned, including provisions concerning the taxation of all kinds of income (including dividends, interest, royalties, business profits, miscellaneous income, etc.), permanent establishment provisions, non-discrimination provisions and provisions regarding the taxation of capital. Meanwhile, treaty provisions regarding the elimination of double taxation, the exchange of information, mutual agreement procedures and the definition of tax residence continue to have force.
The principal effect of the suspension of the individual provisions will be the loss of the ability to claim reduced rates of Russian withholding tax for key types of passive and other income received by foreign taxpayers from Russian sources (including income in the form of dividends, interest, royalties, payments on certain kinds of derivatives, et al.). These kinds of income will be subject to withholding tax in Russia at the standard rates: in the case of payments made to foreign entities: 15% for dividends and 20% for other kinds of income; in the case of payments to individuals: 15% for dividends and 30% for other kinds of income.