New anti-offshore legislation in Russia: which companies are targeted

The changes in Russian tax legislation introduced in November 2014 target collecting taxed from foreign companies that are controlled by Russian residents, or so-called Controlled Foreign Companies (CFC).

All the CFCs will be subject to taxation, except for:

a) non-profit organizations that do not distribute dividends among shareholders;
b) companies-residents of Eurasian Economic Union member states;
c) companies-residents of states, which have international agreements on taxation matters in force, except from states that do not exchange information (the "blacklist" will be created separately), if effective taxation rate as of the end of reporting year is not less than 75% of weighted average corporate tax rate in Russia. (For instance, it means that if a controlled company paid taxes at a reduced rate or used tax exemption on the dividends from abroad, resulting in the effective tax rate was below 15%, it will be subject to corporate tax in Russia);
d) companies-residents of states, which have double-taxation avoidance agreements in force, except for states that are in the above-mentioned "blacklist", if the share of passive income, as defined by the Article 309 of Tax Code, does not exceed 20%;
e) foreign structures that are not legal persons, if i) their founders cannot claim ownership on the asset and ii) the rights of founders cannot be passed to another persons, except for cases when the rights can be inherited or passed in universal succession and founder cannot, directly or indirectly, receive share in structure's profit;
f) banks and insurance companies that are acting on the grounds of special licenses and that are registered in states that have international agreements with Russia on matters of taxation in force, except for countries in the "blacklist";
g) companies-issuers of bonds;
h) companies-participants of the projects within agreements on product sharing, concessional agreements, licensing agreements and other agreements with government of respective state, if the share of income from these activities is not below 90%;
i) companies-developers of new sea hydrocarbon deposits, or shareholders of such companies;

All the remaining CFCs will have to submit notification to the Russian tax authorities via their controlling persons. Controlling persons will calculate profit that is taxable in Russia in accordance with the new legislation. Later, like other Russian residents, they will submit reports and pay taxes in accordance with calculations.