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26 January 2021
NEW CFC TAX LAW – RUSSIAN FEDERATION
A new law has passed in Russia in November 2020 relating to the controlled foreign corporations (CFCs), which simplifies the procedures and also reduces significantly in many cases the tax burden of CFC owners – individual persons.
The new law allows physical persons to pay tax on a fixed income which for 2020 tax period is Rb38.4 millionand this amount will be reduced to Rb34 million for future periods. Tax is payable at the rate of 13% on this deemed amount.
The applications to enter into the new system must be filed by 1 February 2021 and thereafter applications should be made by the end of each calendar year (31/12). The minimum period for which a taxpayer should stay with the current system is 3 years if application is made in 2020 or 2021 and 5 years if application is made from 2022 onwards.
The drawback of this law is that it applies for each owner, irrespective of whether a number of owners own a percentage of the same CFC. This means that at some point the tax burden may be disproportionate. But for CFC’s earning significant amounts higher than the fixed income, it would be extremely beneficial and simple solution.
The new tax regime does not exempt the controlling person from filing CFC notifications (the deadline for filing such a notification for individuals is 30 April of the following year when the CFC earns income), but now there will be no need to file the CFC tax returns.
It is noted that irrespective of whether a dividend is paid by the CFC to the Russian individual, the CFC tax on fixed income shall also be paid in addition to the payment of the dividend tax.
Published 26 January 2021
Note: The above should not be considered as a tax advice and should not be relied upon and should only be considered as informative. We shall not accept any responsibility or liability to any person acting on any information published without officially confirmed with a partner of our Firm. We do not undertake any responsibility to amend or delete or update the above should this be changed at a later point.