Protocol to the Luxembourg-Russia double tax treaty
The Protocol amending the double tax treaty between the Grand Duchy of Luxembourg and the Russian Federation (hereafter the “Protocol”) has been signed on 6 November 2020 and the ratification law was submitted on 27 November 2020 to the Luxembourg parliament.
The Protocol’s main change is the amendment of the withholding tax rates on dividends and interest payments (please also refer to our previous newsletter on this topic).
DIVIDEND WITHHOLDING TAX
Dividends paid to beneficial owners resident in the other contracting state will thus be subject to a 15% withholding tax. A reduced withholding tax rate of 5% will however be available to distributions made to beneficial owners that are insurance companies, pension funds, governmental or public entities as well as the central bank. Distributions made to beneficial owners that are companies listed on a stock market, provided that at least 15% of voting shares are freely traded on a registered share exchange and that said listed company holds at least 15% of the share capital of the distributing company for a period of at least 365 days (the day of the dividend distribution included) can also benefit from the 5% withholding tax rate.
INTEREST WITHHOLDING TAX
Interest payments made to beneficial owners in the other contracting state will also be subject to a 15% withholding tax. The Protocol however foresees a withholding tax exemption for interest payments made to insurance companies, pension funds, governmental or public entities, the central bank or a bank. Additionally, interest payments made under bonds issued by the government, private corporations and Eurobonds will be exempt from withholding tax, provided that they are quoted on a registered stock exchange.
No withholding tax will apply on interest payments in cases where the payment is being made to a beneficial owner resident in the other contracting state, when this resident undertakes a commercial or industrial activity through a permanent establishment or an independent activity through a fixed base in the first contracting state and the receivable under which the interest is paid is allocated to the permanent establishment or the fixed base.
As for dividend distributions, a reduced 5% withholding tax rate will be available for interest payments made to listed companies, with the same criteria as for the reduced withholding tax rate detailed above.
Other double tax treaties
Luxembourg’s double tax treaty network now includes a double tax treaty entered into with the Republic of Botswana. A protocol amending the double tax treaty with the Republic of Kazakhstan signed in October 2019 has been adopted by Luxembourg legislators and mutual agreements have been reached with Switzerland and the Czech Republic regarding the changes made to the respective double tax treaty due to the entry into force of the OECD’s Multilateral Convention