On 19 May 2015, Belgium and Russia signed a new Income and Capital Tax Treaty, which will replace the current treaty of 16 June 1995.
The new treaty will enter into force upon approval and ratification by the parliaments and governments of both countries and will apply on income credited or payable on, and taxable period starting after 1 January of the year following the year in which the Convention enters into force.
The most important changes are the following:
Residence – place of effective management
The place of effective management for companies and corporate groups is the place where the business of the company as a whole is conducted, from where its activities are driven, and where the highest level of supervision occurs.
The following criteria are taken into account: the place where the board of directors holds its meetings, the place where senior day-to-day management is conducted, the place where senior executives perform their activities, and the place where the accounting records and archives are kept.
Reduced taxation of dividends, interest and royalties
|Type of income||New treaty
|Dividends||15% standard rate, 5% reduced rate, 0% rate for pension funds||10%|
|Interest||10% standard rate, 0% reduced rate||10%|
Limitation of benefits
The new treaty contains a limitation of benefits clause under which tax exemptions and reductions available under the treaty are not granted if the main or one of the main purposes was to obtain treaty benefits.
Payments received by a resident of one country, being a member of the board of directors (or shareholder of a) company (without share capital) in the other state, may in respect of the remuneration that relates to the day-to-day management be taxed in that other state under the rules of the employment article (art. 14 of the treaty).
Adjustment of profits
If an adjustment is made to the profits of a company by the tax authorities of one state, the Treaty contains an obligation to adjust the profits in the other state. However, in order to avoid treaty abuse, this obligation does not apply in the event of fraud or wilful misconduct by one of the enterprises concerned.
Pensions and other similar remuneration shall be deemed to arise in the country where the contributions have given rise to tax relief.Both countries have the competence to tax if the source state is not the residence state.
While income not covered by specific articles was previously subject to tax in the source country, the Treaty now states that such income may be taxed in the source state.
The protocol to the treaty extends the non-discrimination rule on behalf of Russia. If Russia signs a treaty with a third country providing for the tax deduction of premiums, the deduction should be applied to payments to Belgian pension vehicles.