Russians work at slicing red tape

By DITA DE BONI

The signing of a double tax agreement in Wellington today is a move aimed at rebuilding strong trading relations between Russia and New Zealand.

Russia's First Deputy Minister of Finance, Sergei Shatalov, says legal and bureaucratic barriers have deterred New Zealanders eager to do business in his country since its financial collapse in August 1998.

Outlining the agreement to members of the Russia-New Zealand Business Council yesterday, he said foreign investment in Russia was growing as the economy recovered.

"We anticipate with this [tax agreement] that we will see New Zealand companies back doing business [there]."

Russia was one of New Zealand's largest export destinations for primary products in the mid 1980s, when the country was part of the Soviet Union. Prior to 1998, official trade was worth $310 million, with butter accounting for 85 per cent of the total. Since then trade has dwindled to $137 million.

The double tax accord aims to rekindle interest in the Russian consumer market. The agreement, to be signed by Dr Shatalov and Foreign Minister Phil Goff, is expected to apply in New Zealand from January 1 for withholding tax, and from the 2001-02 income year for all other income tax.

Under the agreement, New Zealanders will pay non-resident withholding tax of no more than 15 per cent for dividends derived in Russia, paying only 10 per cent for interest and royalties. The profits of temporary businesses established in the country will be tax-exempt, with mobile activities such as consultancy, building and construction only taxed after operating on Russian soil for 12 months.

New Zealand employees working in Russia will be taxed only after 183 days in the country. It is proposed that from next year personal income tax for all Russians will drop to 13 per cent, one of the lowest rates in the world.

The move to push through the double tax agreement, which has been in the pipeline for 10 years, is thought to be due to Russian President Vladimir Putin's visit to New Zealand during Apec.

It is also understood that New Zealand companies have been withdrawing their businesses from Russia and establishing themselves in the Balkan states to escape an onerous bureaucratic system.

The agreement will raise the number of double tax agreements New Zealand has to 27.