In accordance with Russian Ministry of Finance's Letter No. 03-08-05/64112 dated 2 November 2016, NSD makes changes to the procedure for application of the reduced tax rate to income payable on Russian corporate bonds. On 1 January 2017, the amendments made to sub-clause 1, clause 4, Article 284 of the Russian Tax Code by Federal Law No. 242-FZ dated 3 July 2016 will take effect. In accordance with the amended provisions, the tax rate applicable to interest income on Russian corporate bonds will be reduced from 20% to 15% both for Russian and foreign persons who pay corporate income tax. The tax rate of 15% will apply to income payable on Russian corporate bonds satisfying all of the following criteria:
- For the tax purposes, the bonds must be treated as traded on an established securities market as at the relevant interest income recognition dates in accordance with the Russian Tax Code;
- The bonds must have been issued by a Russian organization;
- The bonds must be denominated in RUB;
- The bonds must have been issued during the period of 1 January 2017 to 31 December 2021 (both inclusive).
Please note that, in accordance with clause 9, Article 280 of the Tax Code, securities are treated as traded on an established securities market, provided that all of the following criteria are satisfied:
- the securities are listed by at least one exchange authorized to do so in accordance with the applicable laws;
- information on the prices (quotations) of the securities is either published in mass media (including electronic mass media), or may be made available by the exchange or another authorized party to any interested person at any time during the period of three years following the date of a transaction in the securities; and
- during the three consecutive months preceding the date when the taxpayer made a transaction in such securities, a market quotation had been calculated for the securities at least once (save for the market quotation calculation upon the initial offering of the securities by the issuer).
The satisfaction of the criteria set out by clause 9, Article 280 of the Tax Code shall be tested by the taxpayer to ascertain whether or not the securities are treated as traded on an established securities market, with such test to be conducted with respect to the entire time period in which interest income on the relevant bonds is recognized as received in accordance with clause 6, Article 271 of the Tax Code.
The procedure for income recognition for the accrual method is described in Article 271 of the Tax Code. In accordance with clause 6, Article 271 of the Tax Code, for the purposes of Chapter 25 of the Tax Code, income under loan agreements or other similar arrangements (including debt obligations secured by securities), the duration of which covers more than one accounting (tax) period, shall be recognized in the relevant income as at the end of each month of the relevant accounting (tax) period, regardless of the income payment dates.
Official closing prices of all securities, including corporate bonds, are published in Moscow Exchange's online bulletins. The data is available for free.
When paying out income to a foreign nominee, NSD, as a withholding agent, may apply the corporate income tax of 15%, as provided for by the fifth paragraph of sub-clause 1, clause 4, Article 284 of the Tax Code, on the basis of the summary information broken down by tax jurisdiction of the beneficial owners of income. In accordance with clause 8, Article 310.1 of the Tax Code and the relevant agreement with a foreign nominee, such summary information disclosed to NSD must contain a reference to the Tax Code provision under which the reduced tax rate of 15% is applicable (Article, clause, and sub-clause/paragraph of the Russian Tax Code). For this purpose, the following new references were included in the Reference List of General Tax Rates under the Russian Tax Code (see item 4.4 on NSD's web page entitled "Tax Management / Russian Securities / Foreign Nominees"):
|284||4||1/5||Облигации российских эмитентов/Russian corporate bonds||Юридическое/ Legal Entities||Резидент/ Russian Resident||15||Процентный доход/ interest income|
|284||4||1/5||Облигации российских эмитентов/Russian corporate bonds||Юридическое/ Legal Entities||Нерезидент/ Russian Non Tax Resident||15||Процентный доход/ interest income|
In addition, to reflect the changed numbering of provisions in Article 284 of the Tax Code, the following references in the Reference List of General Tax Rates under the Russian Tax Code have been updated:
|284||4||1/4||Облигации с ипотечным покрытием/Corporate mortgage-backed bonds||Юридическое/ Legal Entities||Резидент/ Russian Tax Resident||15||Процентный доход/ interest income|
|284||4||1/4||Облигации с ипотечным покрытием/Corporate mortgage-backed bonds||Юридическое/ Legal Entities||Нерезидент/ Russian Non Tax - Resident||15||Процентный доход/ interest income|
Russian non-resident legal entities holding securities accounts with NSD
Russian non-residents holding securities accounts with NSD who are paid income on corporate bonds must pay tax at the rate of 20% (where no benefit is claimed under the DTT). For NSD to apply the reduced tax rate of 15% instead of the tax rate of 20%, the Russian non-resident owner of the securities account must provide NSD, before the income payment date, with any documents certifying compliance with the applicable requirements of the Russian Tax Code.
In case of any question related to this message, you may contact your account managers at: +7 495 956-27-90, +7 495 956-27-91.