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Tax exemption of shareholders’ contributions aimed at the improvement of the net assets position of LLCs and JSCs

Federal Law “On amending part II of the Russian Tax Code and several legislative acts of the Russian Federation” No. 395-FZ dated 28 December 2010 (referred to as the “Law” in the present section).

The Law introduced very important amendments for Russian commercial companies (both limited liability and joint-stock) experiencing problems in financing their business activities and reimbursement of current expenses.


Shareholders of Russian operating companies that have negative net asset positions search for possible ways of refinancing the activities of the latter, for instance, by way of contribution to the charter capital of the company, to the property of the company, or the provision of subsidies etc.


Pursuant to the Law, new types of income receivable by Russian commercial companies have been introduced to the list of income not subject to corporate profits taxation. These new types of income include property, property rights as well as non-property rights transferred by the relevant shareholder to the company for the purposes of an increase in the net assets of such company (by way of creating additional capital of the company and (or) its funds (e.g. reserve accounts)).


We note that this exemption will apply notwithstanding the amount of the participation of the relevant shareholder in the capital of the company. Before the adoption of the Law only contributions subject to Russian free financing rules (according to which property (or money) received by a Russian subsidiary from its parent company whose participation interest in such subsidiary exceeds 50% is exempt from taxation in Russia) benefited from the corporate tax exemption.


Therefore, this amendment is of particular importance for Russian operating companies the charter capitals of which are contributed by numerous investors, none of whom hold 50% or more of the shares.


It is equally noteworthy that the wording of the new provision introduced by the Law expressly states that the exemption will apply to a waiver of debt made by parent companies for the benefit of their Russian subsidiaries which is aimed at the improvement of their net assets position, as well as to situations where undistributed profits (dividends) of the companies are not claimed by their shareholders and so are retained by the Russian subsidiaries with the same aim.


The Law covers relations arising from 1 January 2007.

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