Interest on loans entered into by a foreign head office and allocated to a Russian permanent establishment (PE) is considered to be sourced from Russia under most double tax treaties (DTTs) concluded by Russia. Therefore such interest is subject to Russian withholding tax (WHT) at the rate of 20%. This rate is reduced to 0% under most DTTs (Russia's treaties with the US, UK, Luxembourg, the Netherlands and Cyprus). However, under certain DTTs (Russia's treaties with Italy and Switzerland), the WHT rate is reduced to 10% or 5% and therefore it is necessary to pay WHT.
March 31 2005