During the traditional end-of-year speech that was made before the Russian Parliament on the 4th of December, Russian President Vladimir Putin proposed, as part of his discussions on future Russian economic policy, a fiscal freeze for the next four years. The idea is to provide a certain amount of stability to businesses during this somewhat tricky period.
Following this announcement, the State Duma immediately began to draft a bill in order to create an effective moratorium, although for a period of only one year it seems. Since, as of writing, the bill has not yet been published, its known scope of application is still rather vague. Nevertheless, due to the recent adoption of key fiscal changes which have significantly increased the tax burden for businesses, entrepreneurs and investors, the prospect of being able to rely on this moratorium is encouraging, even if it only relates to a small section of the tax system. Let us therefore briefly review the most recent of the above-mentioned changes, which are scheduled to enter in force at various points over the course of the next year.
First of all, the law regarding “Controlled Foreign Companies” (“CFCs”) has, after a long series of debates, finally been adopted, resulting in a considerable limitation of the tax optimisation options now available to businesses. The introduction of the entirely new concept of CFCs to Russian law will in fact render unappealing the idea of moving one’s profits offshore. From now on, both legal and natural Russian persons who currently hold a certain participation interest in a foreign business, and who can be considered as controlling the business, will be required to pay a tax in Russia on the undistributed profits of the CFC. The persons concerned will also be required to notify, on an annual basis, the Russian tax authorities of their participation interest in the relevant CFCs.
The Russian lawmakers have also increased the tax rate for dividends. In fact, the rate that will be charged on dividends distributed to Russian residents (whether they be natural or legal persons) will increase from 9% to 13%.
Another new tax that is also worth noting is the so-called “right of sales” tax, which will hit both retail sector businesses in particular in the three cities of Russian federal importance: Moscow, Saint Petersburg, and Sevastopol. This tax will be calculated based on the size of the sales floor and on the type of sales outlet, and the amounts will potentially vary from city to city.
This has been a rather frantic year in terms of legislative activity in the field of tax law. As a result, there will be an increase not only of the tax burden in Russia, but also in the associated paperwork. After such tough new changes, it was therefore logical for President Putin to soften the situation by providing businesses with an opportunity to breathe against the difficult fiscal environment they will have to face in the near future.
01/2015
During the traditional end-of-year speech that was made before the Russian Parliament on the 4th of December, Russian President Vladimir Putin proposed, as part of his discussions on future Russian economic policy, a fiscal freeze for the next four years. The idea is to provide a certain amount of stability to businesses during this somewhat tricky period.
Following this announcement, the State Duma immediately began to draft a bill in order to create an effective moratorium, although for a period of only one year it seems. Since, as of writing, the bill has not yet been published, its known scope of application is still rather vague. Nevertheless, due to the recent adoption of key fiscal changes which have significantly increased the tax burden for businesses, entrepreneurs and investors, the prospect of being able to rely on this moratorium is encouraging, even if it only relates to a small section of the tax system. Let us therefore briefly review the most recent of the above-mentioned changes, which are scheduled to enter in force at various points over the course of the next year.
First of all, the law regarding “Controlled Foreign Companies” (“CFCs”) has, after a long series of debates, finally been adopted, resulting in a considerable limitation of the tax optimisation options now available to businesses. The introduction of the entirely new concept of CFCs to Russian law will in fact render unappealing the idea of moving one’s profits offshore. From now on, both legal and natural Russian persons who currently hold a certain participation interest in a foreign business, and who can be considered as controlling the business, will be required to pay a tax in Russia on the undistributed profits of the CFC. The persons concerned will also be required to notify, on an annual basis, the Russian tax authorities of their participation interest in the relevant CFCs.
The Russian lawmakers have also increased the tax rate for dividends. In fact, the rate that will be charged on dividends distributed to Russian residents (whether they be natural or legal persons) will increase from 9% to 13%.
Another new tax that is also worth noting is the so-called “right of sales” tax, which will hit both retail sector businesses in particular in the three cities of Russian federal importance: Moscow, Saint Petersburg, and Sevastopol. This tax will be calculated based on the size of the sales floor and on the type of sales outlet, and the amounts will potentially vary from city to city.
This has been a rather frantic year in terms of legislative activity in the field of tax law. As a result, there will be an increase not only of the tax burden in Russia, but also in the associated paperwork. After such tough new changes, it was therefore logical for President Putin to soften the situation by providing businesses with an opportunity to breathe against the difficult fiscal environment they will have to face in the near future.