Dividend Taxation in Russia: Legal Rates, Procedures, and Compliance

 

July 21, 2025

BRACE Law Firm ©

 

Generating profit is a key objective of any commercial organization. It can be reinvested in the development of the firm or distributed among participants and shareholders. Under Russian tax law, dividends are subject to taxation.

In this article, we will examine:

• what taxes are paid on dividends;
• the procedure and deadlines for tax payments;
• the liability for failure to pay taxes.

What are Dividends?

In accordance with Paragraph 1 of Article 43 of the Tax Code of the Russian Federation (the "Tax Code"), dividends are any income received by a shareholder (participant) from an organization during the distribution of profit remaining after taxation (including interest on preferred shares) on shares (interests) owned by the shareholder (participant) in proportion to the shares of the shareholders (participants) in the charter (pooled) capital of that organization.

Thus, for tax law purposes, dividends are recognized as any income received by a participant (shareholder) of a company during the distribution of the net profit of the company.

However, not all payments meeting the criteria of dividends are recognized as such. For taxation purposes, the following are not recognized as dividends:

• payments made to a shareholder (participant) of an organization upon its liquidation within the limits of its contribution to the charter capital of the organization;
• payments to shareholders (participants) in the form of the transfer of shares of the same organization;
• payments to a non-profit organization for the implementation of its primary statutory activities, made by business companies formed using the funds of such NPO (Paragraph 2 of Article 43 of the Tax Code).

Nevertheless, one should take a significant number of nuances into account even in these cases. For instance, in Case No. A60-73229/2017, [1] the tax inspectorate conducted a desk audit of Company V. Based on the results, the tax authority concluded that it was unlawful to exclude income in the amount of 3,521,000 rubles received from Company G. from taxable profit. The inspectorate assessed additional tax in the amount of 704,201 rubles and penalties for late payment in the amount of 20,413 rubles. Believing that the decision was issued in violation of legislation, the Company filed a statement with the court. During the court hearing, it was established that the funds transferred to the applicant in the amount of 3,528,000 rubles represented the value of its interest in the charter capital of Company G. at the time of its withdrawal from the founders. The court ruled that since the Company's initial contribution to the charter capital of Company G. was 7,000 rubles, the income received by the taxpayer in excess of this amount (3,521,000 rubles) was subject to corporate income tax. The court denied the claim to declare the tax authority's decision invalid.

Note that the interpretation of the term "dividends" in civil legislation differs from that adopted in the Tax Code. Furthermore, Federal Law No. 208-FZ dated December 26, 1995, On Joint Stock Companies, uses this term without disclosing its content. Federal Law No. 14-FZ dated February 8, 1998, On Limited Liability Companies, uses the concept of "distribution of the company's profit", which is identical in content. Under civil law rules, the payment of dividends occurs only by decision of the participants (shareholders) of the company or its sole participant. As a general rule, profit is distributed among participants in proportion to their interests. However, the constituent documents may provide for a different procedure.

These differences are not only theoretical but also have practical significance. Since Article 43 of the Tax Code calculates dividends in proportion to the share of the contribution to the charter capital, the Ministry of Finance of Russia [2] believes that in the event of non-proportional distribution, the part of the profit distributed non-proportionally to the interests is not recognized as dividends for tax purposes. Consequently, such payments are taxed at the standard tax rate in terms of the excess amounts.

It is also important to note that tax legislation contains no mandatory rule limiting the possibility of paying dividends depending on the period in which the profit was received, which allows for the accrual of dividends, including from the profits of previous reporting periods. As explained by the Ministry of Finance of Russia, [3] interim dividends (based on the results of a quarter, half-year, or nine months) are recognized as such for tax purposes even if a loss is incurred at the end of the year or if the amount of such dividends exceeds the net profit received at the end of the year.

Thus, to satisfy the fiscal interests of the state, tax legislation interprets the concept of dividends more broadly, sometimes covering payments that are not dividends from the perspective of civil legislation.

Taxation of Dividends

A legal entity registered in Russia acts as a tax agent when paying dividends to legal entities and individuals, regardless of their status or the applied tax regime. This means it must calculate, withhold, and transfer the tax to the budget. Russian organizations receiving dividends from a foreign organization are required to independently notify the tax authority of their income.

If the recipient is a legal entity, dividends are subject to corporate income tax; when paying dividends to individuals, including those with the status of an individual entrepreneur or self-employed person, they are subject to PIT.

Below we examine how taxes are calculated in each of these cases.

