Russian Deoffshorisation Law
On 24 November 2014 Russian President Putin signed the Federal Law No. 376-FZ, introducing a new law which came into force on 1 January 2015. This is commonly referred to as the Russian de-offshorisation law and concerns controlled foreign companies (‘CFC’). Russia is the last of the largest world economies to create an institute of controlled foreign companies in taxation law. The definition of a CFC is a foreign company that is not tax resident in Russia, but is controlled by organisations or individuals that are Russian tax resident. Penalties will be imposed on persons who do not notify tax authorities of their participation whether direct or indirect in a CFC. Russian Residents are to be recognised as controlling persons of a CFC if their participation interest is at least:
- 50% during 2015
- From 2016, 10% if this participation interest together with those of other Russian residents constitutes a 50% in interest in the CFC and 25% if it does not
A transition period which will end on the 1 January 2017 has been introduced to allow time to ascertain if the Russian entity or individual meet the threshold and qualify under the control criteria.
A company incorporated overseas is to be regarded as tax resident in Russia if:
- It is tax resident in Russia under an international taxation agreement.
- Its effective management is in Russia.
Effective management is defined if any of the following criteria is located in Russia:
- Location of board meetings
- Location of executive management
- Location of key executives
- Location of company records, accounting information and administrative operations can also be taken into account.
Foreign companies where their assets consist of more than 50% of immovable property in Russia will be taxable on sale of shares in Russia unless the securities concerned are traded on a recognised stock exchange.
The profit of a foreign company that is resident in a country with which Russia has a double tax agreement will be calculated in accordance with its financial statements or in accordance with Chapter 25 of the Russian Tax Code.
Russian tax residents are being advised to assess any offshore structures they are involved in in light of the above legislation and duly notify the tax authorities if meeting the criteria of a controlling person.