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President Vladimir Putin sold his plan to raise taxes on dividends paid offshore as a source of funds for helping businesses and employees hurt it by the economic disruption of the coronavirus pandemic.
But the levy will start only next year, providing budget revenue in 2022, according to the Finance Ministry. The dividend tax may provide only a small part of the help businesses are already saying they need.
“The measure looks more populist than one that will add a lot to the budget,” Kirill Chuyko, head of research at BCS Global Markets said by phone. “Some tycoons might be upset, but many have already re-structured their businesses and pay taxes in Russia.”
The top 15 Russian billionaires who own stakes in public companies operating in Russia received $8 billion in total dividends in 2019, according to an estimate by the Bloomberg Billionaires Index. Putin’s proposal on Wednesday to raise the tax to 15% from 2% on dividends paid to offshore entities could thus deliver about $1.2 billion to the budget. Many already pay more than a 2% rate on their dividends already so the revenue increase would be lower in practice.
“Discussions on this subject have been going on for quite some time,” Andrei Elinson, Chief Executive Officer of A1 Group controlled by billionaire Mikhail Fridman, said by phone.
A number of billionaires, such as Alisher Usmanov invested in mobile and technology companies, moved their main business to Russia years ago, as Putin pushed them to repatriate holdings. Vladimir Potanin is among those who use so-called internationally-controlled companies that already pay 13% tax on dividends. His mining company, MMC Norilsk Nickel PJSC, said it fully supports Putin’s proposals.
READ: Russia Expects 10% Slump in Worst-Case Virus Scenario
Some have started to weigh whether to re-register to Russian offshore zones, according to two people close to different tycoons. The zones in the Primorsky and Kaliningrad regions allow internationally-registered companies to retain tax benefits while moving back to Russia.
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