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Zuzana Kalincová | October 10, 2023

Suspension of the application of the Double Taxation Treaty with Russia

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On 29 September 2023, the Ministry of Finance of the Czech Republic issued a Notice on the Treaty on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in the Field of Income and Property Taxes between the Czech Republic and the Russian Federation (the “Treaty”) suspending the implementation of Articles 5 to 22 and 24 of the Treaty on the Czech side with immediate effect.

This was done in response to the proposal of the Russian government in March and subsequent decree issued by the Russian Federation on 8 August this year, which confirmed the limitation of the aforementioned articles of double taxation treaties with 37 other countries that Russia considers hostile.

In its Communication, the Ministry of Finance of the Czech Republic points out that the suspension of the above-mentioned Articles also has an impact on Articles 23 and 25 of the Treaty.

In conclusion, it follows that the application of the exclusion of double taxation will now not be practicable and transactions between tax residents of both countries will thus be taxed de facto as between non-treaty countries, i.e. typically at the full tax rate in the country of source of income without the possibility of applying tax exemptions or reduced tax rates. This will have a particular impact on dividends (dividends paid from the Czech Republic will now be withheld not only at 10% but at 15%), interest (zero taxation will now become 15% withholding tax), royalties (also from 10% to 15%) or taxing in the Czech Republic only business income earned through a permanent establishment. If you have any relationships with residents of the Russian Federation, we recommend that you check the implications of the above restriction.

AuthorZuzana Kalincová, Kristýna Bardonová