Back to USSR: Russia is imposing stricter control over foreign accounts of its nationals

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Back to USSR: Russia is imposing stricter control over foreign accounts of its nationalsThe Russian authorities have announced that starting from February 13th, 2013, all Russian tax residents receiving remuneration from outside of Russia for profit generated in Russia must first bring it into Russia by sending monies to a Russian based bank account. It is understandable that the Russian authorities are trying to collect much needed cash from undeclared income relating to business transactions that have occurred in Russian. One such example of undeclared profit could be dividend income received by a Russian tax resident from a Cyprus company to a his or her Cyprus bank account, where he or she is a shareholder, which is in turn a shareholder of a Russian company. In this scenario there is an abuse of a Double Tax Agreement under which a reduced withholding tax rate applies and keeping such dividend income undeclared back in Russia. However, it looks like nobody has properly thought about how it will work in practice and how the Russian authorities will receive this information about Russian tax residents’ overseas bank accounts. It is also looking like Russian banks have to report to the Russian tax authorities on movements on foreign currency accounts of its clients. Practicality of this is very doubtful if you consider that many Russians have foreign currency accounts for spending monies abroad on holidays and shopping. Russians are well-known for wide scale and aggressive use of offshore companies for protecting confidentiality and reducing tax burden. There is a valid reason for this and instead of addressing the core root of the reasons behind this the Russian authorities have decided to fight what lies above. Penalties for non-compliance are severe – 75% of an amount not put through a Russian based bank account for a first offence and 100% of an amount for any following offences.