Procedure for Calculation and Rates of Corporate Income Tax on Dividend Payments

Chapter 25 of the Tax Code regulates the procedure for taxation with corporate income tax.

The calculation of corporate income tax on dividends depends on the following conditions:

• who receives the dividends (a Russian or foreign company);
• whether the organization acting as the tax agent received dividends itself.

In accordance with Paragraph 3 of Article 284 of the Tax Code, dividends are taxed with corporate income tax at the following rates:

1. 0% — if the receiving Russian organization has owned the following for 365 calendar days:

• an interest of 50% or more in the charter capital of the organization paying the dividends;
• or depository receipts that entitle it to dividends in the amount of 50% or more of the total amount of dividends to be paid.

If dividends are received from a foreign organization, the zero rate can be applied if the foreign company is not located in an offshore zone. The list of offshore zones is approved by Order of the Ministry of Finance of Russia No. 35n dated March 28, 2024. [4]

Compliance with the conditions for applying the specified rate is checked on the day the decision to pay dividends is made. According to the position of the Ministry of Finance of Russia, [5] the recipient of the dividends must confirm the right to apply the zero rate. For this purpose, it must submit the following to the organization paying the dividends:

• a copy of the written notification to the tax authority regarding the right to apply the zero rate;
• documents containing information on the date of acquisition of the interest in the charter capital or the right to depository receipts. A sample list of such documents is provided in Paragraph 3 of Article 284 of the Tax Code. These may include purchase and sale (exchange) agreements, decisions on the placement of securities, prospectuses, decisions on reorganization, extracts from the personal accounts of the register of shareholders, extracts from a depo account, etc.;
• a document confirming their submission to the tax authority.

It should be noted that the Tax Code does not expressly establish an obligation for the taxpayer to submit the designated documents to the tax authority.

2. 5% — upon payment of dividends to foreign companies on shares (interests) of international holding companies (IHCs) that are public companies. In this case, the foreign companies must own less than a 5% interest in the IHC.

3. 10% — upon payment of dividends on shares (interests) of an IHC to a foreign company where the interest in the IHC is more than 5%.

4. 13% — upon payment of dividends to other Russian organizations to which the 0% rate does not apply.

5. 15% — upon payment of dividends to foreign companies if other rates are not applicable.

Note that other rates may be established by an agreement on the avoidance of double taxation between Russia and the state of the dividend recipient (Paragraph 3 of Article 310 of the Tax Code). It must be taken into account that the provisions of a number of agreements on the avoidance of double taxation are currently suspended by law [6].

If a rate established by an agreement on the avoidance of double taxation is used, the foreign organization must submit the following supporting documents to the organization paying the dividends:

• a document confirming its permanent location in the state with which the international treaty has been concluded;
• a document confirming the foreign organization's actual right to receive the income (Paragraph 1 of Article 312 of the Tax Code).

Thus, in Case No. A40-28820/2023, [7] based on the results of a field audit, the tax authority assessed the Company additional corporate income tax on income received by a foreign organization in the form of dividends from sources in the Russian Federation in the amount of 296,242,574 rubles, as well as penalties for late payment of tax in the amount of 119,279,114 rubles. In the tax authority's opinion, the Company chose the wrong tax rate. Disagreeing with the decision, the Company appealed to the court. In support of its claims, it stated that it is a payer of corporate income tax as provided for by the tax legislation of the French Republic. In this regard, to avoid double taxation and in accordance with the international Agreement, a reduced tax rate of 5% should apply.

The courts established that under the international agreement, the company must be a payer of corporate income tax in accordance with the general taxation regime of the French Republic to apply the reduced rate. The Company did not submit documents confirming this fact and, therefore, did not confirm compliance with the conditions of the agreement granting the right to preferential taxation. The claims were denied.

Tax calculation in respect of Russian companies depends on whether the tax agent received dividends from other organizations in the current and previous reporting periods:

• If the tax agent did not receive dividends from other companies, the following formula applies: Corporate Income Tax = Accrued Dividends × Tax Rate.
• If the tax agent received dividends from other companies, the tax is calculated according to the following formula: Corporate Income Tax = (Dividends accrued to a specific recipient / Dividends accrued to all recipients) × Tax Rate × (Dividends accrued to all recipients – Dividends received by the tax agent).

Note that nuances exist when calculating tax using these formulas. Therefore, we recommend studying the letters of the Ministry of Finance of Russia that convey its position on contentious issues.

Dividends paid to a foreign recipient company are calculated according to the formula: Corporate Income Tax = Accrued Dividends × Tax Rate.

