1 © Rödl & Partner 07.06.2016

Achieve Together

Alexander Yudovich | Moscow | 7 June 2016

Intax Expo Russia 2016

Deoffshorisation in Russia: first results and available solutions for clients

2 © Rödl & Partner 07.06.2016

Agenda

02 Exemptions by participation

01 Exemption by tax residence status (individuals)

03 CFC profits exempt or not considered for taxation purposes

04 Exemption by changing the tax residence status (legal entity)

3 © Rödl & Partner 07.06.2016

Agenda

02 Exemptions by participation

01 Exemption by tax residence status (individuals)

03 CFC profits exempt or not considered for taxation purposes

04 Exemption by changing the tax residence status (legal entity)

4 © Rödl & Partner 07.06.2016

Exemption by tax residence status (individuals)

Tax residence under

Tax Code RF vs. FNS RF

183 Days vs. „Tie breaker rules”

183 Days

MinFin RF N 03-08-РЗ/23009 from 21.04.2016

But: centre of vital interests: real vs. artificial

(Decree Plenum VAS № 53 from 12.10.2006)

5 © Rödl & Partner 07.06.2016

Agenda

02 Exemptions by participation

01 Exemption by tax residence status (individuals)

03 CFC profits exempt or not considered for taxation purposes

04 Exemption by changing the tax residence status (legal entity)

6 © Rödl & Partner 07.06.2016

Exemption by participation

Participation in CFC 1) 25% or 10% (jointly with wife / husband and minor children if jointly with another tax residents RF more than 50%) or

2) by another form of control

Corporate control vs. Right to distribute the profit

Right to distribute the profit (to any person)

7 © Rödl & Partner 07.06.2016

Agenda

02 Exemptions by participation

01 Exemption by tax residence status (individuals)

03 CFC profits exempt or not considered for taxation purposes

04 Exemption by changing the tax residence status (legal entity)

8 © Rödl & Partner 07.06.2016

CFC profits exempt or not considered for taxation purposes

In case the effective tax rate for the profit of a CFC for the financial year is not less than

75 percent of the weighted average corporate income tax rate in the RF, then the profit of this

company is exempt from taxation. In addition there should be a DTT with the state of the

permanent residence of the CFC and such state should not be included in the list of states not

exchanging information for taxation purposes.

First CFC-Notification per 31 December 2016 till 20 March 2017 (with exemption papers)

Profit

Foreign company

Effective tax rate ≥

¾ of the weighted average corporate

income tax rate

Exempt from taxation

9 © Rödl & Partner 07.06.2016

CFC profits exempt or not considered for taxation purposes

- effective tax rate for the income (profit) of

the foreign company;

Н – income tax amount, calculated by the foreign

company and its separate offices according to its

proper law and amount withheld from the income

of the company at source;

П – income (profit) amount of the foreign company

defined according to the provisions of the Tax

Code.

эфф

НСт 100%

П

Effective tax rate

эффСт

Weighted average corporate income tax rate

срвзвеш

Ст1 П1 Ст2 П2Ст 100%

П1 П2

П1 – profit amount of the foreign company defined

according to the provisions of the Tax Code minus

dividends received by the foreign company;

П2 – dividends amount received by the foreign

company;

Ст1 – profit tax rate of 20% (legal entity);

Ст2 – income tax rate of 13% (individuals).

10 © Rödl & Partner 07.06.2016

Case 1

Active foreign

company

(GmbH)

Real estate

company

(GmbH)

Holding

(GmbH)

1st son

2nd son

50 %

50 %

Effective tax rate =

28%

Effective tax rate = 1,5 %

Effective tax rate =

15,825 %

V taxed

X Not

taxed

X Not

taxed

100%

100%

Lease

(exemption via P. 1 Art. 25.13-1 Tax Code RF)

dividends

dividends

11 © Rödl & Partner 07.06.2016

Case 1 (modified)

Active foreign

company

(GmbH)

Real estate

company

(GmbH)

Holding (KG)

