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Russia lifts taxes levied on low interest loans taken abroad

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On 1 January 2018, Russia enacted a law under which low interest loans are taxed at the personal income tax rate, provided they meet either of these conditions:

  • the loan is granted by an organisation or sole proprietorship that are entities related to the debtor or is engaged in labour relations with the latter;
  • the benefit de facto is financial aid or a form of reciprocal performance of obligations to the debtor by an organisation or sole proprietorship, for instance, a service fee.

Therefore, foreign loans do not fall within the purview of the law, and Russian nationals do not have to pay the low interest benefit tax anymore. This is likely to affect the number of transactions and the volume of foreign property investment.

Previously, Russian tax residents were taxed on the income obtained as the low interest benefit when foreign currency loan interest rates did not exceed 9% per annum. The tax was calculated using the following formula: loan amount × (9% − the foreign loan rate) / 365 (366) × the term of loan use in days. The resulting monthly amounts were added up, and the tax was calculated at a rate of 35%. The failure to pay was penalised at 20% of the unpaid amount (40% if the non-payment was seen as deliberate).

Ekaterina Shabalina, Tranio lawyer

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