On February 15 2016 the Russian President Vladimir Putin signed Federal Law No. 32-FZ on Amendments to Parts 1 and 2 of the Russian Federation Tax Code regarding taxation on profits of Controlled Foreign Corporations (CFC) and Income of Foreign entities.
The Law introduces a number of amendments to the Russian Tax Code in regards to the application of the rules on CFCs intending to resolve issues on applying those rules in practise and to minimize tax hurdles for honest taxpayers.
The key amendments as presented by the Law are as follows:
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The rules for calculating a CFC’s profits/loss for profit tax purposed have been clarified (calculation based on financial statements compiled for the financial year according to the domestic law of the CFC or according to the general rules of Chapter 25 of the RF Tax Code. Additionally, the requirement of mandatory audit of statements for the calculation of a CFC’s profit has now been eliminated.
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Double taxation at the level of the controlling party of dividends paid by a CFC from profit that was already included in the tax base of the controlling party has been eliminated (provided that the person directly holds an interest in the CFC, according to the literal meaning of the amendment).
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Liquidation time for a CFC with both the controlling part and the CFC being able to apply special benefits has been extended until 1 January 2018, and separate grounds for extending the time limit for liquidating a CFC have been included in Chapter 25 of the RF Tax Code.
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Dividends received from a foreign corporation are exempt from personal income tax and profit tax in the if the source of payment is a Russian entity, and tax has been withheld on the income subject to Article 312 of the RF Tax Code.
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Assets, funds and property rights transferred by a foreign structure to its controlling party are exempted from personal income tax up to the value of the assets contributed to such structure (upon meeting a number of criteria).
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Certain provisions of the Russian Tax Code in regards to foreign entities that have received the status of a Russian Federation tax resident have been clarified. In particular, it states that only foreign entities that have independently declared themselves to be tax residents of the Russian Federation are entitled to the zero taxation rate on dividends.
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Changes have also been made in regards to the rules for filing notices about CFCs and participation in foreign entities.
The Law enters into effect as of the date of its official publication, except for some provisions.
Source: Dzhangar Dzhalchinov, Mondaq, 19 February 2015