Russia is preparing a tax agreement with Oman
The Russian government intends to sign an agreement on the avoidance of double coverage (DTT) with Oman. According to the order of Prime Minister Mikhail Mishustin dated July 28, 2022 (“Vedomosti” was received with him), the draft document previously developed by the Omani side was approved. Now the Ministry of Finance should be of particular importance with Oman and, in accordance with the agreement, sign an agreement.
The document, in particular, provides for a tax rate on a share on dividends in the amount of 10% with a 20% share in the size of the company for 365 days, in other cases the rate is 15%, on interest and shares – 10%. The proposal also includes an exemption from paying dividends and interest if they are paid to the government, the central bank or the pension fund of Russia and Oman. In addition, RDIF, VEB, Rostec, Rosnano, Rosatom, Roskosmos should apply for such benefits.
The agreement shall be in force from January 1 of the calendar year following the year of issuance of the document in force. The STAT will have to be ratified by the State Duma; at present, the deputies are on vacation.
The representative of the Ministry of Finance confirmed that work is underway to prepare for the signing of the committee meeting.
Tax base control
The text of interest depends on those that Russia concluded earlier, before the start of the campaign to revise the DTT, said Mikhail Filinov, partner at Trust Technologies (former PwC in Russia). Instead of consuming 5-0-0% for the triad “dividends – interest – ownership” in the new agreement, the rate component of 10-10-10% is used. According to the expert, this is an assessment of the dynamics of development of the Russian tax practice.
The new version of the deal with Oman is approaching promising realities and differs from the version of 2001, which is not a priority due to higher tax rates on passive income, MEF Anna Zelenskaya. Accession to a large number of shareholders, as well as the share of shareholders, and on dividends, an offer of 5% could be obtained.
Tax rates in agreements with Oman are less important than in committees with Qatar or Hong Kong (5% on dividends paid to Qatar and Hong Kong, or 5% on interest paid to Qatar and 0% to Hong Kong), but they are lower, than in the committees with jurisdictions in the EU, which Russia was actively reviewing in 2020-2021, noted Natalya Kuznetsova, partner of the tax and rights department at Business Solutions and Technologies (formerly Deloitte in Russia).
And if the conditions for Oman with a tax agreement, for example, with Switzerland, which have not yet been revised, are considered, then they are not super-profitable, used by partner partners (former KPMG in Russia) Alexander Tokarev.
While in Switzerland the tax rate on dividends can be reduced to 5%, and the exemption applies to shares and shares in general, he noted. On the whole, the conditions offered to Oman correspond to the Standard allowable for avoiding double measurement, exceeding the allowable value, it has increased.
Now Russia has agreements on tax obligations with more than 80 countries. In 2020, the Ministry of Finance began active work to revise them, after President Vladimir Putin instructed to resolve the situation with budget settlements using tax havens and increase the proposal for the withdrawal of dividends and interest to 15%. The President then warned that Russia would unilaterally proceed from the borders with countries that would not accept its proposals. At the moment, tax audits are reviewed with Cyprus, Malta and Luxembourg. The Ministry of Finance failed to reach an agreement with the Netherlands, so the agreement was denounced and was widely applied from January 1, 2022. Last fall, it became known that an investigation had been launched to revise the initiative in Switzerland, but in March 2022, the Ministry of Finance announced the suspension of the discussion. The agency was also referred to as Hong Kong and Singapore on the revision list. Lack of connection with the consequences, in fact, double taxation of business in accordance with the fiscal consequences.
Turn East
Given the consideration of the geopolitical environment and uncertainty regarding tax agreements with members of associations, such as EU countries, it is important to expand cooperation with friendly states, but not all of them have tax agreements signed at the moment, says B1 partner (former EY in Russia) Marina Belyakova. The news about the avoidance of double surveillance is always a plus for taxpayers in Russia, especially if successful, since it was with the Persian Gulf country, where Russian business has actively moved in counterbalance to Western sanctions, Kuznetsova added.
The decision to sign an agreement with Oman now may indicate the possibility of developing relations with the countries of this region, Zelenskaya noted. The choice in the country depends on the initiative to implement projects, which include features with state participation, which depend on the choice of benefits, expert.
Tokarev noted that we don’t see much interest among group representatives for Omani representatives to structure their overseas presence, in part this may be due to the lack of a tax treaty with that country.
Zero interest and dividend rates for Russian state corporations have increased the role of the public sector in the economy in Russia, Filinov noted. Russian state-owned companies could benefit from the proposed participation, Tokarev added.
The attractiveness of the new meeting is necessary in the table with the surveillance regime in Oman itself and the practice of applying agreements to avoid double surveillance in Russia, occupied by Kuznetsov. In Oman, under certain conditions (in particular, registration in the FEZ), an organization abroad was chosen. Thus, in her opinion, Oman can become an interesting alternative for Russian business as a platform for studying activities abroad, since a comfortable level of income can be provided both in the Russian Federation (at the source of payments) and in Oman.
It must be accepted that even in the presence of representatives from Oman, the Russian tax authorities may challenge the application of the relevant rates. “Recent use cases by the Russian tax authorities have developed a significant practice of challenging preferred rates for double-trial obligations, so it will only be possible to benefit from a new party if real activity is considered in Oman, the reliability of the actual right to apply individual rates,” – noted the expert.