Dividend Tax in Russia

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.

The dividend tax is part of the corporate tax system in Russia and is applicable to both natural persons and legal entities receiving dividends for their participation in companies.

Below, our Russian lawyers explain how dividends are taxed in this country. We can offer legal counseling with respect to the payment of the dividend tax in Russia.

Withholding taxes in Russia

There are several withholding taxes applied in Russia, among which there is also the dividend tax. The withholding taxes apply to various incomes earned by local and foreign natural persons and companies with activities in Russia.

The following withholding taxes apply in Russia:

1. the dividend tax is levied at a 15% rate if the income is derived from participation in a Russian company with foreign investments;
2. freight income is also subject to a withholding tax levied at a fixed rate of 10% in Russia;
3. royalties and interest payments are also imposed with a withholding tax of 20%;
4. the capital gains tax is applied at a rate of 20% on the revenue of the margin on capital gains, when arriving from the sale of real estate and non-listed shares.

It should be noted that where a double tax treaty applies, the withholding tax, including that applied on dividend payments will depend on the provisions of the convention. The highest rate applicable to dividend payments is 15%, however, lower rates of 10% and 0% also apply.

If you need information on the taxation of dividends, our law firm in Russia can advise you.

The corporate tax in Russia

Companies in Russia are subject to the corporate tax which also includes the dividend tax. Under the last developments, the taxation of dividends in Russia has been modified in terms of rates. At the level of 2019, the federal rate applied to dividend payments is set at 13% for companies not fulfilling the conditions to benefit from the 0% rate, while foreign companies are imposed with a rate of 15% if they own shares in Russian companies.

If you want to start a business in Russia and need legal advice, our lawyers can help you with the registration procedure.

Taxation of dividends for Russian companies

A Russian company receiving dividend payments will be subject to a withholding tax of 13%. However, a 0% dividend tax applies, if the following requirements are satisfied:

• -          the shareholding structure is made of at least 50% in favor of the Russian company,
• -          the shareholding structure has been the same for a whole year when the distribution of dividends was decided,
• -          if the acquisition price was over 500 million rubles,
• -          if a Russian company has foreign shareholders, they must be residents of a country Russia has signed international tax treaties with.

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 13% dividend tax rate.

The dividend tax applied to foreign companies in Russia

The withholding tax on dividends applied to foreign companies conducting business operations in Russia is 13%. 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.

Holding companies and the dividend tax in Russia

One of the most important aspects when it comes to the dividend tax in Russia is that of the participation exemption regime which applies to holding companies. We remind investors that the main object of activity of a Russian holding company is that to own shares in one or more companies. These companies can be Russian entities or foreign.

In order for a company to benefit from the participation exemption, it must be registered with the Russian Companies Register.

The participation exemption regime provides for the following:

• - the recipient owns at least 50% of the capital in the company paying the dividends;
• - the recipient owns depository receipts under which it has the right to 50% of the total amount of money paid as dividends;
• - the shares or receipts have been owned by a minimum period of one calendar year starting with the date the dividends were declared;
• - the participation exemption regime does not apply to offshore companies with activities in Russia.

It is also good to know that in the case of Russian companies paying the dividend tax abroad, the respective tax can be credited in Russia.

Considering the tax legislation which has suffered various alterations, our lawyers in Russia can offer detailed information on the taxes foreign investors must pay when doing business here.

Why start a business in Russia?

Russia is by far an important country participating to the global economy. Foreign investors can set up companies in various industries from which they can earn important amounts of money.

The Russian economy:

• - in the first quarter of 2019 registered a 0.5% increase;
• - according to the Central Bank of Russia, the Gross Domestic Product for 2019 grow by 1.5%;
• - the next two years are important for the Russian economy, as 2021 is expected to deliver an economic growth of more than 3%;
• - during this period of time, the government plans on investing 390 billion USD in 12 large investment projects.

When it comes to taxation, investors should know that the current corporate tax is levied at a rate of 20% which comprises the 17% rate which is payable to the regional authorities in which the company operates, while 3% goes to the federal budget. This rate is available until 2024. It is possible for the authorities to reduce the regional rate at a minimum value of 13.5%.

If you are interested in starting a business in Russia and need help, our lawyers are at your disposal with complete services and tailored assistance in choosing an appropriate business form.

You can contact our Russian lawyers for detailed information regarding the taxation of dividends.