Expansion of dividend benefits for businesses in Russian offshore companies

29.08.2020

All international holding companies that are residents of Special Administrative Regions in Kaliningrad and Vladivostok will be able to transfer profits abroad with a 5% tax.

Both public and non-public international holding companies that have changed their residence permit to Russky island in Vladivostok or Oktyabrsky island in Kaliningrad will be able to pay dividends abroad with a minimum tax rate of 5%.

Special Administrative Regions (SAR) on Russky island in Vladivostok and Oktyabrsky island in Kaliningrad were established in 2018 to attract capital from foreign Russian companies. Registration in the SAR was the primary condition of the third capital amnesty, which ended on March 2, 2020.

In accordance with the draft law, the Ministry of Finance proposes:

  • allow all international holding companies that are residents of the SAR to transfer dividends abroad at a tax rate of 5% (currently, only public international holding companies have this right);
  • cancel the additional condition that only international holding companies that were public on January 1, 2018, will receive the benefit;
  • extend the 5% rate only to income received before 2029.

To «move» to the SAR, the company needs to invest 50 million rubles in Russia within six months, and not necessarily in Kaliningrad or Vladivostok. For example, buying a company in Moscow will be counted as an investment. Redomicilation, or change of corporate registration, allows you to completely transfer a foreign company to Russia — in addition to changing your tax residence, you can change your country of registration.

After the revision of tax agreements with «transit» countries, «moving» to the SAR will become an alternative for companies that want to maintain the ability to pay dividends abroad at a 5% rate. The Ministry of Finance proposes in the bill to extend the preferential rate of 5% on profits from 2020.

The bill also proposes to exempt foreign branches of international companies from taxes in Russia, provided that the branch must be an active separate division, and it must account for not more than 20% of all international holding company’s revenues. Also, at least 90% of the company branch’s revenue must be generated by participation in the implementation of production sharing agreements, concession and license agreements, etc.

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