Russia: New withholding tax rate for individuals applicable on interest payments from certain corporate bonds

03.01.2018

Clearstream Banking1 would like to inform customers that, effective

1 January 2018

the Russian Federation Tax Code by Federal Law ? 58-FZ, dated 3 April 2017, came into effect.

The new Tax Code introduces a new 35% withholding tax rate for individuals, that will be applicable when:

  • receiving interest payments from Russian RUB denominated corporate bonds (including mortgaged-backed bonds) that are issued on or after 1 January 2017; and
  • the bond is bearing an interest rate that is equal or above the refinancing rate of the Russian Central Bank plus 5% (above limitation).

The new withholding tax rates applicable to individuals, when receiving interest payments from such bonds will consequently be as follows:

Russian RUB denominated corporate bonds issued on or after 1 January 2017

Russian RUB denominated corporate bonds with bearing interest rate equal or above limitation

Eligible beneficial owner

Rate applicable at source

Non-resident individuals

0% on the interest portion below the limitation

35% on the interest portion above the limitation

Russian individuals

0% on the interest portion below the limitation

35% on the interest portion above the limitation

Russian RUB denominated corporate bonds with bearing interest rate below limitation

Eligible beneficial owner

Rate applicable at source

Non-resident individuals

0% on the full interest portion as below the limitation

Russian individuals

0% on the full interest portion as below the limitation

 Russian RUB denominated corporate bonds issued prior 1 January 2017

There is no change in the current tax process for Russian RUB denominated corporate bonds that are issued prior 1 January 2017, meaning qualifying individual beneficial owners will still be eligible for the below withholding tax rates on interest payments:

Eligible beneficial owner

Rate applicable at source

Non-resident individuals

DTT rate

Russian individuals

13%

Important note:

At this stage, the National Settlement Depository (NSD) has not yet received an official response from the Russian Ministry of Finance that permits the use of these new tax rates for individuals, when the interest on such bonds, held in the accounts of foreign nominal holders, is paid.

Furthermore, final confirmation from the National Settlement Depository (NSD) and the Russian Ministry of Finance is still expected in regards to the above new tax rates for individuals, including guidance on the applicable tax process.

Further information

We continue to monitor the information available on the market and will provide more information as it becomes available.

For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.

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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.