On June 23, 2016, the Protocol on introducing amendments (the “Protocol”) to the Agreement on avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the “Agreement”) between the Governments of Russia and Singapore  was ratified.

The Protocol introduces amendments to the Agreement, promoting reduction of the tax burden on Russian and Singapore residents in the context of double taxation, in particular the following:

 1. Interest on debt claims of any kind will not be subject to taxation in the state where the source of payment is located and will be taxable only in the state where the interest recipient resides.

 2. Interest rate on royalties charged in the state where the recipient of royalties resides is reduced from 7.5% to 5%.

It should be noted that the 5% rate can be used only if the person is the beneficial owner of royalties.

 3. Use of a preferential 5% rate on dividends will not depend on the amount of the participant’s investments in capital of the company paying out such dividends. However, the condition of a minimum 15% stake in the company remains.

We would like to remind that at present the preferential 5% rate can be used only if the participant's investments in the foreign company paying out the dividends comprise at least 100,000 USD or equivalent amount in other currency.

 4. The Agreement will regulate such type of payments as payments by a Real Estate Investment Trust.

It should be noted that for the purposes of this Agreement, Real Estate Investment Trust means:

             a)    as applied to Singapore:

• a trust created as a collective investment scheme pursuant to Section 286 of the Law on securities and futures (Chapter 289) registered on the Singapore exchange, which invests or offers investments in real estate or assets connected with real estate;

            b)    as applied to Russia:

• a unit investment fund created in Russia mainly for investments in real estate located in Russia.

Payments of a Real Estate Investment Trust are of a legal nature similar to dividends, and pursuant to the Agreement are subject to taxation in the state where the source of payment is located at a preferential rate of 10% of the total sum of payments, provided the recipient is the beneficial owner of payments.

5. Dividends and payments to the benefit of the Russian or Singapore Governments are fully exempt from taxation in the country where the source of  payment is located.

This provided, for the purposes of Agreement, the term Government includes:

              a)    as applied to Singapore:

• the Monetary Authority of Singapore;
• Government of Singapore Investment Corporation (GIC Private Limited);
• any executive authority or any institution entirely or mainly owned by the Singapore Government as may be agreed from time to time between the competent Russian and Singapore authorities;

              b)    as applied to Russia:

• The Central Bank of Russia and institutions entirely or mainly owned by the Central Bank of Russia;
• any executive authority or any institution entirely or mainly owned by the Russian Government as may be agreed from time to time between the competent Russian and Singapore authorities;

6. Requirement to certify and provide an apostille is eliminated in respect to any information, certificate of permanent residence or other documents issued by competent Russian and Singapore authorities or their authorized representatives.

It is important to note that the terms of the Agreement providing favorable taxation will not apply if the taxpayers’ main purpose is to obtain privileges established by the Agreement.

The revised edition of the Agreement will become effective in Russia from January 1, 2017.

It is assumed that due to sanctions of the EU, US and other countries in force against Russia, amendments in the Agreement will promote Russian public and private investments in Singapore.

Anastasiya Kuzmina   Senior Associate   St. Petersburg   Тел.: +7 (812) 346 79 90

Ekaterina Chernenkova   Associate   St. Petersburg   Тел.: +7 (812) 346 79 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Anastasiya Kuzmina or Ekaterina Chernenkova, St. Petersburg Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues. 

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