Increasing restrictions on Controlled Foreign Corporations may force Russian citizens to repatriate their assets. These changes are part of a comprehensive de-offshorisation programme by the government that will have inevitable consequences on how Russians structure their business and declare their revenues. The full article is available here.
All-inclusive definitions
The definition of foreign corporation recognises any company whose “controlling entity” is a Russian resident, even if the business is not a tax resident of the Russian Federation.
In 2016 the law extends its reach to controlling entities and their family members with ownership stakes as low as 25% and even 10% or direct influence on business decisions. Even Russian citizens spending more that 183 days abroad out of 12 consecutive months may be considered residents under certain conditions.
Broad definitions of active and passive income cover all common sources of revenue including dividends, assets, revenue from property sales and rentals as well as consultancy services.
Lower taxable profit thresholds
As of 2016 the taxable income threshold drops to RUB 30 million and then RUB 10 million from 2017 onwards. This is a dramatic change from 2015 levels when only income over RUB 50 million (approximately $740,000) is taxable. Tax exemptions for passive income will be applied to controlling entities with 20% passive income of the total declared revenue.
Non-taxable options for controlling entities
The law offers little room for manoeuvre but there are some ways to limit risks for Russian and foreign businesses. Nevertheless as the country strengthens CFC laws, the control of its application will be reinforced and companies doing business outside of the Russian Federation will come under stricter scrutiny. These changes signal higher overheads as companies learn to function under tougher tax laws in a weakened Russian economy.
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