The taxation of capital gains derived by foreign legal entities
from the sale of Russian shares or financial instruments has been
clarified by Russian Federal Law No. 132-FZ , which amends Article
309(1)(5) of the Russian Tax Code establishing the Russian
withholding tax regime applicable to capital gains.
Prior to the enactment of the new law, proceeds from the sale of
shares in Russian companies which derived more than 50% of their
value from immovable property located in Russia (commonly referred
to as "property-rich companies) were subject to withholding
tax in Russia. The only exception was sales on foreign stock
exchanges of securities traded on those exchanges. However, the Tax
Code did not provide any detailed rules what shares qualified for
the exemption, resulting in significant uncertainty.
Federal Law No. 132-FZ provides that securities qualify for the
exemption provided that they satisfy all the following
they have been admitted for trading by at least one market
which possesses the right to do so in accordance with its national
information on their prices is published in the mass media
(including by electronic means);
a market quotation is calculated for the securities during the
last three months preceding the transaction date, if this is
provided for by the relevant national legislation.
Federal Law 132-FZ was published on 8 June 2011 and applies
retrospectively from 1 January 2011.
It should be noted that under the Cyprus-Russia double tax
agreement capital gains derived from sale of shares of
property-rich companies are currently exempt from Russian tax and
will remain so until four years after the Protocol to the
Cyprus-Russia double tax agreement takes effect.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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