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Treaty between Russia and Sweden – Russian MoF clarifies tax treatment of dividends paid to a sole shareholder

On 3 June 2013, the Ministry of Finance issued Letter No. 03-03-06/1/20160 clarifying the tax treatment of dividends paid by a Russian company to its sole shareholder tax resident in Sweden, based on the Russia - Sweden Income Tax Treaty (1993).

The Ministry of Finance was asked whether the reduced withholding tax of 5%, provided by the tax treaty, could be applied in the case of dividends paid by a Russian company to its Swedish sole shareholder.

The Ministry of Finance pointed out that pursuant to article 10 of the tax treaty, dividends paid by a company resident in Russia to a resident of Sweden may be taxed in Sweden. However, such dividends may also be taxed in Russia, but the tax must not exceed 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly 100% of the capital of the company paying the dividends and the foreign capital invested exceeds USD 100,000 or the equivalent in RUB.

Accordingly, the Ministry of Finance concluded that dividends paid by the Russian company to its sole shareholder resident in Sweden may be subject to a withholding tax rate of 5%, provided that the foreign investments in the Russian company exceed USD 100,000 at the moment of dividend distribution. Otherwise, the applicable withholding tax rate is 15%.

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