Dividend Policy

MegaFon has in place a Dividend Policy approved in 2012, which specifies that the Board of Directors must recommend, and the General Meeting of Shareholders must thereafter approve, the amount of dividend to be disbursed.

The aim of the Dividend Policy is to ensure a sustainable and attractive dividend yield for the Company’s shareholders. The amount actually distributed will take into account the financial results, the cash needed by the Company to develop its business, implement its strategy and meet its obligations, and any other factors that the Board of Directors believes relevant, including factors than may impact the Company’s credit ratings. The Company seeks to pay at least 50% of adjusted net profit or 70% of adjusted cash flow (whichever is greater) in dividends annually. The recommended pay-out percentages may be adjusted upwards or downwards by the Board of Directors as needed to maintain an optimal capital structure based on a net debt/adjusted OIBDA ratio of 1.2–1.5x.

The annual General Meeting of Shareholders held on 30 June 2016 resolved to distribute dividends based on the Company’s results for FY2015 in the amount of RUB 29,995,600,000 (or RUB 48.38 per ordinary share or GDR); and based on the Company’s results for Q1 2016 in the amount of RUB 4,997,200,000 (or RUB 8.06 per ordinary share or GDR). The extraordinary General Meeting of Shareholders held on 9 December 2016 approved the payment of RUB 14,997,800,000 in dividends (or RUB 24.19 per ordinary share or GDR) based on the results for the first nine months of 2016. The aggregate amount of dividends declared in 2016 totalled RUB 49,990,600,000 (or RUB 80.63 per ordinary share or GDR).

Taxation of dividends

Under the Russian tax legislation, dividend income received by shareholders is subject to Russian income tax at the following rates: ставок:

• tax at the rate of 13% is payable on the dividend income received by Russian tax residents (both companies and individuals);
• tax at the rate of 15% is payable on the dividend income received by non-Russian tax residents (both companies and individuals). This rate may be reduced in accordance with the provisions of Double Tax Treaties signed between Russia and the countries of residence of the beneficial owners of the dividends.

The above tax is determined, withheld and paid to the Treasury of Russia by the tax agent upon each payment of dividends, i.e. by MegaFon in relation to dividends paid to the shareholders whose shares are registered in the Company’s securities register, and by a Russian depository in all other cases.

To benefit from a reduced tax rate envisaged by a Double Tax Treaty, a foreign shareholder who is the beneficial owner of the dividend income, must provide the following documents to the tax agent before the date the dividend is paid:

• a certificate confirming his/her residence in the country which concluded the relevant Double Tax Treaty with Russia. This certificate must be duly notarised by a competent authority. If such certification is made in a foreign language, the tax agent must also be provided with translations into the Russian language of the relevant documents;
• a confirmation that such shareholder is the actual sole beneficial owner of the relevant income (this is a new requirement, applicable since 1 January 2017).

If a foreign shareholder admits to having no beneficial ownership over the said dividend income (or a part thereof), provisions of Double Tax Treaties may apply to another party provided that such a party directly and/or indirectly holds a stake in the Russian company paying dividends and has submitted the above documents to the tax agent paying out such income.

Special rules apply to shareholders who hold MegaFon’s shares or GDRs through foreign nominee holders. In such a case, the depository will withhold income tax at the standard rates applicable to the beneficial owners of the dividend income prescribed by the Russian Tax Code or by the Double Tax Treaty. Should the Double Tax Treaty provide for an additional reduction in the tax rate subject to certain criteria being met, such reduced rates will not be applied by the depository.

Shareholders may claim a refund of excess tax withheld and paid to the Russian Treasury by the tax agent by providing the Russian tax authorities with the necessary documents confirming their entitlement to a reduced rate of income tax. Such a refund claim may be submitted within three years following the year of the dividend payment.

MegaFon intends to comply with the legislation affecting payment of dividends as directed by its professional advisers. In the absence of proper evidence confirming that a different tax rate is applicable, MegaFon intends to withhold income tax on dividends at the rates listed above.

MegaFon recommends that shareholders consult their tax advisers about possible legitimate ways to minimise their exposure to Russian income tax on the dividends to which they may be entitled.