Double Taxation Convention

The convention between the Russian Federation and the Federal Republic of Germany for the Prevention of Double Taxation with Respect to Income and Capital Taxes of 1996 (hereinafter “the Convention”) plays a crucial role in a company’s business. The Convention gives slight tax breaks against the Russian law, which are often capitalized on by our Clients. A similar convention applies to Russian-Austrian relations.


This Convention applies to the taxation of German companies both with permanent representation in Russia and gaining income from sources in the Russian Federation. Thus, for example, license royalties and interest are not taxable if certain conditions are met.


According to the Convention, dividends paid by a Russian company to a German entity are taxable at 5%, if the shareholding of the German entity in the Russian company is at least 10% or a minimum of EUR 80,000 (“qualifying holding”). Russian companies, by contrast, usually pay 9% on dividends received.


Income taxation also implies special conditions. As tax residents pay income taxes not only on income gained in Russia, but also on worldwide income, they can face the issue of being subject to double taxation (once abroad, and once in Russia).


A similar situation can be faced both by tax residents in Russia and foreign nationals treated as Russian tax residents and earning income from Russian sources. In this case, such individuals should fall back on the convention to avoid double taxation. When a Russian employer and a tax agent disburse payments to a foreign national, the provisions of the convention with his/her home country may be applied, as laid down in the tax code.


To take advantage of the tax privileges, as set forth in the convention (the applicable tax assessment method in Russia generally involves the deduction of taxes paid abroad off of Russian income tax), the taxpayer must provide the Russian tax authorities with the following documents: an official confirmation that the tax resident is a national of the country with which Russia has, for a certain tax period (or a part thereof), a valid double taxation convention; a document proving income received abroad and taxes paid thereon certified by the tax authorities of the respective country. The confirmation applies to personal income for the year in which it was issued. If the privilege is used by a Russian tax resident, he/she does not need to provide confirmation of tax residence. A document proving income received abroad and taxes paid there with acknowledgment by a tax office (or financial authority) of his/her home country will be sufficient for the tax return.