Dividends for Russian local shares and DRs


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Dividends for Russian local shares and DRs

  1. 1. Dividends for Russian local shares and GDRs/ADRs issued on Russian local shares BCS FINANCIAL GROUP
  2. 2. Payment of dividends - Legal background for local shares According to the Federal Law on Joint-Stock Companies (NO. 208-FZ OF DECEMBER 26, 1995) 1. A company may, as per the results of the first quarter, half-year or nine months of the financial year and/or as per the results of the whole financial year, announce the payment of dividends on the placed shares. 2. Dividends shall be payable out of the company's net profit. 3. The decisions on the payment (announcement) of dividends including the decisions on the rate of the dividend and the form of its payment on the shares of each category (type) shall be taken by a general meeting of shareholders. The rate of dividends may not exceed the one recommended by the board of directors (the supervisory board) of the company. 4. Dividends are to be paid in cash or in any other assets if such condition is specified in Memorandum of the company. 2
  3. 3. Payment of dividends - Legal background for local DRs o Depository receipts are regulated by the Deposit Agreement which is concluded between the issuer of shares and the issuer of Depository receipts. Transmission of rights assigned to the owner of local shares to the holders of DRs is regulated by this Agreement though it is usually not disclosed. Terms of Agreements could be different for the different DR issues, but mostly all rights given to the owners of local shares are passed to the DRs holders. o All Depository receipts for all DRs issued on Russian local shares conclude obligation for the issuer of DRs to pass dividends paid to underlying local shares to the DR holders. 3
  4. 4. The following corporate actions are not usual for Russian equities :  Distribution of subscription rights  Stock dividends  Dividend reinvestment plans (SCRIP / DRIP)  Dividend currency options Dividends on Russian local shares are paid in cash – RUR. 4 Market practice for dividends on Russian local shares
  5. 5. 5 Service FEEs for DRs o Pursuant to the terms and conditions of the Deposit Agreement the Depositary (Issuer of DRs) may collect and receive service fee per DR. o DR FEEs are mandatory for the DR holder but optional for DR issuer. o DR FEEs are of the following two types:  Annual fees – to be collected to cover depository services, expenses of Depository for inspection of the Russian share registrar, other general expenses.  Special Fees – to be collected for execution by the Depositary of any special action (DR creations / cancellations; participation in Voluntary corporate actions; Income distributions)
  6. 6. EXAMPLE Table of FEEs for Rule 144A and Regulation S GDRs issued by The Bank of New York on Sberbank of Russia local shares * 6 * Complete Prospectus of Sberbank, Offering of 1,712,994,999 Ordinary Shares in the form of Ordinary Shares and Global Depositary Shares, Page 214
  7. 7. o Annual fees:  Usually not more than USD 0.03 a year;  Could consist of f.eg. $0.01 depositary share annual fee, $0.01 service fee, $0.01 custody fee;  Could be withdrawn on the annual, semiannual, quarterly basis;  Could be withdrawn together with distribution of annual dividend;  No EX DD is applicable for DR Annual fees;  Annual fee is debited from clients account by custodian on a settled position as at the Record Date;  Record Date and amount of fee is announced by the Depositary (Issuer of DRs) a month before RD;  New information about DR Annual fee is distributed via clearing systems where DRs are trades – DTC, Euroclear. Service FEEs for DRs – Market Practice 7
  8. 8. 8 o Cash distribution fees:  Usually not more than USD 0.02 per DR;  Is applicable for Dividend distribution, Buy-back proceeds distribution, Spin off or Liquidation proceeds distribution; Dividend notification distributed by the Depository contains information about Cash distribution fee, Dividend is paid by Depository less cash distribution fee; Service FEEs for DRs – Market Practice
  9. 9. 9 o Local shares:  Dividends are distributed in RUR; no FX conversions, fees are not applicable. o DRs:  Within max 2 days since receipt of Dividends from the issuer Depository should convert them into USD at the current market FX rate and transfer to the DRs holders less cash distribution fee. Dividend distribution for local shares and DRs
  10. 10. Dividend Taxation for Russian locals and DRs Instrument / Market Shareholder - resident of Russia Shareholder - non resident of Russia - no Tax treaties Shareholder - resident of Cyprus - Tax treaty Shareholder - resident of UK - Tax treaty Local shares 9% 15% 5 % (position cost more than 100000 EUR), 10 % for all other cases 10% ADRs/GDRs on Russian local shares 15% 15% 15% 15% 10
  11. 11. Dividend Taxation for Russian locals and DRs hold by BCS in name of its Clients Shareholder – BCS Cyprus - resident of Cyprus Local shares 10 % ADRs/GDRs on Russian local shares 15% 11 BCS could not guarantee 10 % Dividend taxation rate for its Clients because:  Decision about which dividend rate is to be used is taken by Tax Agent which is the Issuer in case of Dividend distribution;  Documents proving status of BCS as Tax Resident of Cyprus are submitted to the issuer via the chain of nominal holders what could cause delays or losses of documentation.  Status of BCS as Tax Resident of Cyprus could be subject of different interpretation by the BCS, Issuer, Tax Authorities and could be disputed; If applied Higher Dividend Tax rate could be disputed by BCS in court or to the Tax Authority but BCS could not guarantee TAX difference is reversed.
  12. 12. Comparing of costs to receive dividends on Russian local shares or DRs 12 ADRs/GDRs Russian Local Shares Currency USD at market FX rate RUR, no FX conversion TAX - Resident of Russia 15% 9% TAX - Resident of Cyprus 15% 10% Cash distribution fee up to USD 0,02 per DR No Annual service fee up to USD 0,03 * per DR No * Subject to the Depository Agreement could be more
  13. 13. THANK YOU In case of any questions regarding Dividends or any other Corporate actions please address them to Anton Kashkin Head of Corporate Actions Investment Bank BCS Financial Group phone: +7 (495) 785 53 36 (ext. 7891) mob: +7 (916) 564 63 58 akashkin@msk.bcs.ru