What the service includes
If you are a Russian tax resident and hold a stake in a foreign company above the threshold, you are required to notify the tax authority and, in some cases, to declare the CFC’s profit, whether or not it was distributed to you.
We help you establish whether a CFC obligation applies to you, prepare notifications and reports within the statutory deadlines, and advise on lawful ways to reduce the tax burden on CFC profit.
A particular difficulty arises when the ownership stake changes during the year, for example on the sale of part of a business or a restructuring through a holding company. The exact calculation of the period of control determines which year you report for and how much profit you recognise. We also calculate the combined ownership threshold where shares in one company are split between spouses or held through several intermediate structures. Without this, the threshold is easily crossed without the owner noticing.
What the service includes:
Who it is for
The situations clients most often bring to us on this topic.
How we work
A fixed fee and a clear plan of action, agreed before work begins. The timeframes below are indicative and depend on the complexity of the case.
Assessment of the obligation
We analyse the structure of ownership of the foreign company and determine whether a CFC obligation arises. Timeframe: 1-3 days.
Preparing the notification
We prepare the notification of participation in a foreign organisation within the statutory deadline. Timeframe: up to 3 months from the date the participation arises.
Profit reporting
Where necessary, we prepare the documents confirming the CFC’s profit or the grounds for exemption from tax. Timeframe: by 30 April of the following year.
Support in dealings with the Federal Tax Service
We represent the client if the tax authority requests additional documents or disputes their position. Timeframe: on request from the Federal Tax Service.
What you will need at the start
We confirm the exact list for your situation at the consultation. This is a guide so that you arrive at the first meeting prepared.
Key figures
Experience in this practice area specifically, not in practice as a whole.
Common mistakes
The CFC notification is filed and forgotten. After filing the first notification of participation in a foreign company, owners often consider the matter closed. In fact, a separate notification about the CFC itself, with supporting reporting, is required every year, and missing that cycle is a separate breach even where there is no profit.
The CFC tax exemption is not substantiated. Grounds for exemption from tax on CFC profit, for example by reference to the effective tax rate in the country of registration, must be supported by documented calculations, not merely by confidence that the company qualifies for the relief.
Trusts and foundations dropped from reporting. Ownership through a trust, a foundation or a nominee shareholder creates a sense that there is no formal controlling person. Yet the CFC rules take into account the actual right to income and indirect ownership, so such structures need separate analysis rather than automatic exclusion from reporting.
What you get
A filed CFC notification. The client receives a correctly completed notification of participation in a foreign company, filed on time.
A calculation of CFC profit. A ready calculation of profit under the rules of the Russian Tax Code, or a reasoned exemption from tax.
A package of supporting documents. Financial statements, an audit opinion and documents on the ownership stake, accepted by the Federal Tax Service without further requests.
A reporting schedule for the future. A calendar of annual deadlines for notifications and returns for each controlled company.
Related
Frequently asked questions
What happens if the CFC notification is not filed on time?+
The penalty for failing to file the notification is a fixed amount for each company that was not notified, whether or not it made a profit.
Do I have to pay tax on CFC profit if it was not distributed?+
In general, yes. CFC profit is declared regardless of actual distribution, but there are lawful grounds for exemption from the tax if certain conditions are met.
At what level of ownership does a CFC obligation arise?+
As a rule, with a stake of more than 25%, or more than 10% where the combined holding with a spouse and minor children exceeds 50%.
Can the tax burden on CFC profit be reduced lawfully?+
Yes, there are several grounds for exemption. We review how each applies to your particular ownership structure at the consultation.
What should I do if the CFC notification has not been filed for several years in a row?+
The situation can be remedied step by step, starting with the current period, while assessing whether to disclose earlier years. A voluntary approach made before an audit begins is, as a rule, treated differently from a breach that has been detected.
Does redomiciliation of a company affect CFC obligations?+
Moving a company to another jurisdiction does not automatically remove reporting obligations. Until the procedure is completed, the controlling person remains responsible under the previous structure, which should be factored in when planning the timing of the move.