Module II·Article IV·~1 min read
Taxation of Dividends and Profit Distribution
Corporate Taxation
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Economic Double Taxation
The basic problem of corporate taxation: the company pays income tax on earned income; when dividends are distributed, the shareholder pays tax again on the income received. Thus, the same economic income is taxed twice.
Different countries address this issue in various ways: exemption from tax (participation exemption), partial exemption, credit for corporate tax paid.
Dividend Tax Rates in Russia
Dividends to an individual who is a resident of the Russian Federation: 13% (15% on amounts exceeding 5 million rubles per year).
Dividends to an individual who is a non-resident: 15% (if there is no Double Taxation Treaty, DTT).
Dividends to a Russian organization from a Russian company: 13%.
"Daughter-parent" benefit: if a Russian organization owns at least 50% for more than 365 days — dividends are taxed at a rate of 0%.
Dividends from a foreign company: 15% at source (withholding tax), if there is no DTT.
Double Taxation Treaties (DTT)
DTT are bilateral agreements between countries that reduce withholding tax on dividends, interest, royalties. Russia has concluded about 90 DTT.
Example: Russia-Cyprus DTT (before termination in 2023): withholding tax on dividends — 5% (with a 25%+ share) or 10%. After 2023 — the standard 15% rate was restored.
Termination of a number of DTT in 2022-2023: Russia suspended/denounced a number of DTT, which sharply increased the tax burden on cross-border payments.
Practical Exercise
Holding structure: a Cypriot holding owns 100% of a Russian LLC. The Russian LLC earned a profit of 100 million rubles (after corporate income tax at 20%). Calculate the tax burden when paying dividends: (1) According to current rules (no DTT with Cyprus). (2) How would the situation change if there were a DTT with a 5% rate?
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