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Tax on dividends – MinFin considers increasing it for individuals

According to Vedomosti, the Ministry of Finance is considering increasing the tax on dividends for residents from 9% to 13%. The proposal relates to individuals, and would therefore bring it into line with the rate of personal income tax. However, this might eventually spread to legal entities, according to Deputy Minister of Finance Sergey Shatalov.

High dividends, and a further increase thereof as a result of the government’s policy towards state-owned companies, is one of the key attractive features of the Russian equity market, in our view, and so any tangible changes to taxation might adversely affect it.

We estimate that the direct ownership of Russian equities by individuals is relatively low, at about 5%. A larger part is structured via offshore holdings, which makes it possible to minimise the effective tax on dividends under double taxation treaties. Thus, implementing the de-offshorisation measures prioritised by President Vladimir Putin would have a more significant effect on the Russian equities market. This might result in the tax on dividends increasing to the statutory rate for non-residents of 15%. In that case, private companies, which have historically paid more dividends, would increasingly consider share buybacks as an alternative way of distributing income, similar to the US practice, we think.

Olga Danilenko, Alexey Zabotkin
VTB Capital analyst

MinFin, tax

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