Russian CFC Rules
History of CFC Rules December 2013 RF President addressing Federal Assembly expressed concern on the wide use of off-shore companies in Russian economy and proposed that profits of off-shore companies shall be taxed in Russia; RF Minister of Finance immediately reacted and started preparation of draft bill on amendments to RF Tax Code; 2014 several draft laws were prepared and discussed; November 2014 final amendments to RF Tax Code on taxation of CFC s profits were introduced; January1, 2015 new CFC rules came into effect.
CFC Controlled foreign company (the CFC) is a foreign organization that: 1. is not a Russian tax resident and 2. has a controlling person (legal entity or individual) who is a Russian tax resident. NOTE: CFC is a foreign structure without incorporation of the legal entity, that has a controlling person (legal entity or individual) Russian tax resident.
Controlling persons of CFC Controlling persons (Russian tax residents) of a foreign company or a structure: 1. individuals or legal entities, whose shareholding in the company is more than 25%; 2. individuals (with their spouses and minor children) or legal entities, whose shareholding in the company is more than 10%, in case the participatory interest of all Russian tax residents in this organization is more than 50%. 3. Individuals entitled to determine company profit distribution
CFC rules compliance Russian tax resident Is liable for the following taxes in RF (in case CFC s annual income exceeds RUB 50 mln. in 2015, RUB 30 mln. in 2016, RUB 10 mln. since 2017): - Income tax (for individuals); - Profit tax (for legal entities). Shall notify Federal Tax Service: 1) On participation in foreign organization (about incorporation of structures) in case of 10% shareholding; 2) File tax return and CFC s annual accounts. Foreign organizations (structures without incorporation of legal entity) that have ownership rights for real estate in the RF, shall notify Federal Tax Service on members of that foreign organization (for structure information on settlors, beneficiaries and controlling persons).
Reporting obligations of controlling person of CFC 01.01.2015 01.04.2015 (original deadline) 01.06.2015 (new deadline) 20.03.2017 01.01.2018 - СFС Law came into force; - Commencement of CFC s income tax assessment; - Notification on participation in a foreign company (more than 10% share); - Notification on establishment of a foreign structure; - Annual deadline for notification on controlled foreign companies; - Charging penalties for failure to pay taxes from CFC s income.
Tax Code Penalties (art. 129.1, 129.5, 129.6 RF Tax Code) For RF tax residents: failure to file CFC s accounts 100 000 RUB in relation to each CFC; failure to notify on participation in foreign companies or undue notification 50 000 RUB in relation to each company. failure to pay profit /income tax on CFC s income 20% from the tax underpayment. For foreign structure: for failure to provide information on its participants 100% from the immovable property tax amount, in proportion to the share of the participant information on whom was not provided. Fines will apply from January 1, 2018.
Key Exemptions from CFC rules Income is not taxable for (p. 1 art. 25.13-1 RF Tax Code): Non-profit organizations and structures not distributing income to their participants/founders and other persons; Companies from Eurasian Economical Union (Belarus, Kazakhstan); Foreign companies with predominant active income, i.e. a part of their income from "passive" activity* does not exceed 20%; Companies with effective tax rate equal to at least 75% of Russian corporate profit tax rate, i.e. minimum 15% Companies which meet other conditions specified in the Law * Passive activity dividends from Russian companies activities, income from renting and selling immovable property in the RF, income from using IP rights in the RF, etc.
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