Liniya Prava Law Firm is pleased to inform you that Federal Law No. 306 -FZ, as of 02 November 2013, has been adopted, introducing significant amendments to income taxation of foreign entities and individuals received from Russian issuable securities (ISs).  

The Law aims at supplementing and adjusting amendments inserted in Russian Tax Code by Law No. 282-FZ, as of 29 December 2012. The key Law provisions include the following.  

1. Section 275 of Russian Tax Code has been supplemented with a list of parties as tax agents in paying out dividends to foreign entities under Russian issuer shares. In particular, the following parties are deemed to be tax agents in payment of dividends, depending on share rights registration procedure:  

  • a Russian entity paying out dividends under shares registered in a securities registry in a holder's current account;  
  • a Russian entity paying out dividends under shares registered in a securities registry in an unidentified party's account;  
  • a trustee that is a professional securities market participant, registering shares in its current account or deposit account; depositary registering share rights in the following accounts:
    • ISs holder's deposit account;  
    • deposit sub-account set up in a depositary under Federal Law "On Clearing and Clearing Activity", excluding a nominal holder's deposit sub-account;  
    • deposit sub-account set up under Federal Law "On Investment Funds";  
  • depositary registering share rights in an unidentified party's account;  
  • depositary registering share rights in the deposit account:  
    • of a foreign nominal holder;  
    • of a foreign authorised holder and (or);  
    • under depositary receipt programmes.  

2. The list of “passive” income provided by p. 1 cl. 309 of Russian Tax Code has been supplemented with income from Real Estate Closed Investment Unit Fund’s unit realisation (redemption). Similar to share and real estate disposal, income from unit realisation may decrease by the amount of expenses related to their purchase.  

3. Eurobond interest income exemption procedure has been amended. In particular, it is provided that, in addition to a requirement on payment of interests by Russian entities in connection with foreign SPVs Eurobond offerings, such SPVs or Eurobond income receiving parties, or assignees which Eurobond rights have been transferred to, should be residents of a state that is a party to a Double Taxation Avoidance Agreement (DTAG) between the state and the Russian Federation.  

4. Clause 310.1 of Russian Tax Code has been restated. In particular, some amendments have been inserted to the list of Russian securities (Securities) registered in a foreign nominal holder’s deposit account, foreign authorised holder’s deposit account and (or) in a deposit account under depositary receipt programmes where a depositary should be recognised as a tax agent when making payments under such programmes:  

  • Russian state securities subject to obligatory centralised deposit;  
  • state securities of Russian constituent entities subject to obligatory centralised deposit;  
  • municipal securities subject to obligatory centralised deposit; Russian entities’ ISs subject to obligatory centralized deposit issued after 1.01.2012;  
  • Russian entities’ other ISs, except for those subject to obligatory centralised deposit, issued before 01.01.2012.  

Tax should be calculated and withheld by a depositary on the basis of profile summaries of foreign entities exercising their rights under Securities (beneficial holders). Where a nominal (authorised) holders acts in favour of a trustee, such summary profile should include information on entities in favour of which the trustee is acting (except where the trustee acts in favour of an investment fund). If Securities are registered in a foreign authorised holder's deposit account and the beneficial holder is represented by an investment fund, the relevant tax should be calculated and withheld on the basis of information on the party in the name of which the foreign authorised holder's account has been set up.  

A summary on Securities beneficial holders should be provided by a party acting in favour of foreign beneficial holders (a nominal (authorised) holder or the holder of a deposit account under a depositary receipts programme) in a paper or electronic form. A summary to be provided to a depositary should include the number of such Russian Securities types, as well as of foreign Securities vesting rights to the relevant Russian Securities, including residence countries for such Securities beneficial holders and ground for exemptions provided by Russian Tax Code or a DTAG.  

Provision terms for summary profiles of Securities beneficial holders to a depositary have been extended:  

  • for Securities subject to obligatory centralised deposit, no later than 5 days after disclosure of information on Securities payment transfers to depositors;  
  • for Russian shares, no later than 7 days from the date of resolution in relation to parties entitled to receive dividends.  

