The Russian tax system comprises federal, regional and local taxes. Federal taxes are applied to companies throughout Russia, while regional and local taxes - in the relevant region or city a company was registered in. In 2001, Russia drafted the Tax Code Part II, when many taxes were reduced significantly. It is also important to know that foreign companies are taxed different under certain circumstances than Russian companies.
A Russian company receiving dividend payments will be subject to a withholding tax of 9%. However, a 0% dividend tax applies, if the following requirements are satisfied:
If the dividends are received from foreign sources, the dividend tax will be levied on the company receiving them. Russia also has a tax credit system provided by double tax treaties. If the dividends are received from another Russian company, the tax will be levied on the company distributing the dividends. The tax is calculated based on the pro rata difference between the total sum of the dividends distributed to all the shareholders and the sum of dividends resulted from the distributing company that was subject to the 9% dividend tax rate.
The withholding tax on dividends applied to foreign companies conducting business operations in Russia is 20%. The tax will be levied only on the income made by the Russian establishment of the foreign company. As with Russian entities, tax credits are also enabled if double tax treaties apply. Tax reliefs are applied in advance or when the foreign company receiving the dividends applies for tax refunds.
The dividends distributed by a Russian legal entity to a foreign company will be levied a 15% tax. Under tax treaties, the withholding tax applied to dividends can be reduced to 5% or 10% depending on the shareholding structure.
You can contact our Russian lawyers for detailed information regarding the taxation of dividends.