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.
Under the new rules, criteria for determining if a Russian resident is a controlling person of a CFC will be transitioned as follows:
CFCs meeting any of the following conditions will be exempt from taxation in Russia:
When comparing the effective tax rate on the profits of the CFC with the Russian tax rate, the Russian rate is determined as:
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).
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.
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.
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:
Certain exclusions from tax residency are provided, including:
The new law enters into force 1 January 2015.
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