As the first quarter of 2023 is well on its way, time has come to start actively dealing with tax declarations and other reporting obligations in Russia in relation to the past year.
The first deadline is March, and there are other deadlines in May, June and July. In any case, taxpayers should already be thinking about putting the necessary documents together.
Personal income tax
If you are a Russian tax resident in 2022 and received income from foreign sources or Russian income on which tax has not been withheld by tax agents, you must file a tax return (3‑NDFL form) by 2 May 2023 and provide the Russian tax authorities with documents confirming the income received. Since changes have been made to the 3-NDFL form, one must make sure to use the current version. The declared tax will have to be paid by 17 July 2023.
It is important to note that Chapter 23 of the Russian Tax Code (which regulates the procedure and terms for calculating and paying personal income tax) was amended in 2022. In particular, the list of income exempt from personal income tax was expanded. For example, income in the form of material benefit received in 2021-2023 is exempt from personal income tax. In addition, property (other than cash) owned by a controlled foreign company (“CFC”) as of 1 March 2022 and transferred to the controlling person in 2022 is exempt from tax at the CFC’s request.
Individuals are required to submit CFC notification for 2022 enclosing the CFC’s financial statements for the 2021 financial year (if they did not switch to personal income tax on fixed income). The last day to submit the notification is 2 May 2023. For legal entities controlling CFCs the last day is 20 March 2023.
In the current circumstances, it is proving difficult to obtain CFC financial statements in some jurisdictions where CFCs are established. In this respect, there is a temporary moratorium on the application of liability for failure to submit documents confirming the amount of a CFC’s profit or confirming the existence of grounds for its exemption from taxation for the financial years ending in 2020 and 2021. Nevertheless, according to the position of the Russian Federal Tax Service, it is necessary to provide justification for the impossibility of providing the documents and submit them later as soon as such an opportunity arises.
Foreign accounts and wallets
A report on the movement of funds and other financial assets and on money transfers using electronic means of payment for the year 2022 should be submitted by individuals (Russian residents for foreign currency purposes who were outside Russia for not more than 183 days during the year 2022) by 1 June 2023.
There is an exemption from the requirement to submit a report if movements on the account or the account balance does not exceed RUB 600,000 (EUR 7,482), but it applies only to accounts held with banks in EEU countries or countries which conduct an automatic exchange of financial information with Russia. In this respect, attention should be paid to the current list of jurisdictions* which carry out such exchanges. In particular, Switzerland and the Cayman Islands have recently been excluded.
Reporting of participants of a foreign organisation or structure
Foreign organisations and unincorporated foreign structures registered for tax purposes in Russia on any grounds (e.g. by virtue of having a bank account in a Russian bank) must, by 28 March 2023, provide to the Russian tax authorities a statement of participants (for an unincorporated foreign structure, information on founders, beneficiaries and managers), including disclosure of the scheme of indirect participation (if any) of an individual or public company, if their direct and/or indirect shareholding in a foreign company or unincorporated foreign structure is more than 5%. Please see our previous alert on important changes in the scope of the obligation to disclose information on participants to Russian tax authorities that took place in 2021.
In light of the current situation, preparing and submitting declarations to the Russian tax authorities may well be more complex than in the past. It may therefore be advisable to seek expert assistance in this respect.
Our team has many years’ experience in advising private and corporate clients on all issues related to filing personal income tax returns, notifications on CFCs, and reports on movements of funds and assets in foreign accounts. We can assist clients both during the preparation of these documents and during interactions with the tax authorities after their submission.
* In Russian