Regularization of Russian Private

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Regularization of Russian Private




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Presentations text content in Regularization of Russian Private

Slide1

Regularization of Russian Private

C

lients’

Undeclared/Untaxed

F

unds

Slide2

Undeclared Funds vs. Undistributed

R

evenues

Slide3

Current Reporting Obligations on Foreign Accounts

Residency status

(for reporting purposes):

Is defined by the RF Currency Legislation;Generally includes Russian citizens, except those who are away for no less than 1 year (uninterrupted stay outsider of Russia without crossing the border)

General Rule: RF residents shall report to Russian tax authorities:

on opening (closing) bank accounts/deposits abroad;

on changing bank accounts/deposits details;

on all transactions of foreign bank accounts (or deposits);

During 1 month period

During 1 month period

Slide4

Current Rule: Dividends and Interest are Taxed Only if Actually Paid

Foreign Legal

Entity

Foreign Jurisdictions: Cyprus, Malta, BVI Switzerland, etc.

Russian Federation

Withholding tax/ if any

Personal income tax:

9% for dividends13% for interests

Dividends/Interests

Slide5

Use of Capitalization Funds. Common Rules.

Tax rates for income received from transactions with securities in the RF:

13% for the RF residents

30% for non-residents

Slide6

Use of Capitalization Funds. Specifics

of Securities and Financial Instruments Taxation

.

Actual expenses for acquisition of securities/financial instruments

Market value of the securities/financial instruments

Material gain

Personal income tax:

13% for the RF residents

30% for non-residents

Material gain

Paid Personal income tax

Expenses reducing personal income from sale

Tax base for securities transactions is the financial result: income from sale of securities after deduction expenses for their purchase.

Tax rate: 13% for the RF residents, 30% for non-residents;

I.

II.

III.

Slide7

Use of Life Insurance Products: Taxation only Upon Distributions

Russian national

Foreign Insurance Company

Funds transfer as payment for insuring life/property/etc.

Proceeds from insurance policy upon certain events (death, disability, elderly age, etc.)

Income generated during the term of such insurance policy

Slide8

Use of Life Insurance Products.

General Rules:

Income generated during the term of insurance policy is taxable at a rate of 13% as income received from foreign sources;

Insurance payments are taxable at a rate of 13% (para 2 and 3 of art. 208 of the RF Tax Code);

Tax exemption is applied to the following payments (para 2 and 3 of art. 213.1 of the RF Tax Code)

Insurance payments upon a certain age/period of the insured person or in other events if:the insurance payments are paid by the taxpayer insurance payments do not exceed the sum of his paid premiums;The difference between these amounts will be included in tax base.

Insurance payments upon events:

Death

Injury to health; and (or)

Reimbursement of medical expenses of the insured person (exception – payments for sanatorium treatment);

Slide9

Dividends: Russian Tax upon payment from Cyprus

CY

Cyprus

Russia

Dividends

No Withholding Tax

9% Personal income tax less WHT paid in Cyprus

Slide10

Interest: Russian Tax upon Payment from Cyprus

CY

Cyprus

Russia

Interests

No Withholding tax

13% Personal income tax

Slide11

Currency Control

Foreign

Jurisdiction

Russia

Dividends

Foreign Legal

Entity

Currency

Transaction

Currency Control:

All transactions shall be made via Authorized banks

Otherwise

Fine in the amount up to the sum of illegal currency transaction

Slide12

Proposed CFC Legislation

The

Russian Ministry of Finance is working on the draft tax law which would introduce concepts of CFC (Controlled Foreign Company) for tax purposes;

Potentially, such new CFC rules may require Russian companies and individuals to report and account for

passive profits

of their CFCs even if no distributions are

made;

Slide13

Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax

New

Trends

on T

axation

of

Off-shore

P

rofits

by Russian

Tax

A

uthority

Slide14

Key Events of De-

offshorization

Taxpayers receiving dividends from sources outside of the Russian Federation are entitled to reduce the amount of tax

Slide15

Key Directions

of Further De-

offshorization

Slide16

Recent/Pending Changes

to Russian Legislation on Fighting Use of Off-shores

Slide17

Control on Income Sources

For individuals there is no total control for their income sources on which assets were previously acquired:

See: Federal Law No. 116-FZ dated July 20, 1998 “On state control for compliance of large expenses to income factually received by individuals (

did not come into force

);

See: Art. 86.1., 86.2., 86.3. of the RF Tax Code came into force from January 1, 2000, but

were cancelled from July 9, 2003;

PEPs expenses are under control from January 1, 2013

See:

Federal Law No. 230-FZ of December 3,

2012

“On control for compliance of

 e

xpenses of individuals

 

occupying

s

tate

p

osts

and

other

i

ndividuals

to

their levels

of

income” (came into force from January 1, 2013);

Slide18

Federal Law No. 230-FZ of December

3, 2012

Main purpose: fighting corruption;

Applies to transactions made from January 1, 2012;

Came info force from January 1,

2013;

Slide19

Key Persons Covered by Federal Law No.

230

Slide20

Federal Law No. 230-FZ of December 3, 2012

Acquisition of assets:

Land plotsOther real estateVehicleSecuritiesShares

The amount of transaction exceeds total income of PEP and his/her spouse for the last 3 years before transaction

Obligation of PEPs to inform on:

His/her expenses

Spouse’s expenses

Minor children's expenses

Income sources

Slide21

Consequences for Non-compliance

Slide22

Strengthening of Control for Financial Operations of Individuals

Federal Law No.

