Personal Income Tax Up to 22% on Passive Income and Tax for Mutual Investment Funds: Lawyers Assess Ministry of Finance’s Tax Amendments

According to Pravo.ru, the Ministry of Finance has prepared a bill that changes tax rules for investors and businesses: passive income of citizens will be moved to the general progressive tax scale with rates of up to 22%, mutual investment funds will be required to pay income tax, and extractive companies will have their excess profits withdrawn. The ministry also proposed imposing VAT on cross-border trade and taxing dividends of non-residents held in type ‘C’ accounts at a rate of 35%. Experts break down who will be affected by the new rules and what businesses should prepare for.

Maria Semenova, Director at FBK Legal, says:

Extending the progressive tax scale of up to 22% to dividends and income from the sale of financial assets will equalise the tax efficiency of phantom and settlement-based long-term incentive programmes for top executives. Accordingly, given that setting up a settlement-based programme is more costly in terms of the need to create infrastructure for granting shares to employees, the loss of tax advantages may become a trigger for a shift from a settlement-based to a non-settlement system of long-term employee incentives.