30 days before individual's PIT and CFC reporting. 2022 – new DTT Russia - Luxembourg

The individuals who have status of Russian tax residents are liable to submit before 30 of April personal income tax annual return if such individuals received income from Russian and non-Russian sources and the amount of tax was not withheld by a Russian legal entity acting as a tax agent.

Russian tax residents are liable to include into their PIT annual return CFC profit if such profit was not distributed as dividends within previous tax year. The threshold is 10 mln. Rubbles (app. 121, 8 thousand euro). If annual CFC profit under financial statements exceeds the threshold, such CFC profit should be included into the tax return and should be subject to PIT at the rate 15%. The amount of tax should be paid not later than 15 of July.

Please note that there are some cases where CFC profit could be exempted from Russian taxation. Possibility of exemption rules application should be analyzed on case-by-case basis. In general, the one of the following exemption bases could be applied:

effective tax rate exceeds 15%;
the most part of CFC income is income from real business activity and the share of passive income is less than 20% - active CFC;
CFC is active CFC holding company – share of passive income is less than 5% excepting dividends from active CFC companies with capital share more than 50%;
In addition to the annual tax return Russian tax residents are liable to submit annual CFC notification about status of their CFC. The CFC notification should be submitted together with CFC financial statements translated to the Russian language.

From 2021 submission deadline is the same as for PIT annual return – 30 of April.

Penalties in case of Russian tax compliance violation:

Description of tax rules violation

Penalties

Failure of CFC notification submission, late submission or submission with false information

500 000 RUR (5 500 EUR).

Failure of PIT annual return submission

5% of the amount of tax payables per each month of delay but no more than 30% of tax payables

Failure of PIT payment

20% of tax payables.

For CFC profit minimum penalty is 100 000 RUR (1100 EUR)



How we can help you

Lex Alliance tax team will be glad to assist you with the following issues:

Analysis of possibility to apply exemptions in respect of CFC profit
Full PIT and CFC compliance in Russia.
Development of recommendations on decreasing of Russian CFC risks and on effective models of personal holding mechanisms.
Analysis of effectiveness of notional CFC profit taxation regime for current holding structures.
DTT Russia – Luxembourg

As of March 5, 2021, all the necessary formalities and procedures for the entry into force of the protocol have been officially complied with by both parties. All changes will apply from January 1, 2022. This information was published by the official Luxembourg Government website

Previously we described changes that should be occurred with DTT between Russia and Luxembourg within our November newsletter. You can find it here.

Bellow you can find description of change in a nutshell:

On November 6, Russian Mistry of finance signed protocol with Luxembourg amending double tax treaty from 2021 between Russia and Luxembourg in terms of increasing the tax to 15% at the source of income in the form of dividends and interest.

Dividends

General WHT rate – 15%. The reduced dividend rate (5%) will remain for dividends received by

Luxembourg public companies (15% of shares are listing; controlled share in the capital of Russian company is not less than 15% within 365 days);
pension funds and insurance companies;
State authorities, central bank
Interests

General WHT rate – 15%. Reduced WHT rate (5%) should be applied if the recipient is a public company (15% of shares are listing; controlled share in the capital of the distributor company is not less than 15% within 365 days).Interest income, exempted from WHT:

Interest income received by pension funds, insurance companies; state authorities; banks or central bank;
Interest income related to the following listing securities: state bonds, corporate bonds, external bond loans (Eurobonds).
Please note that DTT between Russia and Luxembourg is subject to MLI convention that will be applied by Russian tax authorities starting from 2021.

How we can help you

Analysis of current international group of companies to identify possible risks related to the new WHT rates and MLI application.

Developing of restructuring options to increase tax efficiency of the business structure taking into consideration future risk of WHT rates changes (Switzerland and Singapore) and application of MLI convention to other double tax treaties.

We would be happy to discuss this information with you to assess the impact of the new changes on your group structures.

Corporate Tax