134-

FZ as of June 28, 2013 on Fighting of Illegal Financial Operations

Tax authorities

Operative-investigation bodies

Provision of Information on bank accounts of companies, entrepreneurs, individuals

I

n relation to receiving information on individuals: consent of the higher tax authority is required

On the basis of court decision

Bank

Slide23

Tax Amnesty

Presidential decree № 1773 “On conducting tax amnesty in 1993” as of 27

th of October, 1993Federal Law № 269 -FZ "On the simplified procedure for declaring of income by individuals" of 30th of December 2006Federal Law N 330-FZ as of 21st of November, 2011 in respect of transport, land and individual property tax, debts on which originated prior to January 1, 2009 Legal entities and individuals who had declared sums of previously unpaid taxes before November 30, 1993 and transferred them into the budget were relieved from tax penalties. Within 10 months, from March 1, 2007 to January 1, 2008, individuals had the opportunity to pay taxes on income earned by them before 1 January 2006, but hidden from taxation without indication of type and source of income. The law was not effective in respect of individuals sentenced under Art. 198 of the RF Criminal Code (tax evasion). Tax debts originated prior to January 1, 2009 were written off (“forgiven”) by the tax authorities automatically. The law was not effective in respect of such debts, related to entrepreneurs activities or private practice of individuals.

Slide24

Limitation Period for

T

ax

Offences

An individual can not be brought to responsibility (fines) for tax offences if 3 years expired before such decision left was made, beginning from: the next day after the end of the tax period during which the offence was committed (effective for offences under Art. 120, 122 of the RF Tax Code); the date of its commission (for all other offenses);Within the framework of the field tax audit the reviewed period can not exceed 3 years from the date, when decision on the appointment of such audit was made (5 years for taxpayers participating in regional investment projects);

Tax liability ceases in the following cases:

Payment

of

taxes;

Death

of an individual

taxpayer;

Liquidation

of the taxpayer (legal entity

);

Other

cases provided by the

law;

Slide25

Relief

of Tax Liability

The corrected tax return is submitted:after deadline for such submission expired, butbefore expiry of deadline for tax payment

Relief of tax liability

Provided

that the taxpayer did not know about: discovery of tax underpayment by the tax authorities the appointment of the field tax audit

The amended tax return is submitted:after deadlines for submission of tax return and for tax payment expired

1. Provided that the taxpayer paid the underpaid taxes before he became aware of: discovery of tax underpayment by the tax authorities the appointment of the tax field audit2. Provided that the tax payer paid the underpaid taxes and such underpayment was not identified in course of the field tax audit

Relief of tax liability

Relief of tax liability does not exclude implication of criminal liability.

Slide26

The taxpayer can

be released from criminal liability if a prescribed period of time passed since crime has been committed (p. 1 of art. 78 of the Criminal Code of the RF).

Relief of Criminal Liability

Two years

after committing a Minor offense (maximum punishment does not exceed 3 years of imprisonment);

Six years after committing an Average-gravity crime (maximum punishment does not exceed 5 years of imprisonment);

Note:

The tax offence is considered to be committed in case taxes are not paid in the time term established by the tax legislation

Slide27

*Large scale:

more than RUB 600 000 (USD 17,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable, OR more than RUB 1,8 mln (USD 50,000);

Relief of Criminal Liability

Minor offenses

Tax and duty evasion committed

by an individual

on a large scale*(art. 198 of the Criminal Code of the RF)

Failure to fulfill the tax agent obligations on a large scale**(p. 1 of art. 199.1 of the Criminal Code of the RF)

Tax and duty evasion committed by organization on a large scale ** (p. 1 of art. 199 of the Criminal Code of the RF)

The

taxpayer

who committed minor tax offence for the first time may be released from criminal liability in case of payment of all underpaid taxes and fines.

**Large scale:

more than RUB 2 000 000 (USD 56,000) within 3 consecutive years, provided such tax underpayment exceeds 10% of due taxes payable,

OR more than RUB 6

mln

RUB (USD 166,000);

Slide28

*Especially Large scale:

more than RUB 10 mln. (USD 277,000) within 3 consecutive years, provided such tax underpayment exceeds 20% of due taxes payable, OR more than RUB 30 mln (USD 833,000);

Relief of Criminal Liability (Continuation)

Average-gravity crimes

Tax and duty evasion committed:

by a group of persons with prior agreement

on especially large scale*(p. 2 of art. 199 of the Criminal Code of the RF)

Concealment of funds or property of the legal entity or entrepreneur, at the expense of which taxes and duties are to be paid, on a large scale**(art. 199.2 of the Criminal Code of the RF)

Failure to fulfill the tax agent obligations on especially large scale*(p. 2 of art. 199.1 of the Criminal Code of the RF)

**Large scale:

More than RUB 1 500 000 (USD 42,000);

Slide29

Limitation Period for Administrative Liabilityfor Tax Offences

The taxpayer can not be brought to administrative liability for a tax offence after expiration of 1 year term from the date when the tax offence was committed (for long-lasting offences - from the date of discovery of the tax offence).

Administrative offences related to taxation and duties

Violation

of time term for registration with the tax

authorities

Violation

of the time term for submission of a tax

return

Failure

to

submit

data necessary for tax control

Gross violation of accounting and submission of financial statements

Slide30

Thank

You For Attention!

Slide31

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