An agreement has been reached between Russian and Cypriot authorities to suspend the taxation of profits from the sale of shares of companies deriving more than 50% of their value from immovable prope

On 29 December 2016 the Cyprus Ministry of Finance announced that an agreement has been reached between Cyprus and Russia for postponing the application of the Protocol amending Article 13 “Gains from Alienation of Property” of the Double Tax Treaty (DTT) agreement between Cyprus and the Russian Federation.

The Protocol, which was signed on 7 October 2010, provided for the amendment of Article 13 of the DTA so that, as of 1 January 2017, gains derived by a resident of a contracting state from the alienation of shares or similar rights deriving more than 50% of their value from immovable property situated in the other Contracting State may be taxed in that other state.

The announcement goes further to state that a supplementary Protocol is currently being finalized, through which the application of the revised provisions  of  Article  13  of  the  DTA will be deferred,  until  similar  provisions  are introduced  in  other  bilateral  DTA’s between the Russian Federation and other European countries.

What this means in practice is that, until further notice, gains derived by a Cyprus company from sale of shares in a (Russian) company that owns immovable property in Russia shall continue to be taxed only in Cyprus without any taxing right for Russia. It is noted that for Cyprus tax purposes, profit from sale of shares is specifically tax exempt.