Tax Benefits for Businesses in the Absence of Double Taxation Agreements

In 2025, Russian companies will retain the ability to benefit from tax exemptions when paying interest to foreign banks and export credit agencies, despite the suspension of tax agreements with a number of countries. This has been made possible by extending the transition period until the end of 2025. The Federal Tax Service has provided detailed explanations on the application of these benefits. Russian companies and individual entrepreneurs acting as tax agents may refrain from withholding profit tax or apply reduced rates if three conditions are met: 

1. The income was either not taxed or taxed at a reduced rate prior to the suspension of the agreement. 
2. The lender and the borrower are not related parties. 
3. The foreign organization has provided confirmation of its status. 

These measures aim to create stable conditions for businesses that continue to cooperate with foreign partners despite changes in international tax policy. 

The termination of most double taxation avoidance agreements (DTAAs) with countries classified as “unfriendly” in 2022 created significant challenges not only for Russian companies but also for foreign investors with stakes in companies operating in Russia. Experts anticipated an increased tax burden for Russians working abroad due to double taxation.

What is double taxation?

Double taxation means taxing income both in the country where it is earned and in the country of residence. DTAAs allow taxes to be paid in only one of the countries or to apply preferential rates. Russia has signed DTAAs with 92 countries, 39 of which are “unfriendly.” Earlier, in 2021, Russia terminated its agreement with the Netherlands due to changes in tax legislation introducing a 15% tax on dividends and interest transferred abroad. 

Russian companies receiving income from abroad also faced challenges due to the cancellation of tax benefits. This led to the re-domiciliation of companies to special tax zones in Russia. The termination of DTAAs also created difficulties for owners of controlled foreign companies due to the need for auditing financial statements. 

The provision of tax benefits for interest payments to foreign creditors will help Russian businesses maintain some balance. This measure allows companies to adapt while preserving their competitiveness. Although the benefits are temporary, they provide Russian companies with a respite and an opportunity to reconsider their international cooperation strategies. 

In the long term, Russian companies should focus on developing domestic production and further reducing dependence on foreign suppliers.