In 2020 the DTTs between Russia and Cyprus, Luxembourg and Malta were revised with a view to increasing the withholding tax rate to 15% on dividend and interest income. However, public companies shall have the right to benefit from the reduced withholding tax rate of 5%, provided that: (i) the shares of the recipient company, having the actual right to the said income, are listed on a registered stock exchange and at least 15% of the recipient company's voting shares are in free float; and (ii) its recipient company’s share in the paying company equals or exceeds 15%.
The Ministry of Finance has recently clarified the parameters of the “public company” test for updated DTTs.
In particular, the term "registered stock exchange" shall mean any stock exchange established and regulated as such by the legislation of any of the contracting countries and cannot be extended to any third jurisdiction.
Due account is taken of the wording of the DTTs with Cyprus and Luxembourg, 5% withholding tax on dividends can apply if the recipient company’s shares and depositary receipts are traded on the stock exchange. Whereas in relation to income in the form of interest, a reduced rate of 5% is applied provided that only shares are traded on the stock exchange.
The DTT with Malta allows the application of 5% withholding tax rate to both dividends and interest paid to public companies that have only shares in free float.
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NAZALI TAX & LEGAL |