The President of the Russian Federation announced new taxes on interest on deposits and dividends

The President of the Russian Federation announced new taxes on interest on deposits and dividends

On March 25, 2020 the President of the Russian Federation in his speech demanded to impose a new tax on interest paid on bank deposits, as well as a tax on dividends of Russian companies paid to non-residents.

These taxes were explained by the need to replenish the state budget and as the measure of assistance to people who suffered from coronavirus pandemia. Nonetheless, the tax will be permanent rather than a temporary measure.

Although the initiative has yet to be adopted as law, it is expected that the law will be approved in the next several days.

  • Taxes on interest paid on bank deposits

Taxes rate on interest paid on bank deposits in the amount of over 1 million rubles will be set at 13%. In recent days, representatives of the Ministry of Finance and the presidential administration provided clarifications that the amount of 1 million rubles refers to each of the deposits separately, and not to the total amount of deposits owned by a taxpayer. Nevertheless, the information on this issue is ambiguous and it was suggested that the calculation would be cumulative. It is also unclear whether taxes on brokerage accounts at banks will be imposed, and whether taxes will be also levied on income from foreign accounts of Russian residents.

  • Taxes on dividends paid to non-residents

The President of the Russian Federation proposed to impose a 15% tax (actually withholding tax) on dividends paid by Russian companies to their non-resident shareholders. The introduction of this tax is contrary to the numerous double taxation agreements to which Russian Federation is a Party. Therefore, the President of the Russian Federation demanded to negotiate amendments to all those agreements, and if the revision is not completed by December 2020, Russia will withdraw from such agreements unilaterally.

The introduction of both taxes is an urgent measure aimed at the compensation of decreasing budget revenues due to drop in world oil prices and decrease in economic activity due to the coronavirus pandemic. Nevertheless, the decision to introduce a withholding tax, accompanied by an ultimatum revision of international treaties, is an additional confirmation of the negative attitude of the tax legislation of the Russian Federation towards non-residents. We can also expect an additional aggravation of tax and currency control laws regarding cross-border economic activity.