Russia suspends the key provisions of double taxation agreement with France and other “unfriendly” states

On August 8, 2023, the Russian president issued a decree No. 585 (hereinafter – the Decree[1]) which unilaterally suspends – from the Russian counterparty – most of material provisions of agreements on avoidance of double taxation (hereinafter – the DTA) entered into between Russia and the so-called unfriendly states that have imposed sanctions against Russia.

The action affects 38 DTAs, including the one entered with France of 26 November 1996 (hereinafter – the French-Russian DTA).[2]

The suspension is effective from August 8th, 2023, until unfriendly states “remedy their violations of the legitimate economic and other interests of Russia, the rights of its nationals and legal entities, or until the termination of these international treaties with respect to Russia.”

The suspension was legally enacted by virtue of the Russian federal law on international treaties which entitles the president, in situations requiring urgent measures, to suspend the effect of an international treaty which has been ratified by the federal law.[3] Although the Decree does mention the need to take urgent measures due to unfriendly actions of a number of states (sanctions), as required by the Russian federal law, this can be insufficient to serve as a ground for unilateral suspension from international law’s perspective (and notably article 60 of the Vienna Convention on the Law of Treaties). The latter can be one of the factors to consider for the so-called unfriendly states when elaborating their responding measures.

Please find below our summary of what will change for the French business continuing operating in Russia and French and Russian investors.

Overview of Suspended Provisions

The Decree suspended the effect of articles 5 – 22 and 24 of the French-Russian DTA, as well as paragraphs 2 – 9 of the Protocol thereto. The suspended provisions mainly deal with the following:

  • Tax allocation rules which determine the rights to tax between states and provide some limits to taxing income of foreign residents (e.g. maximum withholding rate). This includes taxation of income from permanent establishments, company’s business profits and income from independent services, real estate income, dividends, interest, royalties, capital gains, employment income, and miscellaneous items of income (artists and sportsmen’s fees, pensions, income from public source, students’ income and other income etc.)
  • Provisions related to property or wealth taxation.
  • Non-discrimination clauses.
  • Deductible expenses for permanent establishments.

Remaining unaffected are articles related to the residence and situations of conflict of residence (“tie-breaker” rule) (art. 4), elimination of double taxation (art. 23), mutual agreement procedures (art. 25), and the exchange of information (art. 26).

Consequences of Suspension

The suspension of the above provisions of the French-Russian DTA is intended to mainly affect the French parent companies with subsidiaries in Russia, French companies with no permanent establishment and individuals – resident in France having Russian-source income (see I/ Consequences for French Tax Residents).

This being said, Russian tax residents can also be negatively affected.

I/ Consequences for French Tax Residents

The main consequences of the French-Russian DTA’s suspension for the French tax residents (companies still doing business in Russia or private individuals having income from Russia) can be summarised as follows:


  • Increased withholding tax rates or new taxation in Russia on Russian-sourced passive income.
 Individuals – Russian Personal Income TaxCompanies – Russian Corporate Income Tax
 Before suspensionAfter suspensionBefore suspensionAfter suspension
Dividends15%15%5%/10%/15%  15%  
Interest0%30% (except % on bank deposits subject to tax at 13%/15% rate)0%20%
Capital gains (except shares of real-estate companies, i.e. having > than 50% of real estate in assets)0%30% (if owned less than 5 years), 0% (>5 years of ownership)0%20%
Real estate rental income30%30%20%20%
Capital gains from real estate30% (if owned less than 3/5 years), 0% (>3/5 years of ownership)30% (if owned less than 3/5 years), 0% (>3/5 years of ownership)20%20%
  • New Activities Subject to Tax and Taxable Base for Permanent Establishments in Russia is likely to increase

A mere fact of operating a building site, construction or installation project, notwithstanding the term (period) of such operation, can now suffice to constitute a permanent establishment in Russia and, thus, to subject its income to Russian tax. Before suspension of art. 5 of the French-Russian DTA, only construction or building project lasting more than 12 months were under the scope.

We also expect less expenses (interest, royalties, marketing and promotion expenses etc.) to be acceptable as deductible for the purpose of computing the taxable base of French companies’ permanent establishments in Russia.

