🇷🇺Suspension of Tax Treaties by Russia: Consequences

Context: treaty network before 2023

By the early 2020s, Russia was party to approximately eighty tax treaties—a dense network built since the mid-1990s. The logic of any such treaty is simple: two states share the right to tax the same income and limit withholding tax at source. Under treaties, dividends were typically taxed at 5–10% instead of the domestic 15%, interest and royalties often fell to 0–10%, and residents received credit for tax paid abroad. This is precisely what made classic holding chains through Cyprus, the Netherlands, and Luxembourg cheap and predictable.

The network began changing even before 2023. In 2020–2021, the Ministry of Finance revised treaties with Cyprus, Malta, and Luxembourg, raising the rate on dividends and interest to 15% and closing the most aggressive profit extraction schemes. After the events of 2022, the approach pivoted: instead of targeted treaty amendments, the state moved to freeze them with respect to countries Russia classified as unfriendly. The culmination was Decree No. 585.

Concept

On August 8, 2023, by Presidential Decree No. 585, Russia unilaterally suspended the key provisions of double tax treaties (DTTs) with 38 "unfriendly" states—including the USA, EU countries, the United Kingdom, Japan, and Korea. Legally, the treaties remain in force, but their operative articles ceased to apply.

DTTs exist for a simple purpose: to allocate the right to tax the same income between two countries and prevent it from being taxed twice. The decree froze precisely these mechanisms.

How it came to suspension

The suspension did not appear out of nowhere. After February 2022, the European Union and individual states wound down tax dialogue with Moscow, and on February 14, 2023, the EU Council added Russia to its list of non-cooperative jurisdictions—formally for failure to meet commitments on the international holding company regime and cessation of dialogue on tax matters. For Brussels, this meant Russia was no longer considered a good-faith partner in exchanging and coordinating tax rules.

Moscow responded symmetrically. In spring 2023, the Ministry of Finance and Ministry of Foreign Affairs jointly proposed freezing DTTs with states that had imposed unilateral restrictions against Russia, and on August 8 this was formalized by Decree No. 585. Legally, a soft instrument was chosen—suspension. Unlike denunciation, treaties remain in the international legal sphere and can return to life once political relations normalize.

What was suspended

The suspension covered articles that allocated taxing rights and provided reduced withholding tax rates—on dividends, interest, royalties, and capital gains. The list varies for each treaty: for example, under the agreement with the USA, paragraph 4 of Article 1 and Articles 5-21 and 23 were suspended. Only certain procedural provisions such as information exchange and mutual agreement procedures survived.

Consequences for payments from Russia

The practical effect was immediate: payments from Russia to residents of unfriendly countries from August 8, 2023, are subject to withholding tax at Russian Tax Code rates, without treaty benefits. For payments to foreign companies, this means 15% on dividends and 20% on interest and royalties (Articles 284 and 309–310 of the Tax Code); the former treaty rates of 5% or 0% no longer apply. For non-resident individuals, dividends from Russian companies are taxed at 15%, and most other income sourced in Russia at 30%. Guidance on applying the decree was provided by the Federal Tax Service in Letter ShYu-4-13/14936@ of November 29, 2023. How withholding tax on dividends now works is covered in the article on tax on dividends from Russia.

Mirror response and the US case

Partners responded symmetrically. In the case of the USA, the Treasury suspended the same articles of the treaty and Protocol from August 16, 2024 (Announcement 2024-26), and US treaty benefits no longer apply. This created a rare case of mutual freeze: both states simultaneously withdrew mutual tax concessions.

Response from other partners

The symmetry with the USA was not unique. Some unfriendly countries officially confirmed reciprocal suspension: France—from August 8, 2023, the Czech Republic refused to apply articles frozen by Russia from August 11, 2023, Austria—from December 6, 2023. Several states went further and completely terminated treaties: Denmark and Latvia denounced their DTTs, and these agreements ceased to apply from January 1, 2024. The picture is varied—in some cases the same articles frozen by Russia are frozen, in others the treaty is terminated entirely, and in still others the partner has so far formally remained silent. Tax agents must verify the status for each country separately.

