Cyprus and Russia reached agreement for postponing the implementation of amending Article 13 “Capital Gains” of the Cyprus – Russia double tax treaty.

Cyprus and Russia signed a Protocol on 7 October 2010, which amongst others, provided changes in the taxation of capital gains in relation to disposals by a resident of one country of shares held in companies which derive a substantial part of their value (more than 50%) from immovable property situated in the other country.

The amendment is in line with Article 13 of the latest OECD model treaty principle, which provides that such gains should be taxable in the country where the real estate is situated (provided that more than 50% of the value of shares is represented by immovable property situated in the other state).

As a result, any income from such sales of shares would have been taxable in Russia at the rate of 20%, starting from the year 2017.

The Governments of Cyprus and the Russian Federation have agreed to postpone the application of the Protocol amending Article 13.

The Cypriot Ministry of Finance announced that an additional Protocol is in the process of being finalised, revising provisions of Article 13, only once similar provisions are introduced in other bilateral agreements for the avoidance of double taxation between the Russian Federation and other European countries.