CFC: fast facts
Controlled foreign companies (CFCs) are foreign legal entities or unincorporated businesses controlled by Russian individuals or legal entities by means of membership interest or in any other way.
Control is a possibility for influencing decision-making related to the distribution of after-tax profits.
Formal evidence of control:
– over 10% share in capital, if membership interest of RF residents exceeds 50%
– over 25% share in capital, if membership interest of RF residents is less than 50%.
Consequences of recognition of CFC
Income of CFC is treated as income of a controlling individual (with a personal income tax at the rate of 13%) or income of a controlling legal entity (with an income tax at the rate of 20%)
However, income taxes paid in CFC’s country of residence reduce taxes payable in the Russian Federation.
CFC’s income is determined on the basis of its financial statements audited by an independent auditor or reviewed under rules set forth in the Chapter 25 of the Tax Code of the Russian Federation.
In order to declare CFC, it is necessary to:
- File a notification on membership interest in a foreign company (if membership interest changes, a new notice shall be filed)
- File a CFC notification (annually)
- On an annual basis, file a CFC Income Tax Return as part of a tax return under the Form 3-NDFL (for individuals) and income tax return (for legal entities)
- Pay the tax (annually)
Failure to provide the notification of the membership interest: 50 000 Roubles per document(Item 2 Article 129.6 of the Tax Code of the RF)
Failure to provide the CFC notification: 100 000 Roubles per annum (Item 1 Article 129.6 of the Tax Code of the RF)
Failure to file NDFL tax return: up to 30% of tax amount payable(Article 119 of the Tax Code of the RF)
Failure to pay the tax: 20% of the outstanding tax amount(Article 122 of the Tax Code of the RF)
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