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Interpretation of Dividends’ Taxation

The Ministry of Finance of the Russian Federation gave interpretation to the taxation of dividends paid in disproportion to the amount of participatory interest in the charter capital of the company (letter # 03-03-10/84 dated 30 July, 2012).

According to the ministry, in case the company’s net income is distributed in disproportion to the amount of participatory interest in the charter capital of the company, the respective payments are taxed differently: payments inproportion to the participatory interest of the participant are treated as dividends and are taxed as dividends at the standard rates set forth in article 284 of the Tax Code of Russian Federation. The payments exceeding suchproportion are not treated as dividends and are taxed at 20%. When holder of the participatory share is an individual, tax rate of 13% and 30% will be applied to tax residents and nonresidents respectively.

Clarifications on taxation of netprofit distribution in joint-stock companies were also given in the letter. The payment of dividends onpreferred shares with amount of dividend set forth in the charter is treated for taxation purposes exclusively as dividends.

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