One of the founding shareholders of a foreign company may apply to withdraw from ownership in the company. Monetary compensation is outlined for the withdrawing shareholder of the company (OOO), indicating that the amount is “payment for the portion of actual share cost to the company’s shareholder in conjunction with the shareholder withdrawing from the company.” Are these payments subject to profit taxation for both the company and the tax agent?
In Letter #03-03-06/1/519 dated 08.03.2010, the Ministry of Finance draws our attention to the fact that the foreign company’s obligation to calculate, deduct, and pay profit tax to the government is the responsibility of the tax agent – the company paying out income to the foreign organization.
Income in the form of the share’s actual value in the OOO’s charter capital and received by the foreign organization when withdrawing is subject to taxation from the source of the payments in Russia. The amount that exceeds the payments of the foreign shareholder in the company’s capital is the amount that is subject to taxation.
Taxes from such income are calculated according to a rate established by Article 284, Point 2, Sub-point 1 of the Tax Code, currently a rate of 20%.
The obligation to calculate, deduct, and pay profit tax on the foreign company’s income is the tax agent’s responsibility – the tax agent being the organization paying income to this foreign company.
The Ministry of Finance also notes that upon the existence of an active agreement on avoiding double taxation between Russia and a foreign state (heretofore referred to as “Agreement”), the resident of which is a foreign shareholder receiving income upon withdrawing from a Russian OOO, taxation of this income is in accordance with the Agreement’s conditions.
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