The State Duma has passed some laws launching a third stage for the voluntary declaration of assets and accounts under the so-called “capital amnesty” programme, lasting until 29 February 2020. According to the Russian Ministry of Finance, around 19,000 special declarations were submitted in the first two “seasons”. Many of the declaration parameters have been preserved for the new “amnesty”, though some special conditions have been added.
The State Duma has passed some laws1 launching a third stage for the voluntary declaration of assets and accounts under the so-called “capital amnesty” programme, lasting until 29 February 2020. According to the Russian Ministry of Finance, around 19,000 special declarations were submitted in the first two “seasons”.2 Many of the declaration parameters have been preserved for the new “amnesty”, though some special conditions have been added.
What has not changed?
As before, a declaration may be submitted at this third stage only by an individual and only once. No revised declaration may be submitted. Please note that if you submitted a declaration at the first and/or second stage of the “amnesty”, this does not prevent you from submitting one at the third stage as well.3
As before, if you submit a special declaration and meet the relevant conditions, you will be exempt from some types of liability for criminal, administrative and tax offences, though in this stage the controlling person will not be exempt from taxation of their profits from a controlled foreign company (CFC).4 The assets that may be declared have remained unchanged.
What has changed?
The “capital amnesty” provisions have been extended until 29 February 2020. Under the current version of the law, a special declaration may be submitted for this third stage starting from 1 June 2019.
The main feature of this new “capital amnesty” is the requirement that certain asset types be repatriated to Russia. The guarantees provided by the “amnesty” will apply to offences relating to these assets only if the following additional condition, inter alia, has been met as of the date of submission of the special declaration5:
1. When declaring an account/deposit with a foreign bank, the declarant must transfer all funds from it to accounts/deposits with Russian lending institutions.
The special declaration must be submitted together with a statement confirming that the funds have moved from the account/deposit with a foreign bank (for the period starting from 1 January 2019 to a date within 15 calendar days before the date of submission of the declaration, or before the date of closure of the account/deposit), along with a statement of transaction confirming that the funds have been credited to accounts with Russian banks.
The above-mentioned guarantees apply only to foreign accounts/deposits opened before 1 January 2019. Funds from them must be transferred to Russia by no later than the submission date on the special declaration.
The law does not require that declarants close the foreign accounts/deposits included in the special declaration.
2. If a controlled foreign company is declared, it should be re-domiciled to a special administrative region (SAR) in accordance with Federal Law No. 290-FZ “On International Companies”.
It may be recalled that foreign companies re-domiciled to SARs are obliged to invest 50 million rubles in the Russian economy (for more information about the SAR regime on Russky and Oktyabrsky islands, see our February newsletter6). For the time being, companies registered in many offshore jurisdictions (such as the BVI and Belize) cannot be re-domiciled to SARs. If your company is registered in such a jurisdiction and you want to use this procedure, a two-step re-domiciliation should be considered.
Amendments have extended the period in which certain types of income are exempt from taxes that became payable before 1 January 2019 by the declarant or any other person specified in the special declaration submitted at the third stage.
What has not been extended?
The amendments passed do not:
— extend the possibility of “tax-free liquidation” of CFCs (paragraph 60 of Article 217 of the Tax Code of the Russian Federation);
— extend the effect of provisions stipulating that foreign companies will not be treated as Russian tax residents if they are liquidated before a certain future date (previously it was 1 March 2019).
A one-off benefit for individuals who are controlling persons of CFCs
In addition to the provisions related to the third stage of the “capital amnesty”, an amendment to the Tax Code of the Russian Federation has been made: it introduces a special benefit for individuals who are not Russian tax residents as of 2018 but who are treated as Russian tax residents as of 2019: the CFC’s profit will not be included in the taxable income of the controlling person for 2019.
How can we help?
KPMG professionals have extensive experience of preparing and submitting special declarations during the first two stages of the “capital amnesty”. We will be glad to help you develop a model and assess the effect of the planned changes in this third stage of the “capital amnesty” (e.g. in view of the re-domiciliation of a CFC) and assist you in applying new “capital amnesty” provisions. In particular, we can:
— analyse the applicability of guarantees provided at the third stage of the “capital amnesty” in your situation;
— identify CFCs that meet SAR resident requirements and thus may be re-domiciled in order for “amnesty” guarantees to be applied;
— provide a full range of services to organise and support the re-domiciliation of CFCs to SARs, including preparation of the necessary documents under both Russian and foreign law;
— analyse the tax consequences arising in foreign jurisdictions from which companies are re-domiciled to SARs;
— prepare and submit special declarations and necessary reports/notifications declaring assets and accounts/deposits under the third stage of the “capital amnesty” to the tax authorities.
1 Draft Law No. 687103-7 “On Introducing Changes to the Federal Law “On Voluntary Declaration of Assets and Bank Accounts (Deposits) and Amendments to Certain Legislative Instruments of the Russian Federation” (on Extension of the “Capital Amnesty” Period)”, https://sozd.duma.gov.ru/bill/687103-7; Draft Law No. 687102-7 “On Introducing Changes to Articles 45 and 217 of the Tax Code of the Russian Federation (as a Result of Adoption of the Federal Law Extending the “Capital Amnesty” Period)”, https://sozd.duma.gov.ru/bill/687102-7; Draft Law No. 687101-7 “On Introducing Changes to Article 76-1 of the Criminal Code of the Russian Federation (Extension of the Provision on Exemption from Criminal Liability for Economic Crimes)”, https://sozd.duma.gov.ru/bill/687101-7
3 Paragraph 8 of Article 3 of Law No. 140-FZ dated 8 June 2015 (hereinafter referred to as Law No. 140-FZ) as amended.
4 Paragraph 1 of Article 4 of Law No. 140-FZ, new Point 3 of Paragraph 2.1 of Article 45 of the Tax Code of the Russian Federation.
5 Paragraph 2 of Article 6 of Law No. 140-FZ as amended.
6 KPMG Review. Special Administrative Regions: New Tax Planning Opportunities.