The Russian Ministry of Finance recently published guidance letter No. 03-03-06/1/17848 of 2 March 2023, which clarifies the application of the participation exemption for dividends received. Russia's participation exemption (0% rate) for dividends is generally available for resident entities that have owned at least 50% of the paying company's capital for a continuous period of at least 365 days.
The letter clarifies that the exemption is also available when the company paying the dividends is a foreign company (subsidiary) as long as the general ownership conditions are met and the jurisdiction in which the foreign company is located (registered) is not included in the Ministry of Finance's list of jurisdictions that provide a preferential tax regime and/or do not require information disclosure on financial transactions (i.e., blacklisted). The letter also clarifies that the holding period for the participation exemption may continue uninterrupted in the case of a reorganization. In particular, it is clarified that in the event of a merger where one company acquires another company, the acquiring company continues to exist as a reorganized company while the acquired company ceases to exist. For the purpose of the participation exemption, the holding period is not interrupted for the shareholders of the reorganized company. Consequently, if after a reorganization a company pays dividends and, as of the date of the decision to pay dividends, the recipient of the dividends meets the ownership conditions, then the exemption applies to the dividends received. The same also applies in the case of the reorganization of a foreign subsidiary if the applicable foreign legislation allows a similar conclusion to be drawn in relation to the reorganized foreign company (i.e., the reorganized company continues to exist).