Russia: Updates to the withholding tax and disclosure procedures for Russian securities
the following changes, based on the provisions of Russian Ministry of Finance’s Letter No. 03-08-11/30622 dated 25 June 2014, are applicable to all securities subject to Russian withholding tax and processed via Clearstream Banking1.
New tax rate for Russian legal entities holding corporate or mortgage-backed bonds
The role of the nominee holder acting as tax agent when paying a foreign nominee for distribution to its clients is now applicable also to securities held by Russian legal entities.
Consequently, disclosed Russian legal entities holding corporate bonds or mortgage-backed bonds are now taxed at 20% and 15% respectively and no longer at 0%.
Note: Undisclosed beneficial owners continue to be taxed at 30%.
We attach a résumé of the general tax rates under the Russian Tax Code, based on the summary published by the Russian CSD on its website.
Furthermore, we take this opportunity to inform customers that the Ministry of Finance (MinFin) has introduced a draft law with the proposal to increase the dividend tax rate applicable to Russian residents – both individuals and legal entities - from 9% to 13% starting January 2015.
We continue to monitor the market and will inform you as soon as the rate increase will become official.
New/clarified eligibility criteria for tax exemption
The following entities are eligible for tax exemption on interest and dividends paid from Russian taxable securities (including depository receipts) provided that their holdings are disclosed in the Tax breakdown:
- Supranational organisation
International financial organisations that have entered into treaties with the Government of the Russian Federation and are included in the following list approved by the Government of the Russian Federation (Resolution No. 119-p dated 3 February 2012) are eligible for tax exemption:
- International Bank for Reconstruction and Development;
- International Development Association;
- Multilateral Investment Guarantee Agency;
- International Finance Corporation;
- European Bank for Reconstruction and Development;
- Black Sea Trade and Development Bank;
- Eurasian Development Bank;
- Interstate Bank;
- International Investment Bank;
- International Bank for Economic Co-operation;
- Nordic Investment Bank; and
- European Investment Bank.
- Russian unit investment funds established under Federal Law 156-F
Such entities are exempt from tax on profit according to the Russian Tax Code.
- The Bank of Foreign Economic Activity (Vnesheconombank - VEB)
The VEB is exempt from tax on profit according to the Russian Tax Code.
Clarification of the Double Taxation Treaty (DTT) between Russia and United Arab Emirates (UAE)
Based on the clarifications provided by the Russian MinFin, the 0% tax rate applies on Russian dividend payments exclusively to beneficial owners that are considered as being “Contracting State or its financial and investment institutions” as defined by Article 2 of the DTT.
For further information, customers may contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or their Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and 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 (CBL).