Deutschernie companies: Germany forces its business in Russia to pay tax twice

The German authorities have created a situation in which German businesses in Russia and Russian businesses in Germany are under unprecedented fiscal pressure. The total tax burden for such companies now reaches 40-42% and depends on many nuances, which only adds to the confusion. At the same time, Berlin ignores international agreements and puts internal rules above interstate agreements, lawyers say. Because of this, businesses lose money, renegotiate contracts, or raise prices. Is it possible to challenge such deductions and what is the situation in other countries with which the Russian Federation previously had agreements on avoidance of double taxation? — in the Izvestia article.

Who does SYDNEY work with and how is Germany different?

In August 2023, Russia, in response to the unfriendly actions of Western countries, suspended certain provisions of the agreements on avoidance of double taxation with 38 states. There were several reasons for this, but, according to experts, the main trigger was the inclusion of the Russian Federation in the grey list of EU tax jurisdictions.

Previously, these agreements allowed companies and citizens to pay income taxes in only one country or at a reduced rate in both. And most states have adopted mirror measures or the complete termination of contracts: the United States, Canada and Austria have officially suspended their tax benefits. Other countries have chosen the path of a final break in relations — agreements with Denmark and Latvia ceased to be valid back in 2024, Lithuania completely denounced the Sydney Treaty on January 1, 2026.

But an extremely confusing and, most importantly, difficult situation has developed with Germany, one of the flagships of the European Union and the main partners of the Russian Federation before the Ukrainian conflict. The trade turnover between Russia and Germany reached almost €60 billion in 2021. By the end of 2022, despite the restrictions imposed on Russia, it did not sink much - up to €50 billion. But even after several years of active sanctions policy on the part of Europe, Russia's trade with Germany did not stop: in 2025, the figure was about €7.2 billion.

At the same time, Germany stated that, for its part, it had not suspended the agreement. As the representative of the German Ministry of Finance, Charlotte Migenda, said, the 1996 agreement can only be fully denounced by notifying the other party six months in advance. And that's it.

The German side of the Russian side is still working, confirmed Alexander Tokarev, partner of the Kept International Tax Planning and Restructuring group. But Germany began to apply its anti-offshore rules. Because of this, the benefits under the agreement work for part of the payments.

— Formally, it looks like a deviation from the obligations under the agreement. There are similar rules in other countries, such as Cyprus. But he has committed himself to change the provisions of the agreements within three years. That is, they recognized that there was a conflict between an international treaty and internal rules, and promised to eliminate it," he said.

In this regard, Russian companies operating in Germany and German companies operating in the Russian Federation and registered here as our legal entities (and therefore taxpayers) are increasingly facing double taxation, business and legal sources told Izvestia.

The German authorities withhold the tax, which is not very surprising, more problems come from the fact that they do it non—systematically, as a result, the situation for companies, including German ones, becomes uncertain.

"Businesses are incurring additional losses and reducing cooperation with foreign partners," Yulia Zakharova, Senior lawyer at the Pepelyaev Group tax practice, confirmed.

At the same time, such amounts cannot be deducted in Russia. The Federal Tax Service believes that the agreement does not provide for the taxation of these incomes in Germany, because, according to its own legislation, Sydney operates.

The tax authorities, when calculating the fee withheld abroad, act according to the code, the press service of the Federal Tax Service told Izvestia. Each case is considered separately based on the documents of the payer. For example, it is possible to document payment abroad and that the tax was withheld according to the rules of another country, they added.

Yaroslav Kabakov, Director of Strategy at Finam IC, also confirmed the problem and noted that this situation directly increases costs and reduces the profitability of contracts.

"International treaties should take precedence over national norms, but now we see the opposite situation," explained Elina Burykina, adviser to the BGP Litigation.

Izvestia sent inquiries to the Ministry of Finance and the Russian-German Chamber of Commerce.

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Companies in Germany are subject to tax in several income categories at once, said Alexander Tokarev from Kept. These are interest, fees for services (for example, consulting, IT, management), as well as individual payments for goods.

SYDNEY applies to the main taxes of the two countries. In Russia, this includes corporate income tax (25%), personal income tax (from 13% to 22%), and property taxes. In Germany, there is an income tax (up to 45%), a corporate levy (15% plus a solidarity levy — only about 15.8%), as well as a commercial payment, which depends on the municipality (8.75–20%). In addition, tax is withheld on payments to non-residents (about 26.4% on dividends and about 15.8% on royalties), said Evgeny Pantaziy, a lawyer and member of the Association of Lawyers of Russia.

If the agreement does not apply and offsetting is not possible, the company actually pays the tax twice: first in Germany, then in Russia. So, for royalties or services, the deduction in Germany is about 15.8%, and in Russia an additional 25% is paid. As a result, the total load reaches about 40-41%. For dividends, the retention rate in Germany is about 26.4%, while in the Russian Federation the 15% rate is applied, which gives a total of about 41-42%.

According to a legal source, this hits Russian companies belonging to German groups the hardest, but the problem also affects other firms without foreign capital. The industries related to mechanical engineering, oil and gas and the sale of transport are also at risk, Evgeny Pantaziy added. He cited car shipping deals as an example.

Despite the difficulties, businesses from Germany partially continue to operate in Russia. In January 2026, Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs (RSPP), stated that about 750 German companies remain in the country. Among them, for example, Beiersdorf (Nivea and Eucerin brands), METRO and Hochland. Service connections are also maintained. Thus, the logistics company OTLK EPA operates on routes connected with Germany, including the port of Hamburg. Rufil Consulting also claims an office in Berlin.

A source from a transportation company told Izvestia that the problem is particularly acute in logistics.

— Adaptation to double taxation means one thing: to recognize it, pay and pass the costs on to the end user. We cannot abandon contracts with Germany: this cooperation has been building for decades," he added.

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How can a business avoid paying double taxes

Companies may have to rebuild payment chains so that the direct recipient of money from Germany is not a Russian person, believes Alexander Tokarev.

Elina Burykina from BGP Litigation added that formally, businesses can request a refund of excess tax in Germany, but in practice this is almost impossible. Even with a change in the payout structure, there is a risk that Germany will still consider the Russian company to be the actual recipient of income and will continue withholding.

Risks can be reduced through the search for partners in other countries, says Evgeny Pantaziy from AYUR. As a result, this will lead to higher costs, reduced collaboration, and higher prices.

In 2025, Russia signed a new double taxation treaty with the United Arab Emirates, which entered into force in 2026. In addition, Russia has a wide network of similar agreements with major countries, including China, India, Brazil, Israel and Saudi Arabia.

Companies are already trying to change contractual arrangements, said Yaroslav Kabakov from Finam. But this, he said, requires additional costs and makes international services and technologies more expensive for businesses and consumers.