We would like to recall that according to the legislation on controlled foreign companies in Russia, a controlled foreign company (or CFC) is a foreign entity or a foreign structure not forming a legal entity that has a Controlling person – tax resident of the Russian Federation.
First of all, by March 20th 2019 the controlling person must notify the Russian tax authorities of the availability of a CFC, and, secondly, include the CFC’s profit (according to the corresponding shares of ownership) in its taxable base unless otherwise provided by the Tax Code of the Russian Federation.
The controlling person is obliged to notify about the availability of the CFC, but there may be cases when he or she does not include the income from the CFC in its taxable base for paying personal income tax or company income tax (depending on whether the controlling person is a physical or legal person):
companies from the EEU countries;
companies from other countries with high tax rates;
active companies, etc.
As previously indicated, only the Controlling person has the obligation to pay the relevant tax fee. The legislation establishes 2 alternative definitions of the Controlling person concept:
1) Through the calculation of participation shares in the company:
holding of more than 25%; or
holding of more than 10%, but together with other shareholders that are residents of the Russian Federation, the participation in the share capital is more than 50%;
2) Through the ability to control the company’s activities. Control is determined through the ability to have a decisive influence on the profits of the company distribution.
Therefore, the Controlling party is obliged to notify the tax authority about the availability of a CFC until 20.03.2019 and to include in its taxable base the corresponding CFC income. The tax on profit of the CFC will be paid in accordance with the deadlines established for the payment of the tax on the income of an individual / profit of a legal entity (depending on whether the Controller is a physiсal or legal person). If the profit of the CFC is less than the established threshold or the CFC is a company whose income is not taxable in the Russian Federation, this profit is not subject to inclusion it in the taxable base of the Controlling person.
For non-submission of documents (financial statements or audit report) when filing a declaration, taking into account the profit of CFC – a fine of 100 thousand rubles;
For non-providing of a notice regarding CFC availablity – 100 thousand rubles for each company;
For non-submitting of a notice of participation in foreign organisations (on the establishment of a structure) – a fine of 50 thousand rubles in relation to each organisation;
In case when there the CFC profit for 2017 exceeds 10 million rubles:
i. personal income tax charge;
ii. penalty for late filing of 3-NDFL form – personal income tax form (5% for each month of delay but not more than 30% of the amount of tax payable);
iii. penalty for non-payment of taxes (20% of the tax amount);
iv. criminal liability in case of non-payment of taxes on a large scale.
Eltoma Corporate Services specialists will be happy to provide you with the best consultation on issues related to a CFC notification filling. Contact us by sending a request to email@example.com