Beneficial owners - Russian debt securities

06.01.2021

The following types of beneficial owner are recognised in Russia as being eligible for obtaining tax relief on interest paid from corporate bonds and mortgage-backed bonds upon the submission of the required documents/certificates:

  • Double Taxation Treaty residents
  • Non-resident legal entities
  • Tax exempt entities recognised by Russian law
  • Russian legal entities
  • Russian individuals

Residents of Double Taxation Treaty (DTT) countries

Relief at source of withholding tax is available to beneficial owners resident of a country that has concluded a Double Taxation Treaty (“DTT”) with Russia if the beneficial owner complies with tax beneficial ownership and Certificate of Tax Residence (COTR) requirements set by the Russian Tax Code.

The COTR will not be requested before distribution of income entitlements but should be in place and valid at the moment of interest payment and available at any time upon request.

A quick refund of withholding tax is available if relief at source has not been obtained by the DTT resident beneficial owner.

No standard refund is currently available via Clearstream Banking for Russian debt securities.

Note: For foreign investment funds (investment companies) that are legal entities that qualify as collective investment schemes under the laws of their jurisdiction, the disclosed information shall not include information on investors (or their fiduciaries) in order to apply the maximum tax rate on income paid for undisclosed securities.

However, based on the Letter No.03-08-05/15476 delivered by the Russian Ministry of Finance and changes in the Russian Tax Code in effect since 1 January 2015 the tax treatment of income from securities paid by a Russian depository to a Luxembourg collective investment fund as follows:

  • If final beneficiaries of a Luxembourg collective investment fund are not disclosed, the income forwarded to Clearstream for undisclosed part of securities will be subject to withholding tax at the rate of 30% for bonds and 15% for shares.
  • If final beneficiaries are disclosed, they can obtain rates defined by DTT, if they have the actual right to receive income.1

Non-resident legal entities

Non-resident legal entities disclosing their legal status and residency are eligible for a reduced tax rate of 20% at source on interest from corporate bonds and 15% on mortgage-backed bonds.

Non-resident legal entities are furthermore eligible for 15% on interest from RUB-denominated corporate bonds issued in the period from 01.01.2017 to 31.12.2021, if providing the NSD Tax codes.

Tax exempt entities recognised by Russian legislation

The following entities are eligible for tax exemption on dividends paid from Russian debt securities 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.

A full relief at source of withholding tax is available on interest to tax exempt beneficial owner recognised as such by the Russian law.

A full quick refund of withholding tax is available if relief at source has not been obtained by the tax exempt entity.

No standard refund is currently available via Clearstream Banking for Russian debt securities.

Legal entities residents in Russia

Russian legal entities disclosing their status and residency are tax exempt at source on interest from Government bonds (OFZ), municipal bonds, corporate bonds and mortgage-backed bonds processed via Clearstream Banking, provided the Tax Identification number is provided, as per requirement of the Russian Tax Code.

The Russian Ministry of Finance’s Letter, number 03-08-05/3944, dated 2 February 2015 clarifies that if a securities depository acting as a withholding agent receives summarised information from a foreign nominee, according to which the actual recipient of income on bonds is a Russian organisation, the securities depository shall not withhold tax. Russian organisations are, therefore, solely responsible for calculating and paying corporate income tax in accordance with Chapter 25 of the Russian Tax Code.

A full quick refund of withholding tax is available if relief at source has not been obtained by the Russian resident beneficial owner being a legal entity.

No standard refund is currently available via Clearstream Banking for Russian debt securities.

Individuals resident in Russia

Russian individuals disclosing their status and residency are taxed at source at 15% as from 1 January 2021 (13% until 31 December 2020) standard rate for residents on interest from Government bonds (OFZ), municipal bonds, corporate bonds and mortgage-backed bonds processed via Clearstream Banking.

A quick refund of withholding tax is available if relief at source has not been obtained by the Russian resident beneficial owner being an individual.

No standard refund is currently available via Clearstream Banking for Russian debt securities.

--------------------

1. For the purposes of the Russian Tax Code and DTTs, the person who has the actual right to receive income shall be a person who, due to a direct and/or indirect interest in, or control over, an organisation, or due to any other circumstances, is capable to exercise discretion as to the use and/or disposal of such income, or a person on whose behalf another person is authorized to dispose of such income. To identify the person who has the actual right to receive income, it shall be required to take account of the functions exercised by persons referred to in this paragraph, as well as risks borne by such persons.