The Ministry of Finance will extend the non -core output of dividends for three years

The unexpected good news for the business: he managed to lobby for the non -core conclusion of dividends to offshore until 2024, writes RBC. The Ministry of Finance proposed blocking this loophole from next year.

What happened

After discussions with the business, the Ministry of Finance decided to establish a three -year transitional period of application of a “through” approach to the dividends of Russian companies paid abroad. The modified bill is already in the government.

The “through” approach allows the use of a zero rate of dividends tax to a direct recipient. For this, a foreign structure indicates that the actual recipient of income is not it, but another person, for example, a Russian tax resident, who will eventually pay the Russian tax.

As now

In the “through” approach, there is no need if the countries are in force between the countries to avoid double taxation, and until recently, it was not massive.

He gained extreme relevance at the end of March, when Vladimir Putin in contacting the nation in connection with coronavirus stated that all dividend income payments in offshore should be taxed with an adequate tax of 15%. According to the president, the real rate for most of these payments is 2% (in fact this is not so).

On behalf of Putin, Russia revises the tax rates on dividends with popular transit jurisdictions - Cyprus, Luxembourg and Malta. The Ministry of Finance is already preparing to terminate the double taxation agreement with Malta, negotiations with the Cyprus authorities continue, RBC notes.

The benefit of dividends is given, provided that the 50% of the portfolio on which dividends are paid belongs to the Russian company for at least a year. Also, the payer should not be a resident of offshore from the black list (jurisdictions that do not cooperate with Russia for tax control purposes).

What's next

Three years is a very important relief for companies that should adapt to a new reality during this time. However, in the new bill there are additional conditions that can complicate the life of many of them, remarked RBC:

• Dividends should be credited to accounts, about which Russian tax authorities are notified within 180 days from the date of payment of dividends.

• Since 2021, foreign companies, international holding companies and Russian tax residents from the black list of offshore have been losing benefits.

This is a blow to the joint venture of Russian companies with foreign, created according to the scheme with a foreign legal entity, which is a Russian tax resident. “The vast majority are transparent structures that have not used tax economy schemes,” said Anna Voronkova, partner of the KPMG, ”said the PPMG partner. Many of them were taxed in the framework of deofshorization, the expert recalls.

The provision on the “black list” leaves Cyprus companies in limbo. “If for some reason it is not possible to agree on a change in the tax agreement, it will be completely canceled, and Cyprus may be blacklisted. In this case, the companies that have come from Cyprus since 2021 will not be able to tax the received dividends at a rate of 0%, ”says PWC partner Mikhail Filinov.

Given the importance of the topic, The Bell asked the experts of the GSL Law & Consulting law firm to tell what all this in practice may mean for owners of assets in offshore jurisdictions. The company's specialists Alexander Alekseev and Marina Kharitidi wrote a whole report on this topic. You can buy access to it here .