Russia Bills Create Tax Incentives for Companies
Russian lawmakers have introduced bills to zero out the country's dividend tax for certain companies in designated regions.
The standard tax rate is 15 percent for dividends paid to a non-resident. A bill (No. 488838-7), introduced June 15, creates two “special administrative districts” where international holding companies can benefit from a preferential tax regime.
The preferential rate would apply as long as a company owns at least 15 percent of the capital of the organization that is paying the dividends, according to a second related bill (No. 488869-7). It would also set a 5 percent tax rate “on income received by foreign persons in the form of dividends on the shares of international holding companies.”
In remarks in parliament, Viktor Pinsky, a member of the State Duma, said he hopes the bills lure back Russian companies now housed in Cyprus and the British Virgin Islands. Both countries are considered to be infamous tax havens.
If the bills are adopted, the special zones could be established before the end of the year. The bills will likely be adopted, though they could change significantly along the way, practitioners said.
Eligible companies must have been founded before Jan 1, 2018. Companies applying for the status of “international holding company” must provide financial reports on the parent organization, an audit report, and information on controlling persons.
The preferential rates won't apply to companies with primarily real estate assets, Sergey Kalinin, the head of the tax practice at EPAM.
He said for example, if a factory accounts for more than 50 percent of the cost of assets of a foreign company's Russian subsidiary, then the gain from the sale of the subsidiary would be taxed at the standard rate, he told Bloomberg Tax June 19. The standard tax rate is 15 percent for dividends paid to a non-resident.
To receive the benefits, a company registered as a SAR resident must commit to making investments in the Russian economy. The level and areas of such investments are yet to be decided by the government, says Ekaterina Lazorina, a partner at PwC.
Tax Treaties Impact
There is a risk that Russia's double taxation treaties with other countries wouldn't be applicable to companies in the zones, said Alexander Zakharov, a partner at Paragon Advice Group, a Moscow-based law firm.
“As follows from the example of such a zone on the island of Labuan, Malaysia, most countries exclude such offshore territories and their resident from what is covered by double tax agreements,” Zakharov said June 18.
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Reproduced with permission. Published June 21, 2018 by The Bureau of National Affairs, Inc. (800-372-1033), http://www.bna.com