Tax is withheld and transferred to the budget no later than the 28th day of the month following the month of payment (Paragraph 4 of Article 287 of the Tax Code). Tax is not paid on dividends that have been accrued but not paid.

Procedure for Calculating PIT upon Dividend Payments

Chapter 23 of the Tax Code regulates the procedure for calculating PIT.

The calculation of PIT on dividends depends on the status of the individual (resident / non-resident) and the amount of the payment.

A tax resident is a person who, on the date of receipt of income, has been in the Russian Federation for at least 183 calendar days within 12 consecutive months (Paragraph 2 of Article 207 of the Tax Code). The tax status of a person is determined on the date of receipt of income based on the actual time spent on the territory of the Russian Federation. It does not depend on other conditions, such as: citizenship, possession of a residence permit or authorization, etc. Furthermore, according to the explanations of the Ministry of Finance of Russia, [8] days of stay are calculated by totaling all calendar days during which the individual was in the Russian Federation during the 12 consecutive months. Documents confirming resident status may include a foreign passport with marks on a migration card, etc.

In accordance with Article 224 of the Tax Code, dividends are subject to PIT at the following rates:

• 13% — if the amount of dividends for the tax period did not exceed 2,400,000 rubles;
• 312,000 + 15% of the amount of dividends exceeding 2,400,000 rubles for the tax period;
• 15% — on dividends paid to a non-resident. A different rate may be established by an international agreement.

PIT is calculated using the formula: Tax = Dividends × Tax Rate.

Dividends cannot be reduced by standard, property, or social deductions. Insurance contributions are not charged on dividends.

As the Ministry of Finance of Russia explains, [9] PIT on dividends from sources outside the Russian Federation can be reduced by the amount of tax calculated and paid at the location of the source of income, provided the source of income is in a foreign state with which an agreement on the avoidance of double taxation has been concluded.

Tax is withheld after payments are made. PIT on dividends is transferred within the standard deadlines for this tax, no later than:

• the 28th day of the current month, if the tax was withheld between the 1st and the 22nd day of the current month;
• the 5th day of the following month, if the tax was withheld from the 23rd to the last day of the current month;
• the last business day of the year — when withholding tax between December 23 and December 31 (Paragraph 6 of Article 226 of the Tax Code).

Note that when paying dividends to an individual, there is a risk that the tax authority will recharacterize them as wages or other payments. For example, if dividends are paid monthly.

Thus, in Case No. A05-3395/2022, [10] based on the results of a field tax audit, the Company was assessed 2,486,305 rubles in additional insurance contributions, 781,485 rubles in penalties, and a fine in the amount of 124,315 rubles was imposed. The control authority concluded that monthly payments were made to the manager and the chief engineer, who were participants of the Company, for the performance of labor duties under the guise of dividends to reduce the tax burden.

The Company appealed to the court with a claim to declare the inspectorate's decision illegal. During the court hearing, it was established that according to the Company's charter, the decision on the distribution of net profit is made quarterly. However, payments to the manager and the chief engineer were made monthly in the same amount throughout all reporting periods, including in the absence of net profit. The court concluded that the Federal Tax Service correctly recharacterized the dividends as wages. The claim was denied.

Specifics of Taxation for Dividends in Kind

Civil legislation permits the possibility of paying dividends in non-monetary form, such as property. In such cases, the value of the property is determined based on its market value (Article 211 of the Tax Code).

If other income is paid to an individual, the calculated tax amount is withheld by the tax agent from such income. If there are no other monetary receipts in favor of the taxpayer, it is impossible to withhold the tax. In that case, the tax agent is required to notify the tax authority in writing (Article 226 of the Tax Code).

Regarding legal entity recipients of dividends, the situation is more uncertain since this situation is not directly regulated in the Tax Code. In the opinion of the Ministry of Finance of Russia, [11] the procedure should be the same. At the same time, as researchers of this issue correctly point out, [12] it is unclear how and to whom the calculation and payment of tax should be made in such a situation. Given that the tax agent has no obligation to withhold and pay tax, it is logical to assume that the obligation to pay tax in such a case falls on the participant itself. However, no procedure for tax payment has been provided for by legislation.

Furthermore, the transfer of property towards the payment of dividends, in the opinion of the Ministry of Finance, [13] is a taxable object for value added tax. According to the position of the regulatory authority, such a transfer represents a transaction for the sale of real estate, subject to VAT. Failure to pay VAT will lead to the risk of an additional VAT assessment.

