CFC in the Russian Federation
Russian businessmen, owned by foreign organizations and have been engaged in international business for quite some time, know firsthand about such a term as a controlled foreign company or CFC in the Russian Federation for short.
Trends in changes were expected already in the early autumn of 2018, due to the automated exchange of GRS tax information from more than 100 countries (the data contained information about offshore).
Thus, the tax service was able to identify information about foreign organizations and firms owned by Russians. This fact made the CFC problem urgent.
Key CFC Principles to Understand
Initially, the CFC, as well as a host of other parties to the current taxation, is able to mislead even an experienced businessman or entrepreneur doing business.
The most reasonable solution to the problem is to obtain professional advice from a CFC lawyer, however, for this you need to understand several basic principles.
What is the fact of CFC?
CFC – as usual, this is the name of a foreign organization that does not have the status of a tax resident of the Russian Federation, however, entities that control the activities of this company have this status.
The legal norm is not important in this case, it can be holdings, LLC, trust funds and so on.
The definition of the control entity is the next in importance, such a person may be a tax resident of Russia, in whose possession a part of the foreign organization is more than 25%.
Scattered from the control entity are accomplices of foreign organizations. In fact, any entity with a part in a foreign company can be called its participant. Those who own a part of the company more than 10% are especially distinguished.
These entities do not fall under the position of the person exercising control, however, they have specific obligations when submitting documentation for foreign-controlled organizations.
Mandatory requirements and documentation on CFC in the Russian Federation
As usual, advising a lawyer on foreign-controlled organizations covers the subject of discussion that concerns all the owners of such firms about what papers should be provided under the CFC in Russia.
Tax resident of the Russian Federation, physical the entity that owns the CFC is obliged to inform the Russian tax service at the place of residence:
- on the status of the participant in a foreign company, no later than 90 days from the time the participation arose or changed;
- about a foreign-controlled company, a company where the subject exercises control, that is, its share is more than 25%, this must be done no later than March 20, the year following the tax period, in which part of the income of the CFC must be accounted for by the control entity.
Provided that the CFC has real estate within Russia, which is subject to tax on property of companies in Russia, a foreign company is required to provide information about the owners of the company to the service at the place of registration of real estate.
Taxation applicable to CFC owners in Russia
CFC revenues established in accordance with the Tax Code of Russia are recognized as company revenues or physical profits. persons received by the tax payer, which was determined by the controlled entity of this CFC.
In total, the profit of the CFC must be taken into account when establishing the tax base for payment of fees from payers who are entities that exercise control in relation to this CFC, based on the country’s tax code, provided that control over the CFC is carried out by the organization.
Then the proceeds will be taken into account according to the share of participation in a controlled foreign organization.
It follows that no special tax has been established for CFCs in the Russian Federation, however, the profits of a controlled foreign company or organization have a direct impact on the amount of taxation of persons controlling such a company.
In the case when the controlled body is an entity, it pays personal income tax, taking into account the income of a foreign company. If the control over the CFC is carried out by the company, then the volume of taxation of income taxes from the same company simply increases.
Reports to the tax authorities on the CFC
An individual who is established to exercise control in the CFC is required to keep records of the income received by this CFC in its own revenue, for tax purposes in accordance with the tax code of the country.
When physical. the person and part-time entity that pays taxes to the Russian tax service is recognized as the controlling entity, it has such obligations under the CFC (except for the transfer of the required information):
- submission to the tax service of Russia of documentation on personal income tax, in the period up to 30.04, following the year of accounting for the income of the CFC in the amounts that are subject to personal income tax;
- provision of fin. reporting, auditor’s report or other documentation certifying the amount of income of a foreign company;
- Payment of personal income tax on the income of CFCs in the Russian Federation according to the calculation of 13% up to June 15, following the year of filing a declaration of profit from controlled foreign organizations.
The obligations listed above are formed if the income of foreign firms is accounted for in the NLFL income format and is not determined in the profit format to be tax-free.
WHAT TO DO TO AVOID PENALTY PENALTIES
Penalties are determined by the type of violation of the CFC. Consequently, a different penalty is provided for failure to provide notifications and non-payment of tax obligations.
If there was an unjustified failure to provide a notice to the tax service during the prescribed period:
- that the person is a member of the CFC or the information in the notification does not correspond to reality – a fine of 50 thousand rubles for each foreign company;
- about controlled foreign organizations for a calendar year or a notice contains information that does not correspond to reality – a fine of 100 thousand rubles for each foreign company under control.
If the personal income tax was not paid by understating the tax base in accordance with article No. 198 of the Tax Code of the Russian Federation, the fine is determined by the amount of unpaid taxes and starts from 900 thousand rubles.
However, the payment of penalties does not preclude the need to pay tax obligations.
If you need qualified help from experienced lawyers, please contact our company. The competent specialists working with us will conduct a competent analysis of the existing structure of the organization.
We will familiarize you with the responsibilities of an individual – a tax resident of the Russian Federation in the format of a CFC controller or a participant in a foreign company. Eternity Law International will help calculate the CFC taxation, as well as prepare all the required papers.