June 2020: International Tax Planning Review

June 2020: International Tax Planning Review

Russian-Cypriot negotiations to amend double tax treaty

On 25 June 2020 Russia and Cyprus started negotiations on amendments to the Agreement for the avoidance of double taxation dated 5 December 1998 (as amended in 2010) existing between the countries.

Russia’s position is that the payment of dividends from Russia to Cyprus should be taxed in Russia at the highest possible rate – 15 percent. Currently, according to the DTT, the tax may be withheld at a reduced rate – 5 or 10%.

In case if Cyprus (as well as other countries to which Russia has sent a similar proposal) does not accept the proposed conditions, Russia reserves the right to withdraw from the DTT unilaterally.

When asked about the position of Cyprus in the negotiations, the representative of the Ministry of Finance of Cyprus replied that the position was set out in the negotiations and it was better “not to disclose it” before the text was agreed. According to sources close to the negotiations, the Cypriot side is attempting to establish certain exceptions to Russia’s absolute demand to withhold a 15-percent withholding tax on dividends paid from Russia to Cyprus.

Whether the parties will be able to agree on an updated version of the Agreement is not yet clear. A new meeting is scheduled for July 2.

Malta suspends citizenship-by-investment program

The website of Maltese Individual Investor Programme (IIP) informs that the program is approaching its limit.

Due to the fact that the quota of the current program (1800 applications) may be exhausted in the coming months, the Malta authorities are going to revise their investment citizenship program.

The Malta Individual Investor Programme Agency (MIIPA) will continue to accept applications for citizenship under this program until 30 September 2020. While applications for residency under the program will be accepted only until 31 July 2020. Candidates who received a resident card, but have not submitted an application for citizenship before 30 September, will be considered under the new rules.

The features of the renewed program, which is now under consideration, are not yet available. Possible changes may include adjustments to real estate investment requirements. However, there are no plans to close the program completely.

Cyprus strengthens due diligence requirements for citizenship-by-investment applicants

The Cabinet of Ministers of Cyprus approved and sent to Parliament changes to the citizenship-by-investment program in order to bring it in line with anti-money laundering legislation.

At the same time, the conditions and requirements for the size of investment for obtaining citizenship of Cyprus will remain the same. The limit of naturalization per year, as before, will be 700 persons.

The updated program provides for enhanced due diligence procedure in respect of applicants and the possibility of revocation of citizenship if a candidate is involved in a serious crime or is convicted of it. Until recently the government faced difficulties with revocation of previously issued passports.

These measures are reportedly designed to increase credibility of the Cypriot citizenship-by-investment program and reduce risks of using it for illegal purposes. The need for the latter had been previously emphasized by MONEYVAL, the expert body of the Council of Europe in the field of combating money laundering.

Cyprus launched the investment citizenship program in 2013. To this day, more than 3,000 people have taken the opportunity to use it. In November 2019, the government first time initiated the procedure of deprivation of Cypriot citizenship in respect of 26 people. There are citizens of Iran, Cambodia, Kenya, China, Malaysia and Russia among them.

Netherlands to impose a new withholding tax on dividends

Starting in 2024, the Dutch government plans to introduce a new withholding tax on dividend payments to low-tax jurisdictions.

This measure is announced as an “important step” in countering tax avoidance and the use of the Netherlands as a conduit (i.e. transit, intermediate) jurisdiction. In 2018, out of the total flow of 200 billion euros that passed through the Netherlands, around 37 billion was paid to low-tax jurisdictions.

In the Netherlands, there is already a 15 percent tax on outward dividends. However, it may be reduced under a double taxation treaty or a full exemption may be applied if a payment is made to another EU country.

It is expected that the new tax will be levied on payments to countries where the corporate income tax rate is less than 9%, as well as to non-cooperative jurisdictions included in the European Union’s blacklist, even if the Netherlands has an agreement with them for avoidance of double taxation. How this measure will be applied in practice is not yet clear.

A more than 3-year delay in introducing the new tax should allow companies and their shareholders to make the necessary organizational changes.

In addition, the Netherlands is ready to adjust its tax agreements with developing countries in order to provide the latter with more rights to tax income arising in such countries as a result of activities of Dutch residents.

UAE may introduce a corporate income tax

Currently the United Arab Emirates have no taxation of profits (except foreign companies of oil sector and branches of foreign banks).

Experts practicing in the UAE say that sooner or later the introduction of corporate income tax in the jurisdiction is inevitable. Among other things, this is due to the desire of the countries of the region to diversify sources of national income and move away from oil dependence.

It’s too early to talk about any specific plans or dates for introducing corporate taxation, however, the UAE realizes that the existence of de-facto offshore regime is not forever. A different vision would entail a significant degree of isolation of the country from the global economy.

In January 2018, the UAE (as well as Saudi Arabia) introduced a 5 percent value-added tax. This means that these countries have already gained expertise in tax administration, which will at some point make it possible to switch to corporate taxation. However, this requires to review the existing system of high state duties, which currently disregards the size of companies as well as real results of their activities.

Prospect for the introduction of traditional corporate taxation exists not only in the UAE, but also in other Gulf states.

Click to rate this page!
[Total: 3 Average: 5]

Share this


Still have questions? Contact us today

Scroll to Top

Book a Free Consultation

The purpose of the initial consultation is to introduce you to our services, as well as to discuss your individual needs related to company registration (maintenance) and opening a bank account.