Russia tightens tax conditions for Czechs

International tensions are also reflected in the sphere of taxation. Businesses trading with Russia are now facing a higher tax burden. Read what's changing.

Russia has suspended an earlier agreement

In August, Russian President Putin signed a special decree that will complicate tax relations between the Czech Republic and the Russian Federation. The document suspends most of the provisions of a treaty that prevented double taxation between the two countries.

The move will affect personal and corporate income and property taxes, and in Russia, income and property taxes on individuals and corporations. In addition, the decree sets rules for the exchange of information between the relevant tax authorities.

Therefore, if you do business with entities based in Russia, you will face worse conditions in terms of international taxation - namely an increase in the tax burden.

The Czech Republic has come up with its own measure

After receiving the official diplomatic note, the Czech side prepared a reactionary measure. The Ministry of Finance has issued a  notice to limit the application of the double taxation treaty, with effect from 29 September 2023. This limits the application of Articles 5-25 of the treaty, which in practice means that the elimination of double taxation will no longer be possible.

As the original treaty has not yet been terminated, instead of a withholding tax rate of 35%, a 15% rate will be applied in the Czech Republic for the time being to relevant income paid to Russia.

Therefore, if you are paying funds to entities in Russia, we recommend that you review all flows and adjust the withholding tax rate applied if necessary.