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Increase of LLC Charter Capital Means Tax Obligation For Foreign Founder


The Letter of the Ministry of Finance #03-03-06/1/343 from July 17, 2012 deals with questions of taxation for an Italian company which is a shareholder in a Russian LLC, which is increasing its charter capital without changing the participation share.

The Ministry explains that the increase of the nominal value of charter capital shares without changes in participation shares, in the process of distribution of undistributed profits, creates taxable profit for taxpayers participating in the LLC which must be taken into account for tax purposes.

The abovementioned profit of a foreign company is taxable at a rate of 20% of the amount of increased nominal value of LLC charter capital shares in accordance with Article 284, Paragraph 2 of the Tax Code.

At the same time, according to Article 22 of the Double Taxation Treaty between Russia and Italy, types of income of an Italian resident not included in the provisions of the Double Taxation Treaty, are taxed only in Italy.

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