Fixed CFC tax for individuals

On November 3, the Federation Council approved a bill which allows owners of controlled foreign companies (CFCs) to pay tax in the amount of 5 million RUB on the fixed CFC profit and to not report actual profit of a foreign company.

The innovation is beneficial to those, who own one or more CFCs with a total profit for 2020 of at least 38.5 million RUB, and for 2021 - 34 million RUB, as in 2021 the tax rate will increase from 13% to 15%.

In order to start using the new mechanism from 2020 on, an individual has to submit an application to the tax authority at the place of residence by February 1, 2021. In the fututre, the application shall be submitted before the end of the year in which the transition is planned.

When switching to the new mechanism in 2020 or 2021, the company is obliged to apply it for at least 3 years, and when switching from 2022 for at least 5 years.

The payment of 5 million RUB tax does not exempt dividends distributed in favor of an individual from taxation; however, it mitigates the risk of a fine for non-filing the reports which ranges from 0.5 to 1 million RUB for each violation.

Read about the most important news for businesses in Russia in our last Bellerage Quarterly