Russia Clarifies Residence Rules for Treaty Benefits

In Guidance Letter 03-08-05/92537, dated 19 January 2019, the Russian Ministry of Finance (MOF) specified that for a nonresident legal entity to claim eligibility for tax treaty benefits, it must provide to the payor of Russian income evidence that it is a nonresident and that it is the beneficial owner of the Russian income.

The entity must show, before the payment of the income, that it is a permanent resident of a country with which Russia has a currently effective tax treaty, and that it is the beneficial owner of the income.  The entity may use documents issued by the competent authority of a foreign country to establish nonresidency.  However, if the nonresident changes its residence after its former residence is confirmed, the Russian payor is still liable for withholding of tax due.

In order to establish that the recipient of Russian income is in fact the beneficial owner of that income, the recipient must provide documents confirming that it does not later transfer the income to third parties residing in countries that do not have an effective tax treaty with Russia, and that it actually engages in business activities in the country in which it is a resident.

Many countries have tax treaties with Russia, including the United States, under which income earned there is relieved of withholding for Russian taxes.  The new Guidance Letter is an important clarification of the conditions that must be shown to take advantage of that relief.

How This Impacts Mobility

Worldwide ERC® members who receive payments from Russia but are not residents of that country must follow these new requirements to take advantage of tax treaty provisions eliminating or reducing Russian tax withholding on those payments.

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