Russia repeals tax on overseas equity investors

Russian president Dmitry Medvedev repealed a 30% tax on foreign investors' income from equity sales last week.
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Russian president Dmitry Medvedev repealed a 30% tax on foreign investors' income from equity sales last week.

The change should improve the attractiveness of the Russian equity market for non-resident investors and will simplify the performance of tax agent duties conducted by Russian brokers for foreign investors.

The abolition of the tax on foreign investors' income from the sale of shares applies retroactively from 1 January 2011. However, these changes do not apply to bonds, shares of investment funds and Russian depository receipts traded on Russian exchanges.

MICEX, one of Russia's two major exchanges, said the amendment would facilitate the inflow of foreign investors to the Russian stock market, improve liquidity and strengthen cooperation between the exchange and market participants in the course of creating an international financial centre in Moscow.

Mike Smith, director of the Electronic Trading Group at Russian broker Renaissance Capital, also welcomed the change but pointed out that existing overseas investors may already have tax mitigation strategies in place.

“Whilst historically financial entities have looked to trade Russian securities through structures that operate with a dual taxation treaty with Russia, this development is a positive step for investors looking to access the Russian market,” he said. “It should be seen as a contribution towards the larger process of change taking place in the Russian financial market and the development of a financial hub in Moscow.”

The adoption of the law affects Article 95 of the tax code of the Russian Federation and Article 309 of the second part of the Tax Code of the Russian Federation.

The Russian government is in the process of transforming Moscow into an international financial centre, a long-term project that involves changes to the legal, regulatory and operational infrastructure.

On 27 January a law banning insider trading was passed giving the Federal Financial Markets Service, the national markets regulator, powers to monitor trading activity for the illegal use of inside information. Under plans announced on 2 February, MICEX and its rival exchange RTS are to be merged to improve operational efficiencies for trading participants. In addition to operating separate clearing and settlement operations, the two markets operate using different currencies and settlement cycles. More details on the merger are expected in the coming weeks.