Russia’s Federal Tax Service in its Letter # ЕД-4/3-19983@ from November 7, 2013, offers an explanation on the issue of use of preferential profit tax rate on dividends paid to an Austrian company from stocks of a Russian company purchased on the secondary market.
According to Article 10 of the Convention for Avoidance of Double Taxation between Austria and Russia, a preferential profit tax rate (in the amount not exceeding 5% for the total amount) may be used towards dividends in cases when dividends are received by a company (other than a partner) that owns at least 10% of assets of the dividend payer and the participating interest exceeds 100,000 US dollars or an equivalent amount in any other currency.
According to the position of the Ministry of Finance stated to the tax authorities in Letter #03-08-13/11441 from April 8, 2013, the term “participation” (for joint-stock companies) must be interpreted as holding equity in the company’s capital. The registered company’s capital consists of a nominal value of shares purchased by stockholders.
Therefore, in using the preferential tax rate it is necessary to remember that the nominal value of the share of the company’s capital must equal at least 100,000 US dollars, regardless of the actual amount paid for purchase on the secondary market which may exceed the abovementioned amount.
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