This being said, we believe that so far, this unilateral suspension of the French-Russian DTA is unlikely to have much impact on the French business given that an important number of restrictions and prohibitions is already imposed by Russian on the export of funds and payments from Russian to France (dividends, debt reimbursement, sale of shares etc.), which had in effect stopped a significant part of commercial transactions and made restructuring merely possible.


The way France will respond to this unilateral suspension by Russia of most of the French-Russian DTA’s provisions has not yet been made public.

We believe the 2 following options are possible:

  • France invokes a material breach of a French-Russian DTA[4] by Russia which can be a ground for terminating the treaty or suspending its operation in whole or in part: in both cases, any (increased) tax which would be charged by Russia on the French resident’s income from Russian source, will no longer enjoy a tax credit in France. However, it should be possible for the French resident to use this Russian tax as a deductible expense and, thus, reduce their taxable base in France. In case of bilateral suspension of the French-Russian DTA, we believe there can be a limit to such deductibility usually corresponding to the taxation rate Russia was entitled to apply according to the DTA when it was effective.
  • France pursues to apply the French-Russian DTA and considers the suspension to be effective in regard to Russia exclusively: Russian-sourced income which – before the unilateral suspension  by Russia – could be subject to tax in Russia and – after the unilateral suspension – is subject to higher tax in Russia, should continue enjoying a tax credit in France limited to the maximum rate of taxation Russia is entitled to according to the French-Russian DTA.

With respect to income which, from French perspective of continuity of DTA, shall only be taxed in France according to the DTA’s allocation rules (e.g., interest and royalty), but which in fact was taxed in Russia  – after the unilateral suspension – such income may in principle be deducted by the French resident as an expense, thus reducing its taxable base in France.

II/ Consequences for Russian tax residents


Depending on the way France will respond to this unilateral suspension, one can expect either a status quo for the Russian residents deriving income from France or higher withholding tax rates, with a potential risk of double taxation afterwards in Russia (see below).


With the French-Russian DTA being suspended as regard to Russia, the latter can now be entitled to tax some new items of foreign income previously available for taxation by the source state only (e.g. income of a permanent establishment of Russian company in France). However, such situations should rather be rare in practice.

This being said, the way Russia will operate a tax credit for the taxes paid in France by Russian residents on their French-source income remains unclear. On the one hand, the operation of article 23 on elimination of double taxation is not suspended, potentially meaning that Russia can continue granting tax credits on this base. However, as article 23 of the French – Russian DTA makes reference to suspended provisions of the agreement, there is a risk that it will no longer serve as a legal ground for the tax credit in Russia.

In this case, please note that a possibility of tax credit is clearly provided in the internal law for the Russian companies getting income abroad (art. 311 of the Russian tax code). However, the situation is not as clear for Russian private individuals as the provisions of the Russian tax code (art. 232) make the possibility to enjoy a tax credit for tax paid abroad conditional on whether there is a DTA allowing such credit. Therefore, we believe until the French-Russian DTA remains suspended, it might still be possible to claim a tax credit with a Russian tax authorities for tax paid/withhold in France. However, if the DTA is terminated going forward, no tax credit would no longer be possible unless Russian legislators make  amendments to the tax code in this sense.


We hope this alert will be of use for you.
Please do not hesitate to ask our advice for your particular business case.

[1] Presidential Decree No. 585 On Suspension by the Russian Federation of Certain Provisions of International Tax Treaties of the Russian Federation, 08.08.2023.

[2] Convention entre le Gouvernement de la République française et le Gouvernement de la Fédération de Russie en vue d’éviter les doubles impositions et de prévenir l’évasion et la fraude fiscales en matière d’impôts sur le revenu et sur la fortune (ensemble un protocole) en date du 26 novembre 1996, à jour de la Convention multilatérale pour la mise en œuvre des mesures relatives aux conventions fiscales pour prévenir l’érosion de la base d’imposition et le transfert de bénéfices du 7 juin 2017.

[3] Par. 4 of Article 37 of the Federal Law No. 101-FZ “On International Treaties of the Russian Federation” of July 15, 1995

[4] The Vienna Convention on the Law of Treaties allows for the suspension of a treaty’s operation in accordance with the treaty’s provisions or by mutual agreement among its participants (article 57 of the Vienna Convention). The French-Russian DTA does not provide for the suspension procedure neither by the initiative of one of the parties to the DTA nor by both parties thereto.

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