Note that courts take the opposite position on the issue of assessing corporate income tax and VAT on dividends in kind.

Thus, in Case No. A82-13935/2019, [14] based on the results of a field tax audit of the Company, the inspectorate issued a decision assessing 520,085 rubles in additional corporate income tax, 283,419 rubles in penalties, and a 186,046 ruble fine. During the audit, the Inspectorate concluded that the Company had unlawfully failed to include transactions for the transfer of property to the ownership of the Company's participants as fulfillment of dividend payment obligations in the tax base for value added tax. The courts ruled that the payment of dividends to a participant with real estate is not a sale of property and, therefore, is not subject to value added tax.

Courts demonstrate a similar approach regarding corporate income tax. Thus, in Case No. A33-21086/2020, [15] based on the results of a field tax audit of the Company, the tax inspectorate issued a decision assessing 1,860,460 rubles in additional corporate income tax, 283,419 rubles and 63 kopeks in penalties, and a 186,046 ruble fine. The grounds for the additional tax assessment was the conclusion regarding the need to include the amount of paid dividends in income. The judicial instances established that the Company acquired non-residential premises under purchase and sale agreements. Subsequently, the sole participant of the company decided to pay dividends in the amount of 45,018,000 rubles from the undistributed net profit of previous years by transferring the non-residential premises. According to valuation reports, the market value of the specified premises was 45,018,000 rubles. The Supreme Court of the Russian Federation indicated that the payment of dividends with real estate is not a sale of property and is not subject to inclusion in the tax base for corporate income tax.

Thus, it can be stated that the procedure for taxing dividends paid in kind is poorly regulated in tax legislation, and the opinions of control and judicial authorities diverge. At the same time, if a decision is made not to pay taxes when paying dividends in kind, the position will have to be defended in court.

Liability for Violations of Tax Calculation and Payment upon Dividend Distribution

In accordance with Article 123 of the Tax Code, the unlawful failure to withhold and (or) transfer tax amounts within the established period entails the collection of a fine in the amount of 20 percent of the sum to be withheld and (or) transferred. Liability arises for the following actions (omissions):

• failure to withhold tax or incomplete withholding of tax;
• failure to transfer tax;
• late transfer of tax;
• incomplete transfer of tax.

At the same time, as the Supreme Arbitration Court of the Russian Federation previously indicated, [16] an offense can be attributed to a tax agent only in cases where it had the opportunity to withhold and transfer the corresponding amount, bearing in mind that withholding is carried out from the funds paid to the taxpayer.

Furthermore, by virtue of Part 2 of Article 123 of the Tax Code, a tax agent is released from liability if the following conditions are simultaneously met:

• the tax calculation was submitted to the tax authority within the established period;
• the calculation contains no facts of non-reflection or incompleteness of information or errors leading to an understatement of the tax amount to be transferred;
• the tax agent fulfilled the obligation to transfer the tax amount before the moment it became aware that the tax authority had discovered the fact of late transfer of the tax amount or that a field tax audit had been scheduled for such tax for the corresponding tax period.

Additionally, besides the imposition of a fine, the tax authority will make an additional assessment of unpaid tax amounts and interest for each day of delay from the day the deficiency arose until the day the obligation to pay taxes is fulfilled. From January 1, 2025, to December 31, 2025, the interest rate for organizations is as follows:

• during the first 30 calendar days of delay — 1/300 of the key rate of the CBR in effect during the specified period;
• starting from the 31st day of delay in fulfilling the tax payment obligation until the 90th day — 1/150 of the key rate;
• starting from the 91st day — 1/300 of the key rate.

Interest is paid regardless of the application of liability measures for violations of the legislation on taxes and fees (Article 75 of the Tax Code).

Thus, in Case No. A35-4516/2024, [17] the Head of a Peasant Farm Enterprise (the "PFE") applied to the arbitration court with a statement against the Directorate of the Federal Tax Service of Russia to declare invalid a decision to hold the PFE liable for a tax offense.

As the tax authority stated in its explanations, the Head received income from the PFE in the amount of 1,520,000 rubles, including dividends paid on units. However, the PFE did not calculate, withhold, or transfer PIT in the amount of 198,380 rubles to the budget. The PFE was held liable for a tax offense under Paragraph 1 of Article 123 of the Tax Code in the form of a fine in the amount of 4,959 rubles. The court established that the Head was not registered as an individual entrepreneur; accordingly, the PFE was the tax agent and was required to calculate and withhold PIT. The claims were denied.

