The bill was passed under the title “Amendments to Article 27-5-3 of the Securities Act and Parts 1 and 2 of the Tax Code of the Russian Federation”.

Some of the amendments had been drafted as part of the Moscow International Financial Center (MIFC) effort.

The amendments introduce tax exemption for income raised by sale of securities previously owned for 3+ years. The maximum rebate amount for the reported period is the coefficient multiplied by RUB 3mn. The coefficient is calculated according to a formula outlined in the amendments, based on income from the sale of securities and number of years of ownership by the taxpayer.

The rebate will apply to income on securities acquired after 1 January 2014.

Another proposed rebate equals the amount deposited by the taxpayer in the reported period in his individual investment account (IIA). The rebate equals the sum transferred into the account in the reported period, with a maximum of RUB 400k.

Income from IIA transactions is are also eligible for a rebate. The rebate is offered at the termination of the individual investment account agreement term, on condition that the account has been active for a minimum of three years.

The two rebates apply to contracts made after the bill has been enacted (official publishing date).

“This is a very important and timely step for the Russian financial market, it aims at boosting the domestic investment base and stimulating private individuals’ interest in stock market trading. We expect first results next year, and serious impact on the securities market in a period of up to 5 years”, explained NAUFOR Chairman of the Board Alexey Timofeev.

Among the bill’s other amendments are the extended list of exemptions from related party transactions for transfer price control purposes. These now include inter-bank loans (deposits) with a period of up to and including 7 days.

A number of financial market transactions and services are now exempt form VAT: trust management of pension savings, assignment of rights on forward transactions, use of guarantee funds formed from collectively or individually owned clearing collateral.

Taxpayers no longer need to generate pro-forma invoices, keep records of incoming and outgoing pro-forma invoices for VAT-exempt transactions.

In calculating the base for profit tax, extraordinary charges will include bond redemption expenses equal to the difference between maturity value and nominal value.

Loan reserve limits for banks have also been reviewed. Bad debt now includes outstanding coupon payments, accrued after 1 January 2015 on accrued debts of any kind, regardless of existing pledge or guarantee.

Starting in 2015, debt interest rate for tax purposes will be controlled for related party bank loans only.

For transactions of this kind, the taxpayer will be entitled to declare interest accrued on above minimum actual rate as income, and below maximum as expense. The bill sets interest rate limits depending on debt currency. For Rouble debt, the interval is 75% - 180% (1 January - 31 December 2015), 75% - 125% (from 1 January 2016) of the Central Bank refinancing rate. For Euro debt, the interval is EURIBOR + 4 p.p to +7 p.p.; for Chinese Yuan - SHIBOR + 4 p.p to +7 p.p.; for Pound Sterling - LIBOR + 4 p.p to +7 p.p.; for Swiss Francs and Japanese Yen - LIBOR + 2 p.p to +5 p.p; other currencies – USD LIBOR + 4 p.p. to +7 p.p.

There is change in depositary receipts treatment. 9% profit tax covers share dividends, the title to which is secured by DRs. Besides, the Securities Market Act is amended to allow Russian Depositary Receipts to be placed by public or private offering, as well as delivery of underlying securities.

The bill is enacted on 1 January 2014, with the exception of some clauses, due for enactment on other dates.

Taxation of financial transactions, Project Group №3