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Russia Grants New Tax Breaks for Corporate Bonds
Russian authorities have moved to provide preferential tax treatment for interest income received from investments in the country's corporate bonds, but a practitioner has warned that Russian corporate Eurobonds can't benefit from this exemption.
The Russian parliament March 29 adopted a bill to grant preferential tax treatment for interest income received from investments in domestic corporate bonds.
The Russian Tax Code amendments aimed to expand Russian personal tax benefits currently available to interest income on deposits “and state bonds further to traded bonds of Russian corporates” issued from 2017 through 2020, said Alexander Sinitsyn, director, Tax&Legal, at Deloitte CIS.
Under the amendments, only interest income in excess of the Central Bank refinancing rate plus 5 percent, plus discount, is exempt in full, he wrote to Bloomberg BNA in a March 31 email. Given the recent decrease of the Central Bank key rate to 9.75 percent, “this will effectively provide for Russian personal tax exemption on income in full on liquid bonds of Russian companies,” Sinitsyn said.
The new legislation applies to bonds denominated in rubles and issued from Jan. 1, 2017, to the end of 2020.
The legislation adds to existing incentives available to investors in Russian corporate bonds that include a reduction of the profit tax rate from 20 percent to 15 percent for bonds of Russian entities issued from 2017 through 2021, “and withholding tax exemption for income on Eurobonds for non-resident investors,” Sinitsyn noted.
Starting from late 2016, various Russian government officials have reported that the government is working on a broad-scale economic reform plan, and “the suggested amendment is one of the tax instruments of this plan,” Sinitsyn argued. However, Sinitsyn warned that Russian corporate Eurobonds can't benefit from this exemption.
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