Notification of CFC
A person who controls a foreign company or structure without forming a legal entity (hereinafter referred to as a CFC) must report on them to the tax authority annually. We will be happy to help you with the preparation of a notification of a CFC and will fully support its submission on a turnkey basis.
Deadlines, rules and criteria for filing notification
deadlines
Deadlines for filing a CFC notification in 2024
- Until April 30, 2024 – for an individual who controls a CFC
- Until March 20, 2024 – for a legal entity that controls a CFC (for example, a Russian legal entity is a participant in a CFC).
rules
When do I need to file a notification in 2024?
- If the CFC was registered in 2022 or earlier. In this case, the CFC's financial year coincides with the calendar year (from January 1 to December 31).
- If the CFC was registered in 2021 or earlier. In this case, the CFC's financial year differs from the calendar year (from July 1 to June 30).
"For example, if a CFC was registered in 2023, there is no need to submit a notification in 2024. It is submitted in 2025 (if it is a standard financial year) or in 2026 (if it is a non-standard financial year)." Eleonora Lapina, юрист
criteria
Who must submit a CFC notification?
The notification is submitted only by a tax resident of the Russian Federation, subject to certain criteria.
If the CFC is a legal entity, then at least one of two criteria:
Criteria for participation in the CFC:
- Share of participation (direct and indirect) > 25%; or
- Share of participation (direct and indirect) > 10% + share of participation of all tax residents in this CFC > 50%.
- The shares of the spouse and minor children are added to the share of the principal person.
Control criteria in CFC:
- Control in the interests of oneself, one's spouse, minor children; and
- There is a determining influence on decisions regarding profit distribution.
For example, a Russian resident has a 5% share, but the corporate agreement states that he decides when to pay dividends.
If a CFC is a structure without the formation of a legal entity (for example, a trust), then at least one of two criteria:
Establishment criteria:
- If a person established this structure (there are exceptions when the founder is not recognized).
Control criteria in CFC:
- Exercises control over the structure; and
- Has a right to income from it; or
- Has the right to dispose of her property; or
- Has the right to receive property after its liquidation.
Rules for filling, documents and methods of submission
Rules for filling
What is indicated in the CFC notification?
- Information about the taxpayer.
- Information about CFC.
- Information on the financial statements of CFCs.
- Procedure for participation in the CFC.
Documents
What should be attached to the CFC notification?
- Financial statements of the CFC with translation into Russian.
- An auditor's report on the financial statements of a CFC with a translation into Russian, if an audit is mandatory in the state of registration of the CFC.
Methods of submitting notification
How to submit a CFC notification?
- Through the taxpayer's personal account in electronic form.
- Submit to the tax authority in person or through a representative with a power of attorney.
- Send by mail.
fines
What happens if you don't file a notice?
500,000 rubles
- Penalty for failure to submit a notification for each CFC.
- Penalty if financial statements or auditor's report are not provided.
20% of the tax amount
- Penalty for non-payment of tax on profits of a CFC.
Taxes
Do I need to pay tax?
The profit of a CFC is taken into account in the tax base for personal income tax and profit tax. As a general rule, you must pay tax on it. But there are exceptions when you do not have to pay tax. The most common ones are below:
The profit of the CFC is less than 10 million rubles
In this case, there is no need to even reflect the CFC’s profit in the tax return.
CFC registered in the EAEU state:
- Armenia
- Republic of Belarus
- Kazakhstan
- Kyrgyzstan
It is also important that the permanent location of the organization is in a member state of the EAEU.
The share of passive income of a CFC is no more than 20% of total income
Passive income includes dividends, interest on debt obligations, royalties from the use of intellectual property, income from renting out property, and income from the sale of shares or stakes.
If the CFC has distributed all profits as dividends in favor of the participant
The effective tax rate on CFC income is no less than 75% of the weighted average income tax rate in the Russian Federation
The effective and weighted average rate must be calculated in each case using special formulas.
Example No. 1. CFC is registered in Cyprus and is engaged in trade in goods (100% of profit). The effective tax rate of CFC is 12.5%. The weighted average rate is 20%. CFC does not qualify for the exemption.
Example No. 2. CFC is registered in Cyprus, develops games and licenses games to a publisher. The effective tax rate of CFC is 2.5% (when using IP Box). The weighted average rate is 13%. CFC does not qualify for the exemption.
When to submit the 3NDFL declaration and pay taxes?
For individuals:
- Up to 2 мая — filing of 3-NDFL declaration.
- Up to 15 июля — pay tax.
For legal entities:
- Up to 25 марта — filing of 3-NDFL declaration.
- Up to 28 марта — pay tax.
Would you like to receive advice from a lawyer?
Leave a request and you will receive:
- consultation on deadlines, requirements and all details of filing a notification of a CFC
- assistance in preparing documents
- answers to your questions
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