CFC: declaration of controlled foreign companies

Lawyer, Family Office

The tax authority wants tax residents to pay taxes on income received not only in Russia but also abroad.

For this purpose, tax residents are required to inform the tax authority of their participation in foreign entities and annually provide their financial statements.

These obligations exist within the framework of the CFC institute — controlled foreign companies — which we will describe in detail in this guide.

Basic concepts

CFC — a foreign entity for which a financial statement will be filed,for example, a company in Hong Kong
Controlling person of a CFC — the person who will file CFC notifications and pay tax on CFC income,for example, a 100% shareholder of a company in Hong Kong

Participation notification

After starting participation in a CFC regardless of the basis,for example, registration, purchase of a share or inheritance,the controlling person of the CFC is required to file a notification of commencement of participation.

If any information about participation in a CFC has changed,for example, the size of the stake or the type of participation,the person controlling the CFC must file a notice of change in participation.

If the person controlling the CFC has ceased participation in the CFC,for example, due to liquidation, sale of stake, or gift,there arises an obligation to file a notice of termination of participation.

Annual notification

From the moment of submitting the notification of commencement of participation until submitting the notification of termination, the person controlling the CFC must annually provide the CFC's financial statements.

Tax obligations

The obligation to file all types of notifications serves one purpose — to determine whether a person controlling a CFC needs to pay taxes on organization's profit or not.