The Russian tax authorities’ guidance on determination of tax residence between Cyprus and Russia

In 2017 Cyprus introduced an additional route to tax residence for individuals. With effect from 1 January 2017 individuals who meet all the following conditions in respect of a given tax year will be deemed to be tax-resident in Cyprus:

  • They are physically present in Cyprus for one or more periods amounting to at least 60 days.
  • They do not remain in another country for one or more periods exceeding 183 days in total.
  • They are not tax resident in another country.
  • They undertake business in Cyprus, have employment in Cyprus or hold a post in a Cyprus-resident company which continues to the end of the tax year
  • They maintain a permanent residence at their disposal in Cyprus.

In May 2018 the Department of Tax and Customs Tariff Policy of the Russian Ministry of Finance issued a guidance letter (No 03-04-06/33393 dated 17 May 2018) on the application of the Cyprus-Russia double taxation agreement following the introduction of the new residence provisions in Cyprus.

The letter makes clear that the only test of Russian tax residence under the Tax Code is physical presence in Russia for 183 days or more in a 12 month period.  While this appears to be simple and unambiguous, the letter goes on to say that short periods of absence abroad for purposes of treatment, education or certain types of employment may be disregarded.

The letter states that possession of a certificate of Cyprus tax residence does not automatically mean that the holder is not tax-resident in Russia, and that residence for the purposes of applying the double taxation agreement will be determined on the basis of the criteria set out in paragraph 2 of article 4 of the double taxation agreement.

The letter makes clear that it is issued for purposes of information and explanation and does not purport to be a statement of the law or have legally binding effect.

Given the complexity of the issues involved, and the far-reaching nature of the consequences, we recommend that comprehensive, detailed professional advice should be obtained before any steps are taken.