Doing Business in Russia
CFC rules in Russia
Doing Business in Russia 37
A controlled foreign company (CFC) is a
foreign organisation (not a tax resident
of the Russian Federation) or foreign
structure that does not involve the
establishment of a formal legal entity
(fund, partnership, trust, or other form
of collective investment vehicle and/
or trust management) that is controlled
by a Russian tax resident company or
individual.
The CFC rules are applied to:
FLES in which a tax resident of
Russia effectively owns at least 25%
of the capital, and
FLES in which a tax resident of
Russia effectively owns at least 10%
of the capital, if Russian tax residents
cumulatively own at least 50% of the
capital.
CFC rules provide for a number of
exemptions from CFC taxation. If an
exemption applies, then the profits
of that particular CFC are not subject
to tax, though the controlling person /
entity is not relieved from its reporting
obligations. These exemptions inter alia
include the following:
- Foreign companies treated as an
active foreign company, active
holding / or active sub-holding
company; or
Foreign companies for which the
effective tax rate at the end of
the year for which the financial
statements are prepared is not less
than 75% of the weighted-average
CIT rate in Russia. This exemption
only applies to CFCs resident in
treaty-protected jurisdictions,
provided that these jurisdictions
exchange tax information with Russia
(as determined by the Ministry of
Finance).
The undistributed profits of CFCs are
subject to:
-
Corporate profits tax at 20% if
the controlling person/entity is a
Russian-resident company, or
Personal income tax at 13% if
the controlling person / entity is a
Russian-resident individual.
If the annual profit of a CFC is less than
the "de minimis" threshold, a CFC's
undistributed profit will not be taxable in
Russia (the threshold is RUB30 million
per company in 2016).
Taxes on CFC profits, such as foreign
corporate income tax and withholding
tax levied at source, are creditable
against the Russian CFC tax.
New residency rules
From 1 January 2015, residency rules.
provide that a FLE can be recognised as
a tax resident in Russia if it is managed
in Russia.
Russia will be acknowledged as the
place of management if at least one of
the following is true for the FLE:
The company's executive body
regularly takes decisions or carries
out other activities in Russia on a
scale significantly greater than in any
other jurisdiction;
Senior management personnel
perform steering management tasks
on the company mainly in Russia.
Quantitative criterion of number of
board of directors meetings was
excluded.
While not specifically defined, the term
"steering management" is understood
to include taking decisions or other
actions with respect to the company's
day-to-day operations.
The additional criteria should be applied
if one of the abovementioned main
criterion is simultaneously fulfilled
Krasnoyarsk
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