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Administration of controlled foreign companies
We offer a full range of services within the framework of compliance with CFC legislation. Our company has many years of experience and expertise in the field of tax planning, so our clients can be assured that their interests will be protected taking into account the specifics of Russian tax legislation.
LEARN ALL ABOUT CFC
A Controlled Foreign Company (CFC) is a foreign organization or structure without legal personality, the controlling entity of which is a tax resident of the Russian Federation.
Get a free consultation on current legislation regarding foreign companies from tax experts at Home Legal.
CFC is a foreign legal entity that the Russian tax authorities do not consider a tax resident of the country. Such a firm may be controlled by an individual or legal entity that is a tax resident in our state. Tax residents of the Russian Federation are persons who are actually present in the country for at least 183 calendar days in the following 12 consecutive months. These can be citizens of Russia or any other country.
The concept of foreign companies controlled by Russian entities and the requirement for tax resident individuals in Russia to report on them emerged in the legal field in 2014 as part of the course on deoffshorization of the domestic economy. It was also then that the concept of controlling persons became widely used.
The concept of foreign companies controlled by Russian entities and the requirement for tax resident individuals in Russia to report on them emerged in the legal field in 2014 as part of the course on deoffshorization of the domestic economy. It was also then that the concept of controlling persons became widely used.
Who is considered the controlling face of a foreign company?
- A physical or legal entity with a shareholding of more than 25%
- A physical or legal entity with a shareholding in a foreign organization of more than 10%, if the shareholding of all individuals recognized as tax residents of the Russian Federation in this organization exceeds 50%
- A physical or legal entity that has the right to directly or indirectly receive profits or income from this organization, dispose of profits or income in whole or in part
- A physical or legal entity that has the right to property owned by a foreign organization
- Controlling faces are required to take a number of actions to comply with the legislation on CFC:
- submit a notification of participation once,
- annually provide a notification of Controlled Foreign Corporation,
- prepare financial statements and audit (in some jurisdictions).
Notification of participation in CFC: submission, conditions, deadlines
The notification of participation must be submitted within three months from the occurrence of any of the following circumstances:
Failure to submit a notification of participation or submission of false information may result in a fine of 50,000 rubles for each foreign organization according to the Russian Tax Code.
- emergence of a share
- establishment of a foreign structure without the formation of a legal entity
- change in the size of the share
- termination of participation
- liquidation of a foreign organization
- change in the order of participation
Failure to submit a notification of participation or submission of false information may result in a fine of 50,000 rubles for each foreign organization according to the Russian Tax Code.
Notification on CFCs: submission, conditions, deadlines
Individuals are required to submit notifications of CFCs by April 30 of the year following the tax period in which the controlling person is recognized as receiving income in the form of CFC profits or which follows the year in which CFC losses are determined.
Legal entities are required to submit notifications of CFCs by March 20 of the year following the tax period in which the controlling person is recognized as receiving income in the form of CFC profits or which follows the year in which CFC losses are determined.
Starting from 2021, along with the notification of Controlled Foreign Companies (CFC), it is necessary to attach the company's financial statements translated into Russian. The financial statements must be attached regardless of the company's financial results. If the foreign company's personal law requires a mandatory audit report, it must be translated into Russian and attached to the financial statements. An audit report is required for companies registered in countries that do not exchange tax information with the Russian Federation.
If the controlling entity fails to submit the CFC notification for several periods, notifications must be submitted in the following period to comply with the legislation.
Fines for failure to submit a notification of CFC in accordance with the Tax Code of the Russian Federation:
Legal entities are required to submit notifications of CFCs by March 20 of the year following the tax period in which the controlling person is recognized as receiving income in the form of CFC profits or which follows the year in which CFC losses are determined.
Starting from 2021, along with the notification of Controlled Foreign Companies (CFC), it is necessary to attach the company's financial statements translated into Russian. The financial statements must be attached regardless of the company's financial results. If the foreign company's personal law requires a mandatory audit report, it must be translated into Russian and attached to the financial statements. An audit report is required for companies registered in countries that do not exchange tax information with the Russian Federation.
If the controlling entity fails to submit the CFC notification for several periods, notifications must be submitted in the following period to comply with the legislation.
Fines for failure to submit a notification of CFC in accordance with the Tax Code of the Russian Federation:
- 500,000 rubles for each CFC for failure to submit a notification within the time specified by law (for tax periods starting from 2020),
- 500,000 rubles for failure to submit documents or for submitting knowingly false information confirming the profit/loss of the CFC (for tax periods from 2020),
- 1,000,000 rubles for failure to submit documents confirming the profit/loss of the CFC at the request of the tax authorities (applies to documents for tax periods from 2020).
Request for consultation on current legislation regarding CFC