Dutch family-owned companies and regional headquarters of multinational enterprises (“MNEs”) may be faced with increased withholding taxes on interest and dividend payments from Russia (of up to 15%). Currently, capital gains derived by a Dutch company from alienation of shares in Russian companies deriving more than 50% of their value directly or indirectly from immovable property situated in Russia are exempted from tax in Russia. We expect that this provision (which is beneficiary to the existing Netherlands – Russia DTAA compared to other DTAA’s) will be amended during the negotiations with Russia. Hence, Dutch companies owning Russian real estate may be faced with additional (exit) taxes upon transferring shares in Russian real estate companies.
Proposed amendments and recent developments
Russia has initiated (according to various news outlets) amendments to the Netherlands – Russia DTAA. It has been proposed (based on the limited information available thus far) to increase the withholding tax rates on interest and dividend payments from 0% to 15% and from 5% to 15%, respectively. As a result, the proposed amendments will treat, for instance, individuals and companies alike for dividend withholding tax purposes. Along with this we expect that the capital gains provisions will be amended. The taxation rights on the alienation of shares in real estate companies should belong to the country where the immovable property is located. This amendment mirrors the OECD Model Tax Convention and existing Russian DTAA’s.