If such information is not provided in a timely manner a depositary should withhold tax at the rate of 30% (except where exemption or 0% tax rate is provided for such Securities income). A depositary should recalculate the amount of the tax withheld, provided that such sum- Business Centremary profile has been provided to it within 30 days after the tax amount has been calculated.  

Reduced dividend tax rate provided by Russian Tax Code or a DTAG subject to compliance with additional requirements (participation interest in the capital (%), share ownership term, amount of investments in the capital etc.) should not be applied by a depositary. Tax withheld in excess should be indemnified.  

It is provided that no tax amounts should be recovered from a depositary where such tax has not been withheld by the depositary due to provision of untrue and (or) incomplete information to the depositary, or if a nominal (authorised) holder has rejected to provide necessary documents subject to review. In this case, tax penalties should not be applied to a depositary either.  

Similar amendments have been inserted in clause 214.6, chapter “Personal Income Tax”.  

5. A new Russian Tax Code clause, clause 310.2, has been introduced. The clause regulates a document request procedure adopted by tax authorities to monitor due calculation and payment of taxes by a depositary as a tax agent. A tax authority may request the following documents from a depositary or foreign entity acting in favour of third parties:  

  • copies of documents on the name and state registration of a foreign entity exercising its rights under Russian Securities;  
  • copies and originals of documents certifying exercise of Securities rights by a beneficial holder or a trustee;  
  • copies and originals of tax residence documents for Securities beneficial holders.  

These documents should be submitted no later than 3 months after the receipt of a request.  

Similar amendments have been inserted in chapter “Personal Income Tax”, please see clause 214.8 of Russian Tax Code.  

6. Clause 312 of Russian Tax Code now provides a wider list of tax refund documents where the relevant tax withheld by a depositary is subject to refund. In such case, in addition to the standard list, the following documents should be provided:

  • a document certifying exercise of Securities rights by a beneficial holder or a trustee;  
  • a document on the amount of income received from Securities;  
  • a depositary profile;  
  • a document certifying that a Securities beneficial holder has complied with additional requirements provided by Russian Tax Code or a DTAG, entitling to a reduced dividend tax rate.  

7. “Personal Income Tax” Chapter has been supplemented with clause 226.1 that regulates particular aspects of tax calculation and payment by a tax agent in transactions with Securities and derivatives, as well as of payments under Securities. In particular, the clause provides a list of entities recognised as tax agents:

  • a trustee or a broker acting under a trust agreement, brokerage agreement, mandate agreement, fee letter or agency agreement;  
  • a trustee that is a professional Securities market participant registering Securities rights in its current account or deposit account;  
  • a Russian entity paying out income under Securities with rights registered in a Securities register in:  
    • a holder's current account; - a deposit account; - the deposit account of a trustee if such trustee is not a professional Securities market participant;  
  • a Russian entity paying out income under Securities with rights registered in a Securities register in an unidentified party's account;  
  • a depositary registering Securities rights in the following accounts:  
    • a Securities holder's deposit account;  
    • a trustee's deposit account (if such trustee is not a professional Securities market participant);  
    • a deposit sub-account set up with a depositary under Federal Law “On Clearing and Clearing Activity”, except for a nominal holder's deposit sub-account;
    • a deposit sub-account set up under Federal Law “On Investment Funds”;  
  • a depositary registering Securities rights in an unidentified party's account;  
  • a depositary paying out income under the following Securities types with rights registered in a deposit account of a foreign nominal (authorised) holder or a deposit account set up under depositary receipts programmes:  
    • Russian state securities subject to obligatory centralised deposit;
    • state securities of Russian constituent entities subject to obligatory centralised deposit;  
    • municipal securities subject to obligatory centralised deposit;  
    • Russian entities’ ISs subject to obligatory centralised deposit issued after 1.01.2012;  
    • Russian entities’ other ISs, except for those subject to obligatory centralised deposit, issued before 01.01.2012.  

Amendments should come into effect starting from 01.01.2014.