Doing Business in Russia
November 2007 (the “black list” includes most of the offshore low-tax jurisdictions and territories, including Cyprus). As a result of the significant investment requirement the dividend exemption has very limited application. However, starting from January 1, 2011 Russian holding companies will no longer be required to meet the investment threshold to apply the dividend exemption, which will substantially increase the use of the Russian holding companies regime. The new rules will apply to dividends paid for 2010. After these amendments to Chapter 25, the following tax rates apply to dividends:
0% withholding tax on dividends payable by Russian and foreign companies qualifying as “strategic investments”;
9% withholding tax on dividends payable by Russian and foreign companies to Russian shareholders in all other cases; and
15% withholding tax on dividends payable by Russian companies to foreign legal entities.
Chapter 25 also introduced special tax rates on income earned from Russian state securities and on the profits of the Russian Central Bank. Taxable profit is defined as income less deductible expenses. Although, prior to 2002, deductions were limited and were subject to substantial restrictions, as of January 1, 2002, many of those expense limitations disappeared under the new profits tax provisions of the Tax Code. Under the current rules, a taxpayer is generally permitted to deduct economically justified and documentarily confirmed business expenses. Deduction of certain types of expenses are subject to restrictions (e.g. certain advertising costs and representational, including business entertainment, and travel costs). As of January 1, Baker & McKenzie
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