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Russia to extend to 2023 PIT exemption for assets received from a CFC by its controlling person

DATE: July 11, 2023 | AUTHOR: AT

The mass media have reported that the Ministry of Finance has introduced the amendments to the bill № 369931-8, altering the first and the second parts of the Russian Tax Code.

The amendments create a tax exemption which provides a tax-free transfer of assets from a controlled foreign company to a controlling person in 2023 tax period.

Previously, according to cl. 60.2 of Article 217 of the Russian Tax Code, taxpayer’s income received in 2022 from a controlled foreign company was exempt from personal income tax (hereinafter – PIT) if the following conditions were met:
1) The taxpayer was a controlling person / shareholder of a foreign company (a settlor of a foreign structure without legal personality) as of 31.12.2021;
2) The CFC held the transferable assets (property (except money) or property rights) as of 01.03.2022;
3) The taxpayer filed to the Russian Tax Authorities:
 a. PIT tax return indicating the transfer;
 b. Application for exemption of such income from PIT;
 c. Documents confirming the value of the property (property rights) according to the CFC’s accounting as of the date of the transfer.

Unlike the previous exemption of the 2019, which required the liquidation of a foreign company, the 2022 exemption provided that the tax-free distribution of the assets by a CFC could have been made on any basis.

Thus, if the new tax exemption is adopted, in 2023 Russian tax residents will be able to receive assets from their CFC without any Russian tax implications.

Since the amended bill has not been yet published, the requirements for the tax-free transfer of the assets are still unknown.

We will keep you updated on this matter.

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