What is to be done in Russia after registering a company?

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Once a company is incorporated in the UAE, a Russian tax resident shareholder of a company in the UAE (the "Beneficiary") must file notifications and reports with the Russian tax authority. Let us understand what needs to be done.

01

Notification of participation in a foreign organisation

The taxpayer (physical person and organization) must notify the tax authority about the participation in foreign organizations, if the share of such participation exceeds 10 percent, or about the establishment of foreign structures without establishing a legal entity (clause 3.1. of article 23 of TC RF).

It is important to notify not only of the emergence of participation but also of its change or termination. For example, when selling a share in a foreign organisation. Such notification must also be submitted within 3 months.

Deadline and procedure for notification

Within 3 months from the date of appearance (change of share) of participation in such a foreign organisation (part 3 of article 25.14 of the Tax Code).

The notification must be submitted to the tax authority at the location (place of residence). The notification may be submitted via the taxpayer’s personal account (on the website of the Federal Tax Service) or sent in writing.

Should an individual not be a tax resident on the date of incorporation but become a tax resident as a result of a calendar year, the notification must be submitted not later than 1 March of the year following such a calendar year. For example, if the company was incorporated on 23 May 2022, the notification must be submitted by 1 March 2023.

Liability for failure to notify

Failure to submit the notification or violation of the time limits may result in a fine of up to 50,000 roubles for each foreign company (part 2 clause 129.6 of TC RF).

02

Controlled foreign company (CFC) notification

An individual or a legal entity must notify the tax authority at their location (place of residence) of controlled foreign companies in relation to which they are the controlling person (Article 23.3.1., Article 25.14.1.2 of the TCRF). This is a different type of notification from the participation notice. The filing of the previous notification does not negate the obligation to file a CFC notification.

CFC is recognised as a foreign organisation if it meets all the following conditions simultaneously (clause 1 of Article 25.13 of the Russian Tax Code):

the organisation is not recognised as a tax resident of the Russian Federation;
the organisation’s controlling person is an organisation and (or) an individual who is recognised as a tax resident of the Russian Federation.

The following are considered to be controlling persons of a foreign organisation (Article 25.13.3 of the Russian Tax Code):

a person whose interest in the organisation is over 25%;
a person whose interest in the organisation (for individuals — jointly with their spouses and underage children) is more than 10% if the interest of all persons recognised as tax residents of the Russian Federation in the organisation (for individuals — jointly with their spouses and underage children) is more than 50%.

A controlling person is also a person who does not meet the above criteria but who actually controls the organisation for his or her own benefit or for the benefit of his or her spouse and minor children.

Time limits and procedures for notification

The time limits for notification vary:

for legal entities — by 20 March of the year following the tax period in which income in the form of CFC profit is recognised by the controlling person.
for legal entities — before 30 April of the year following the tax period in which income in the form of CFC profit is recognised by the controlling person.

The date of recognition of a person’s income in the form of profit of a CFC is 31 December of the calendar year following the tax period which is the end date of the period for which the financial statements for the financial year are prepared in accordance with the personal law of such company.

For example, if the company is established on 30 May 2022 and its financial year is the calendar year from 1 January to 31 December. Then the date of recognition of income as profit of the CFC would be 31 December 2023. The individual must then file accounts by 30 April 2024.

The CFC notification deadline for an individual is 31 December 2024 if the financial year of that company is from 1 April 2022 to 31 March 2023, for example.

Along with the notification must be submitted:

CFC financial statements translated into Russian.
the auditor’s report on the CFC’s financial statements translated into Russian.

Liability for failure to notify

Failure to submit the notification or violation of the deadline results in a penalty in the amount of 500,000 roubles per CFC (clause 1, article 129.6 of the Tax Code).

Tax payment

A CFC’s profit exceeding 10 million roubles is taken into account in the founder’s tax base in the appropriate proportion. Profit tax or personal income tax must be paid on this profit as if this profit of the CFC were the income of an individual or a legal entity.

The following amounts are deducted from the CFC’s profits to be included in the tax base:

dividends paid by a CFC, including interim dividends;
ividends sourced from Russian entities if the controlling person of that CFC has an actual right to such income.

There are also a number of grounds on which CFC profits are exempt from taxation. These include:

the CIC is formed in accordance with the legislation of the EEU. For example, in Armenia, Kazakhstan.
the effective rate of taxation of CFC profits is not less than 75% of the weighted average tax rate for corporate income tax.

The taxpayer must pay tax on the CFC’s profits within the following time limits:

an individual — until 15 July;
legal entity — until 28 March.

Liability for non-payment of tax

A fine of 20% of the amount of tax not paid, but not less than 100,000 roubles.

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03

How does tax and currency residency affect the filing of reports?

Tax residence

Russian organisations will always be considered tax residents of the Russian Federation (Article 246.2 of the Russian Tax Code). Individuals, on the other hand, may lose their tax residency if they stay outside the Russian Federation for more than 183 days during the next 12 consecutive months (Article 207.2 of the Russian Tax Code). It is important that the day of departure from Russia and the day of return are considered as days of stay in Russia (Letter No OA-3−17/1702 of the Federal Tax Service dated 24.04.2015). In addition, the days of stay in the Russian Federation include travel outside the Russian Federation for short-term (less than six months) medical treatment or training (Article 207.2 of the Russian Tax Code).

Should a person lose their tax residency status, they do not have to submit a notification of participation in foreign companies and a CFC report. However, Russian law does not require notifying the tax authorities of the loss of Russian tax residency.

Currency residency

Russian organisations and Russian citizens are always currency residents of the Russian Federation. However, a number of obligations do not apply to individuals who have lost their tax residency. For example, they do not have to submit a notification of the opening of accounts abroad, nor do they have to submit cash flow reports on them.

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