Russia: The Main Changes and Trends in Tax Policy and Legislation of the Russian Federation

Updated rules and regulations of the current legislation regarding a controlled foreign company (CFC) - Federal law No. 150-FL of 08.06.2015: 

1. The concept of CFC exempts active foreign companies (with not more than 20% of profits comprising passive income) from the scope of CFC rules. Moreover, active holding and sub-holding companies are deemed as non-CFC if they comply with certain conditions (i.e., the Russian controlling party shall hold an interest of over 75% in such a company for more than one year, while the company should receive dividends from active foreign companies, which it has also owned for more than one year, and such interest should come to a least 50%); 

2. Detailed criteria of tax residence for legal entities and, among other things, reduces the key criteria to two (at least one of them should be met): (a) the company’s executive board operates in Russia and (b) its chief executive officers perform their functions in Russia. 

Introduced incentives for investors in high technology - Federal law No. 396-FL of 29.12.2015.

Up to 2023, when selling certain types of securities and stakes in Russian entities, revenues from such sales shall not be subject to tax. This exemption may be applied to both by legal entities and individuals. 

Regarding impersonal metal accounts (IMA): 

• It has been clarified that banks are to revalue IMA as at the end of the reporting (tax) period.

Elimination of double taxation according to double taxation treaties (Treaty on avoidance of double taxation) - Federal law No. 146-FL of 8 June 2015: 

The procedure for elimination of double taxation under DTT has been updated: 

• the time limits for provision of documents to receive credit of a tax paid in a foreign state has been extended; 

• the option of applying tax benefits through a DTT has been provided directly to the tax agent;

• to confirm residency in a foreign state, an individual may provide the tax agent a foreign national passport. 

Expected key changes in tax legislation of the Russian Federation 

1. Russian legislators may continue to update its thin capitalisation rules. 

A corresponding bill has been passed in its first reading. The key changes are as follows: the rules shall apply when funds are borrowed (1) from foreign companies characterised by vertical equity participation in the Russian borrower (subject to one of three dependence criteria as per Article 105.1 of the RTC); (2) from entities affiliated with such foreign companies (both Russian and foreign entities); and (3) from other entities, if entities described in items (1) and (2) acted as guarantors in relevant transactions (with the exception of independent banks). 

2. It is also proposed that: 

• develop a unified mechanism for administering tax, customs and other fiscal payments; 

• vest Russia’s regions with the right to reduce the profits tax rate to 0% (i.e., there would be only a federal component , amounting to 2%) for companies, which invest under special investment contracts. In turn, the government should be able to buy up to 30% of the products manufactured under such contracts outside of tenders; 

• develop the domestic corporate bond market. This would require not only simplifying the procedure for issuing and purchasing bonds, but also making coupon yields derived by investors tax exempt (PIT).

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