rocket
Orbitax subscribers can now easily follow the latest COVID-19-related tax measures being implemented worldwide. New to Orbitax? Create a free account to access your dashboard and latest tax news.
News Share

The Tax Hub

Daily Tax Newsletter

Russia

Responsive image

New Russian CFC Rules Signed into Law

Russia's new controlled foreign company (CFC) rules were signed into law by Russian President Vladimir Putin on 14 November 2014. Federal Law No. 376-FZ, introduces several amendments to the Russian Tax Code regarding the taxation of the profit of CFCs. The following summarizes the main rules introduced by the new law.

Controlling Person

Under the new rules, criteria for determining if a Russian resident is a controlling person of a CFC will be transitioned as follows:

  • In 2015, a Russian resident with 50% or greater participation in a foreign company will be deemed a controlling person
  • In 2016 and subsequent years, a Russian resident with 25% or greater participation in a foreign company will be deemed a controlling person - a 10% participation rule also applies in the case of an aggregate participation of 50% or more in a foreign company by Russian residents

Conditions for CFC Profit Exemption

CFCs meeting any of the following conditions will be exempt from taxation in Russia:

  • Companies whose income is comprised of at least 80% active income
  • Companies registered in a jurisdiction with an effective tax rate applied to the CFC of at least 75% of the comparable Russian tax rate
  • Certain foreign structures without the formation of a legal entity as long as the structure does not have the option of distributing profit under its own private law or foundation documents
  • Bank and Insurance companies located in jurisdictions with which Russia has entered into a tax information exchange agreement
  • Issuers of Eurobonds when the income from such bonds represents at least 90% of the issuers income
  • Certain qualifying companies engaged in foreign industrial projects, including oil and gas projects, and the income from such projects represents at least 90% of the companies income

Effective Tax Rate Comparison

When comparing the effective tax rate on the profits of the CFC with the Russian tax rate, the Russian rate is determined as:

  • Total profits of the CFC less dividends paid and received (0 if negative) at a rate of 20%, and
  • Dividends received by the CFC at a rate of 13% (expected increase to 13% from 9% in 2015)

When the effective tax rate applied to the CFC in its registered jurisdiction is not at least 75% of the comparable Russian tax rate, the CFC rules apply unless the foreign company is otherwise exempt (above).

CFC Notification Requirements

Russian residents are required to provide notification to the Russian tax authority within one month after the conditions arise whereby the resident is deemed a controlling person of a CFC. For residents that would be considered a controlling person prior to the entry into force of the new rules (1January 2015), notification must be provided by 1 April 2015.

Computation of CFC Profit, Carry Forward of Losses, and Tax Offset

The profits of a CFC will be computed based on the financial statements of the company if the statements are subject to mandatory audit and the CFC is tax resident in a jurisdiction that has entered into a tax treaty with Russia. Otherwise, the profit will be computed in accordance with Chapter 25 (Tax On The Profit Of Organizations) of Russia's Tax Code.

CFC loss may be carried forward indefinitely as long as notification of the CFC has been provided in the tax period the losses arose.

Controlling persons are allowed to offset tax paid on a CFC’s profit under the laws of a foreign country and/or Russia.

Tax Residence Determination

The determination of tax residence in Russia for the purpose of the CFC rules is based on the place of effective management, which is determined to be Russia if one or more of the following conditions are met:

  • A majority of the board of director meetings are held in Russia
  • Executive management is ordinarily exercised in Russia, or
  • The chief officers carry out their management functions in Russia

Certain exclusions from tax residency are provided, including:

  • Foreign companies incorporated in jurisdictions that have entered into a tax treaty with Russia under which companies are treated as tax resident in the jurisdiction of incorporation
  • Foreign companies whose primary activities involve participation in production sharing agreements, concession agreements, license agreements or service agreements on a risk basis or other similar agreements with the government of the corresponding state or with institutions authorized by that government
  • Foreign holding companies subject to certain conditions
  • Foreign companies that are operators of new offshore hydrocarbon deposits or direct shareholders in the operators of such deposits

Entry into Force

The new law enters into force 1 January 2015.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More