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The Russian Federation has announced a second voluntary disclosure / capital amnesty program which will run from 1 March 2018 to 28 February 2019. Russian tax residents who hold assets abroad will be able to take advantage of the extended tax amnesty for the voluntary declaration of previously undisclosed assets and the extended period in which to liquidate their controlled foreign companies (CFCs) tax-free. These developments offer new opportunities for the restructuring and declaration of assets located outside of Russia.
The conditions of the extended amnesty program are virtually the same as those that applied during the previous amnesty period (1 June 2015 to 30 June 2016), which waived liability for past taxes and currency violations for those who declared assets abroad. During the extended amnesty period, it will be possible to declare not only undeclared open accounts in banks outside of Russia, but also accounts which were already closed when the new amnesty was declared, provided such accounts were opened before 1 January 2018.
The so-called ‘deoffshorization’ law, in force in Russia since January 2015, tightened reporting requirements for offshore income and subjected it to taxation. However, Russian tax residents were given a period during which they could liquidate their CFCs and repatriate assets without paying the 13% tax. The time frame for tax-free liquidation of CFCs has now been extended for a further year. Any proceeds, whether cash or in kind, that controlling individuals of a CFC receive following its liquidation will be exempt from income tax as long as the liquidation is completed before 1 March 2019. The market value of the assets received when the liquidation proceeds are distributed is a tax-deductible basis for the purposes of a future sale of such assets.
A foreign entity is treated as Russian-controlled if a Russian company or individual holds at least a 25% interest in it. Where more than 50% of an offshore entity is jointly owned by several Russian individuals or institutions, those who hold more than 10% will be considered controlling shareholders and thus will be liable for tax.
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Russia Announces New Capital Amnesty and Extension for Tax-Free Liquidations