Individuals and legal entities recognized as Russian tax residents, directly or indirectly owning more than 25% of a foreign company (more than 10%, if the share of Russian residents in the company in the aggregate is more than 50%), as well as individuals having control over a foreign company (structure), are obliged to report it to the Russian tax authorities and pay taxes on its retained earnings. Such a company would be recognized as a controlled foreign company (CFC).
In unincorporated structures, such as a fund or trust, the founder is recognized as the controlling person by default. At the same time, if after the establishment of the company he did not reserve the rights to receive and dispose of the property and profit of a foreign structure, he would not be a controlling person.
At the same time, when acquiring a CFC, a new buyer may be required to report and pay tax on CFC profits for the period when he was not its owner.
However, under the CFC regime, there are a number of preferential provisions that allow not to pay or reduce the amount of tax on retained earnings of the CFC in the Russian Federation.
For failure to submit documents on CFC, fines are provided, which could reach up to 350 000 rubles per year for one company (not including fines for non-payment of tax).
- Risk analysis of recognition of a foreign company as a CFC;
- Analysis of tax implications and risks in relation to the CFC ownership including analysis of the opportunity to apply tax concession and exemptions;
- Preparation of documents required for annual reporting on the CFC;
- Submission of documents to the tax authorities on behalf of the controlling person by the power of attorney.
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