Russia Raises Dividend Tax on Western Companies to 35%... Expands Taxes Amid Prolonged War

Dividend Tax Rate on Unfriendly Country Companies and Investors to Rise from 15% to 35%
20% and 30% Windfall Taxes Imposed on Gold and Metal Producers
Fiscal Deficit Forecast to Reach 2% of GDP Annually Over the Next Three Years

Russia is set to introduce additional tax increases, including for Western companies and investors, in order to cover the growing fiscal burden caused by the prolonged war in Ukraine.

Russian national flag hoisted in Vladivostok, Russia. Photo by TASS Yonhap News Agency

According to the Financial Times (FT) on September 24 (local time), the Russian government has announced a tax law amendment alongside its draft budget for next year, which will raise the dividend tax rate for companies and investors from "unfriendly countries" operating in Russia from 15% to 35%.

While the amendment does not specify the affected countries, Russia typically classifies European Union (EU) member states and the United Kingdom as unfriendly countries. As a result, FT projected that this measure would further increase the burden on Western companies and investors who are unable to repatriate significant portions of their earnings from Russia.

Russia is also planning to raise taxes on domestic companies. Gold producers will face an additional 20% windfall tax, while metal producers will be subject to a 30% windfall tax. The windfall tax is a levy imposed on unexpected excess profits earned by businesses.

The amendment also includes measures to raise tax rates on capital income, such as interest from personal deposits and profits from the sale of shares.

FT analyzed that these measures illustrate the mounting fiscal pressure Russia faces as the war drags on. Since its invasion of Ukraine in 2022, Russia has already increased the tax burden by introducing a progressive personal income tax of up to 22% and raising value-added tax rates.

Nevertheless, Russia is projected to run a fiscal deficit equivalent to about 2% of gross domestic product (GDP) each year for the next three years. Depending on expenditures related to the war, the deficit could become even larger.

Janis Kluge, a Russia expert at the German Institute for International and Security Affairs, told FT that the additional revenue generated by the tax hikes will amount to around 0.5% of GDP, stating, "While it is not an enormous amount, it shows that the Ministry of Finance is using every available means to secure more revenue."

This content was produced with the assistance of AI translation services.