Double taxation for Russian residents

For a Russian resident receiving income abroad, the risk is reversed—double taxation. The suspension affected the distributive articles of treaties, but the article on elimination of double taxation was generally left in force. In the US case, this is directly visible: the US Treasury froze Articles 5–21 and 23 of the 1992 treaty, leaving Article 22 on credit untouched.

Therefore, the main safeguard remains domestic credit: tax withheld abroad can still be credited against Russian tax—for individuals under Article 232, for organizations under Article 311 of the Tax Code, provided supporting documentation requirements are met. But credit does not cover all situations: abroad, the withholding rate returns to the high domestic rate (in the USA—30%), and credit is limited to the amount of Russian tax on the same income and does not refund overpayment if the foreign rate is higher. Where the treaty previously simply eliminated withholding tax at source, a cash gap and actual double taxation now arise. The specific calculation depends on the type of income and country and requires individual verification.

How this hits private structures

Classic cross-border structures feel the blow most acutely. Dividends that flowed from a Russian company to an EU or UK holding at a rate of 5 or 10 percent are now subject to full 15 percent withholding without refund. Interest on intra-group loans and royalties for licenses, previously often reduced to 0–5 percent, fall under 20. Capital gains from the sale of shares in companies whose assets consist predominantly of Russian real estate also lose treaty protection. An intermediate holding that existed for treaty benefits becomes a redundant link: for family holdings, the former ownership structure with a European layer suddenly became more expensive, and the owner must recalculate whether it is justified.

For individuals, the logic is similar. A Russian resident with dividends on US stocks or rental income in Europe faces increased tax abroad and limited credit at home; the choice then comes down to transferring the asset, changing the ownership structure, or reconsidering one's own tax residency.

Responses are built along several lines. Some transfer the intermediate holding to friendly jurisdictions—UAE, Hong Kong, Kazakhstan—or redomicile the company to Russian Special Administrative Regions (SARs) with their reduced regime for international companies; passive flows are redirected through jurisdictions where the treaty remains in effect. Some change personal tax residency, calculating exit taxes and consequences of relocation from Russia in advance. At the same time, any such structure must withstand the substance test, and CFC rules remain: changing the holding's flag does not relieve the Russian beneficiary of the obligation to report a controlled foreign company—otherwise savings turn into additional assessments.

What still continues to work

The freeze affected distributive and rate articles, but not the entire treaty. Outside the scope of suspension remain provisions on exchange of tax information, mutual agreement procedure, determination of residence, and—formally—on elimination of double taxation. The legal framework for information interaction is preserved, although practical exchange with a number of countries is hampered; the status of automatic exchange under CRS should be checked for each jurisdiction separately. How domestic foreign tax credit works is covered above, in the section on double taxation.

Evolution: where the treaty map is shifting

First, the suspension was formalized by decree, then enshrined in law: Federal Law No. 598-FZ of December 19, 2023, moved the decision from the plane of a presidential act to the plane of law. The regime operates indefinitely—until relations normalize, and a quick return to former rates is not expected.

In parallel, Russia is building out its treaty network toward friendly jurisdictions. A telling example is the new agreement with the UAE: signed February 17, 2025, entered into force July 18, 2025, and applies from January 1, 2026, with a uniform 10% rate on dividends, interest, and royalties when the recipient has beneficial ownership of the income. This is the first full-fledged tax treaty between the countries, covering both business and individuals, and it sets a template for future agreements: after the UAE, Russia is negotiating with other friendly partners in the Gulf and Asia, and the tax map for Russian capital is being restructured toward the Gulf, Asia, and neutral countries.

Information exchange is also narrowing: automatic exchange (CRS/AEOI) with a number of unfriendly countries has been curtailed, so transparency in those directions is falling simultaneously with the disappearance of benefits. Where a treaty still operates, protection remains conditional on anti-abuse rules—MLI and treaty shopping. For owners, the bottom line is simple: the cost of cross-border passive flows to unfriendly countries has risen structurally, and planning is shifting to friendly hubs and domestic regimes like SARs. Structures should be planned on the assumption that the current regime is here to stay.

Sources

• list of non-cooperative jurisdictions
• Announcement 2024-26
• Decree No. 585
• Federal Law No. 598-FZ