Increase in the tax rate on dividends
Vladimir Putin, president of Russia, proposed to provide for a tax rate of 15% on dividends that are transferred to foreign jurisdictions. This initiative will require an adjustment of the agreements on avoidance of double taxation with some countries. According to the President, it is planned to start with those countries through which "significant resources of Russian origin pass". It is assumed that if negotiations with foreign partners to adjust the relevant agreements reach an impasse, Russia will unilaterally withdraw from such agreements.
Prime Minister Mikhail Mishustin instructed the Ministry of Finance of the Russian Federation to work out all agreements on the avoidance of double taxation in relation to dividend payments within a month. According to Mishustin, tax on dividends when they are withdrawn abroad should be charged at a rate of at least 15%.
Currently, the tax rate withheld at source in Russia for dividends is usually 5% or 10%, depending on the terms of the agreement. If there is no agreement with a specific state, the 15% rate is generally applied. The concept of actual right to income allowed the Russian tax authorities to withhold tax at the rate of 15% if the dividends were transferred to one country at a reduced rate, taking into account the provisions of the relevant agreement, and then transferred from there to another country with which there is no agreement.
We believe that the main work on adjusting the agreements will be carried out in relation to the most popular jurisdictions for Russian citizens and businesses (Cyprus, Luxembourg, the Netherlands, Switzerland). It is too early to draw any conclusions, so we will monitor the situation and inform you about new initiatives in this direction in a timely manner.