As indicated in Article 108 of the Tax Code, holding an organization liable for a tax offense does not release its officials from criminal liability if corresponding grounds exist. If an individual entrepreneur is held criminally liable, the tax fine is no longer applicable to him.

Criminal liability is provided for under Article 199.1 of the Criminal Code of the Russian Federation for failure to fulfill the duties of a tax agent to calculate, withhold, or transfer taxes and (or) fees in personal interests, committed on a large or particularly large scale. The maximum punishment for this crime is imprisonment for a term of up to 3 years with deprivation of the right to hold certain positions or engage in certain activities for a term of up to 5 years.

A "large scale" is recognized as an amount of taxes exceeding 18,750,000 rubles for a period of three consecutive financial years, and a "particularly large scale" as 56,250,000 rubles.

The subject of the crime may be the manager of an organization, an individual entrepreneur, or another person who, by virtue of the law or on the basis of a power of attorney, is assigned the duties of a tax agent. At the same time, as explained in a resolution of the Plenum of the Supreme Court of the Russian Federation, [18] personal interest as a motive for a crime may be expressed in the perpetrator's desire to derive an advantage of a proprietary or non-proprietary nature. By virtue of this, a tax agent's failure to fulfill duties for the correct and timely calculation, withholding, and transfer of tax, not related to personal interests, does not constitute a crime, even in cases where such actions were committed on a large or particularly large scale.

In summary, we draw the following conclusions:

• the concept of dividends in tax legislation is interpreted more broadly than in civil legislation, including practically any income of a participant from corporate-type organizations as dividends;
• as a general rule, the tax agent is the organization paying the dividends;
• in the absence of detailed regulation of dividend taxation, the tax agent should consider a significant number of nuances and utilize the positions of the regulatory authority.

To prevent disputes with tax authorities and minimize the risks of negative consequences, such as the collection of deficiencies, fines, and penalties, we recommend engaging specialists in the field of tax law when working with dividends, especially in cases of payments to foreign companies and individuals.

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References

1. Resolution of the Seventeenth Arbitration Court of Appeal dated May 29, 2018 No. 17AP-5712/2018-AK in Case No. A60-73229/2017.
2. Letter of the Ministry of Finance of Russia dated December 19, 2024 No. 03-03-06/1/128402.
3. Letter of the Ministry of Finance of Russia dated October 15, 2020 No. 03-03-10/90152.
4. Order of the Ministry of Finance of Russia No. 35n dated March 28, 2024, On the Approval of a Special List of States and Territories Providing a Preferential Tax Treatment and (or) Not Providing for the Disclosure and Submission of Information during Financial Transactions (Offshore Zones).
5. Letter dated February 24, 2009 No. 03-03-06/1/78.
6. Federal Law No. 598-FZ dated December 19, 2023, On the Suspension by the Russian Federation of Certain Provisions of International Treaties of the Russian Federation on Taxation Issues.
7. Resolution of the Arbitration Court of the Moscow District dated March 29, 2024 No. F05-728/2024 in Case No. A40-28820/2023.
8. Letter of the Ministry of Finance dated July 27, 2022 No. 03-04-05/72454.
9. Letter of the Ministry of Finance of Russia dated April 16, 2025 No. 03-04-05/37951.
10. Resolution of the Arbitration Court of the North-Western District dated May 22, 2023 No. F07-568/2023 in Case No. A05-3395/2022.
11. Letter of the Ministry of Finance of Russia dated November 17, 2021 No. 03-03-07/92921.
12. Emelyanova V. Dividend Payments: Tax Specifics // Juridical Reference Guide for Managers, 2024, No. 9.
13. Letter of the Ministry of Finance of Russia dated December 3, 2024 No. 03-07-11/121626.
14. Resolution of the Arbitration Court of the Volga-Vyatka District dated July 3, 2020 No. F01-11103/2020 in Case No. A82-13935/2019.
15. Ruling of the Supreme Court of the Russian Federation dated July 29, 2021 No. 302-ES21-11699 in Case No. A33-21086/2020.
16. Resolution of the Plenum of the SAC RF dated July 30, 2013 No. 57, On Certain Issues Arising during the Application by Arbitration Courts of Part One of the Tax Code of the Russian Federation.
17. Resolution of the Arbitration Court of the Central District dated May 29, 2025 No. F10-1022/2025.
18. Resolution of the Plenum of the Supreme Court of the Russian Federation dated November 26, 2019 No. 48, On the Practice of Application by Courts of Legislation on Liability for Tax Crimes.