At Paifang our team of accountants regularly provide auditing services for offshore companies. In order to deliver the best value we need to stay up to date regarding different regulations from various different countries. We take great care with this.
One of the biggest changes in our field, particularly when it comes to auditing offshore companies, was the introduction of new Russian Regulations regarding CFCs (controlled foreign companies) on 01/01/2015 and the first reporting is due on the 20/03/2017.
The new regulations are very strict. They include a case-by-case check of the ownership structure of businesses, whether any persons involved have tax residency, and examining compliance with Tax Service notice of participation.
A CFC must simultaneously meet two requirements;
Firstly it must not be a tax resident of the Russian Federation.
Secondly the controlling person should be an entity or individual who is a tax resident of the Russian Federation.
Profits made by a CFC can be exempted from tax if they do not exceed 50 million Rubles (or equivalent) in 2015, 30 million Rubles (or equivalent) in 2016, and 10 million Rubles (or equivalent) in 2017.
Russian tax residents are required to notify the Federal Tax Service when they participate in foreign entities if the participation exceeds specific thresholds. They must also advise them when they are the controlling person.
The profit of a CFC can be determined in one of two ways.
1) With a financial report in compliance with lex societatis when either;
– The CFC is domiciled in a country with active DTAT with the Russian Federation, excluding those countries that don’t exchange information about tax purposes.
– The financial report includes an audit report with no negative opinion
2) By rules in accordance with the Russian reporting standards. If the CFC does choose this they have the opportunity to switch to another reporting method after a five year period.
In some cases a CFC’s profit can be released from taxes. The relief can be granted if the CFC is an active foreign company (including offshores) with a passive income for the financial period that is no more than 20% of total profits.
With the above in mind there are several types of profits which are regarded as passive. They include dividends, interest, royalties, income from sales of shares, income from accounting services, and many others.
At Paifang Accountants in Taunton we have a lot of experience working with offshore companies. We can provide advice and services for clients from all around the world, including those who work in Russia and need to adhere to the above regulations. If you have any further queries please feel free to contact us any time.