1st son

2nd son

50 %

50 %

Effective tax rate =

28%

Effective tax rate =

15,825 %

? taxed

X Not

taxed

X Not

taxed

100%

100%

Lease

(exemption via P. 1 Art. 25.13-1 Tax Code RF)

PIT first by receiving

the profit physically

(cash-flow principle)

imputed profit should be taxed on participants level

dividends

dividends

12 © Rödl & Partner 07.06.2016

Case 1 (final)

Active foreign

company

(GmbH)

Real estate

company

(GmbH)

Holding

(GmbH)

1st son

2nd son

50 %

50 %

Effective tax rate =

28%

Effective tax rate =

15,825 %

X Not

taxed

X Not

taxed

100%

100%

Lease

(exemption via P. 1 Art. 25.13-1 Tax Code RF)

X Not

taxed

13 © Rödl & Partner 07.06.2016

Agenda

02 Exemptions by participation

01 Exemption by tax residence status (individuals)

04 Exemption by changing the tax residence status (legal entity)

03 CFC profits exempt or not considered for taxation purposes

14 © Rödl & Partner 07.06.2016

Case 2 – IP-Transfer

OOO Ltd BVI

Exclusive rights on software

Ind. 1 Ind. 2 Ind. 3

1/3 1/3 1/3

Consideration

Software engineering and technical assistance

End

customer

Previous structure

15 © Rödl & Partner 07.06.2016

Case 2 – IP-Transfer (Non-tax-resident status in Cyprus)

OOO

Ltd. Cyprus (Non-tax-resident in Cyprus) =

Tax Resident in Russia

Exclusive rights on software

Ind. 1 Ind. 2 Ind. 3

1/3 1/3 1/3

Consideration

Software engineering and technical assistance

End

customer

Current

structure

PE rus. CFC (-)

Assets protection (+)

Art. 4 P. 1 DTT

“place of management“

16 © Rödl & Partner 07.06.2016

Case 2: IP-Transfer (Non-tax resident status in Cyprus)

Questions in Russia and in Cyprus:

1. May treatment of Ltd. Cyprus as a Russian tax resident be enforced before 1 January

2018?

2. Before Ltd. Cyprus becomes a Russian tax resident, what notices have the beneficiaries of

Ltd. Cyprus to submit in Russia regarding the controlled foreign company?

3. Before Ltd. Cyprus becomes a Russian tax resident, will the financial statements in

accordance with the Cypriot accounting standards be sufficient for accounting for the profits of

Ltd. Cyprus (as a controlled foreign company)?

4. What will be the tax rates applicable to Ltd. Cyprus in Russia after the permanent

establishment emerges / tax residency is accepted voluntarily?

5. Will Ltd. Cyprus be able to exist as neither Cypriot nor Russian tax resident for a while

(before establishment of the Russian office) ?

6. Art. 217 Clause 60) of the Tax Code RF: criteria for the entitlement to tax exemptions?

7. Options for the transfer of assets (Trademark, IP-Program, money) from Ltd (BVI) to Ltd.

Cyprus

8. Non-tax-resident certificate in Cyprus

9. Subject to tax in Cyprus and offsetting of the amount against tax payable in Russia

17 © Rödl & Partner 07.06.2016

We and the Castellers de Barcelona

The human towers are like us:

”every single individual counts” –

when working together and when

supporting our clients.

18 © Rödl & Partner 07.06.2016

„Each and every person counts“ – to the Castellers and to us.

Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage

and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are

today. „Força, Equilibri, Valor i Seny“ (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their

fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative

journey with the representatives of this long-standing tradition of human towers – Castellers de Barcelona – in May 2011. The association

from Barcelona stands, among many other things, for this intangible cultural heritage.

Your contact

Alexander Yudovich

Associate Partner

Head of Tax Practice

Rödl & Partner Rödl & Partner

Business Centre LeFort 7/A, line 14th

Elekrozavodskaya ul. 27, bld. 2 Vasilievsky Ostrov

107023 Moscow / Russia 199034 St.Petersburg / Russia

phone +7 (495) 933 51 20 phone +7 (812) 320 66 93

fax +7 (495) 933 51 21 fax +7 (812) 320 66 95

alexander.yudovich@roedl.pro