The taxation of securities transactions within personal income tax (PIT) are often examined in the TX-RUS exam. Such questions are often not answered as well as would be expected. This article will cover these topics within items B1c), B2b), B4h), B5a), g), i), j) and l), B6a) and b) of the syllabus and study guide.
The financial result of transactions in securities includes sale, settlement, etc. but excludes income in which the respective PIT was withheld by a tax agent at source, e.g. dividends. For PIT purposes the positive result/gain is determined according to the rules applicable to transactions in securitie – ie is calculated as income minus related expenses.
Expenses related to transactions with securities (supported by documents and actually incurred by the taxpayer) include expenses on purchase, sale, custody (accounting), maturity, fulfilment and extinguishment(discharge). If securities are financed from a rouble loan, the related interest can be deducted within the limit of the Central Bank Key Rate (Refinancing Rate) multiplied by 1.1. The deductibility of loans in a foreign currency is limited to 9%.
The financial results from transactions in securities, held on individual Investment Accounts (IIA) and those not held on IIA; form two separate tax bases according to sub item 3 and 7 of item 2.1 of article 210 of Russian Tax Code (RTC) in which respect standard, social, property or professional deductions are not applicable (item 3 of article 210 of RTC). However, some deductions can be applied, which will be described in details below. Dividends like other incomes from equity participation form separate tax base.
These separate tax bases are different from the main tax base. Income from employment like salary is an example of income included in the main tax base.
The separate tax bases related to transactions in securities are included in the total sum of tax bases (aggregated tax base). The total sum of tax bases (aggregated tax base) includes main tax base and other separate specific tax bases (listed in item 2.1 of article 210 of RTC), taxed at the rate of 13% PIT if the total sum does not exceed 5,000,000 RR, and at the 15% PIT rate in respect of the excess over 5,000,000 RR.
For example, in 2022 the financial result from transactions with securities accounted on an ordinary broker account was 3,000,000 RR (5,000,000 RR of income minus 2,000,000 RR of expenses) and the accumulated financial result for two years on an IIA closed in the year 2022 was 4,000,000 RR (10,000,000 RR of income minus 6,000,000 RR of expenses). So, the amount of 7,000,000 RR (4,000,000 + 3,000,000) would be included in the total sum of tax bases. The total sum of tax bases would be taxed with PIT of 950,000 RR (5,000,000 x 13% + (7,000,000-5,000,000) x 15%) assuming that the taxpayer does not have any other income.
Investment deductions
The following types of investment deductions, applicable to different tax bases, are available in the three circumstances below:
1. The Ordinary Investment Deduction
Where a gain (positive result) is made from transactions in securities quoted on the Russian stock exchange (quoted securities) and participatory interest in open unit investment funds PIFs (the management of which is performed by Russian management companies), and these securities have been held for more than three years, in that case the Ordinary Investment Deduction is available. The Ordinary Investment Deduction applies only to the separate tax base on the financial result from transactions in securities held outside of an IIA (paragraph 2 of item 2.3 of article 210 of RTC).
The maximum limit of the Ordinary Investment Deduction should be calculated in the following way (provided in the tax tables of the exam, in the help function):
Investment deduction Ks*3,000,000 RR (upper limit)