Russian withholding tax reclaim process

In a previous article we have discussed that you might be entitled to reclaim withholding tax on your foreign investments in Russia (including ADRs, GDRs).

For transactions where the ultimate beneficial owner is not declared prior to the payment of income, local Russian custodians apply 30% withholding tax on dividends1 and interest income.

As the Russian withholding tax rate is 15% on dividends and 20% on interest income, investors who have paid 30% withholding tax are entitled to a refund. This is of course subject to declaring the ultimate beneficial owner and following the prescribed reclaiming process.

In this article, we analyse the procedure for withholding tax reclaims and the documentation requirements.

Procedure for withholding tax reclaims

The procedure for withholding tax reclaims generally involves the following steps:

1. Issue of a Power of Attorney / letter of authorisation to allow consultants to liaise with the tax authorities, custodians, issuers, and any other relevant parties;

2. Information gather phase – assuming all parties involved act in a timely manner, gathering all information is expected to take circa three months;

3. Preparation, review and finalisation of withholding tax reclaim applications;

4. Submission of withholding tax reclaim applications to the Russian tax authorities accompanied by relevant supporting documents; and

5. Periodic follow up with the respective tax inspectors.

Points to note

• Withholding tax is refunded in Russian Rubles, so you will need a Ruble-denominated account with a Russian bank;
• An investor may claim a refund within three calendar years following the year in which the tax was withheld (i.e. can go back to 1 January 2012 if applications are made by 31 December 2015); and
• In order to reduce complexity and increase the likelihood of success we would recommend that applications are made on a per holding and a per distribution basis.

Documentation requirements

Withholding tax reclaim application packs submitted to the Russian tax authorities should, as a minimum, include the below items. Please note that generic guidance is provided by the Russian Tax Code however, based on our practical experience, we believe that the tax authorities may request further information.

Documents in accordance with the Russian Tax Code:

• Tax reclaim forms 1012DT (2002);
• Confirmation of the investor’s ownership of the securities in question on the date of payment of income (e.g. account statement from the custodian, sale-purchase agreement, etc.);
• Confirmation of the investor’s residency in a foreign state with which a Double Tax Treaty has been concluded at the time when the investor received the income (tax residency certificate that has been notarized, certified with an apostle and translated into Russian); and
• Evidence confirming that the distribution was made (e.g. distribution tax voucher) and the tax was withheld and paid to the Russian tax authorities (e.g. payment order and tax return).

Additional information that may be required

In practice, the tax authorities may require some additional information from the taxpayer in order substantiate its right for refund, i.e.

1. Depositary agreement;
2. The extract from the register of shareholders of the issuer, indicating that the taxpayer (their agent or appointed nominee shareholder) is included in the register of shareholders as registered holder of the shares;
3. The extract from the depositary bank accounts containing information about beneficial owners of depositary receipts or nominee holders; and
4. Extracts from depository accounts of the beneficial owners of securities opened by nominee holders.

Finally, an important point to note is that the success of withholding tax reclaims is heavily dependent on the people involved in the process.

Notes:

Starting from 1 January 2015, dividends are exempt from the 30% withholding tax.