# Trusts and CFC Rules: When a Foreign Trust Is a Controlled Foreign Company

> When a foreign trust or foundation becomes a CFC for a Russian tax resident: controlling person, notifications, undistributed profits, PIT and distributions.

Author: Мария Плотникова — юрист, Family Office (https://wiki.private.law/authors/plotnikova)
Last modified: 2026-07-21T10:00:00.000Z
Canonical: https://wiki.private.law/en/trust-taxation-russia-cfc
Topics: structures
Jurisdictions: russia, global
Semantic tags: company

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## What CFC rules do

Controlled foreign company (CFC) rules let a country tax the undistributed profit of a foreign structure that its own residents control. The logic, set out in the OECD's [BEPS Action 3](https://www.oecd.org/tax/beps/designing-effective-controlled-foreign-company-rules-action-3-2015-final-report-9789264241152-en.htm), is to stop residents from parking passive income in a low-tax entity abroad and deferring home-country tax indefinitely. Where the rules apply, the resident owner is taxed on the structure's earnings as they arise, before anything is paid out. Most regimes aim at foreign companies; a few reach further, into trusts and foundations.

> 🍓 A CFC regime attributes a foreign structure's undistributed profit to the resident who controls it and taxes it before distribution. Most countries apply this only to companies. A handful, Russia among them, extend it to trusts and private foundations, which is what turns a 'simple' offshore trust into a reporting and tax obligation.

## How the major regimes compare

> 🔗 **Related**
> [EU ATAD CFC rules](https://wiki.private.law/en/eu-atad-cfc)  ·  [US CFC rules](https://wiki.private.law/en/us-cfc)  ·  [US reporting for foreign trusts](https://wiki.private.law/en/us-foreign-trusts-form-3520)

The shape is similar everywhere; the perimeter is not. Under the EU's [Anti-Tax-Avoidance Directive](https://taxation-customs.ec.europa.eu/taxation/business-taxation/anti-tax-avoidance-directive_en) a CFC is a foreign company or permanent establishment that a resident controls by more than 50% and that is taxed at less than half the rate it would face at home; its undistributed passive income is then attributed to the parent. The United States runs two overlapping systems, Subpart F and GILTI, but both apply to foreign corporations held by U.S. shareholders and are reported on Form 5471. Foreign trusts sit outside that machinery: a U.S. owner is caught instead by the grantor-trust rules and by Forms 3520 and 3520-A. See EU ATAD CFC rules, US CFC rules, and US reporting for foreign trusts.

> 💡 The trust question is where regimes diverge most. The US and the EU aim their CFC rules at companies and handle trusts through separate grantor and reporting regimes. Russia took the wider route: its CFC definition expressly covers structures with no legal personality, so a foreign trust or foundation can itself be a CFC for its Russian settlor or beneficiary.

## Russia: when a trust is a CFC

In Russia the rules go further than most. A resident is a controlling person of a trust when they founded it and retain influence over it, or when, as a beneficiary, they are entitled to its income or can direct how its assets are used. The settlor of a foreign trust is presumed to be a controlling person from the start. That status carries two duties: to notify the tax authority, and, once the profit threshold is crossed, to pay tax on the structure's earnings.

Control is read broadly. A stake above 25% makes a resident a controlling person, and the bar falls to 10% when Russian residents together hold more than half of the entity. A participation notice is already due once a holding passes 10%. For a trust the test looks past percentages to real influence: who can appoint or remove beneficiaries, direct distributions, or unwind the arrangement.

> 💡 The one real carve-out is a fully irrevocable, discretionary trust in which the settlor keeps no benefit, cannot direct distributions, and exercises no control. Drafted and run that way, it can sit outside CFC reporting. A single retained power, even an informal understanding with the trustee, is usually enough to collapse the exemption.

## Two Tax Moments

The first moment is tax on undistributed profit. The trust's earnings can be assessed at the controlling person's level even when nothing has been paid out, provided the CFC's profit computed under Russian rules exceeds 10 million rubles for the year. From 2025 that profit flows into the controlling person's personal income tax on the progressive scale that runs from 13% to 22%. The second moment is income tax on an actual distribution to a beneficiary. Sequencing guards against double taxation: profit already taxed at the CFC stage is not taxed a second time when it is later distributed.

> ⚙️ A missed CFC notification costs 500,000 rubles per company, and a missed participation notice 50,000 rubles, whether or not any tax was due. The reporting penalty is a separate exposure from the tax, and it is the one residents most often overlook.

## The Fixed-Profit Election

Rather than recompute the CFC's actual profit every year, a resident may elect to pay tax on a fixed deemed profit. For 2021 through 2024 that figure was 34 million rubles, regardless of how many CFCs the person held. From the 2025 tax period it became graduated by the number of companies: about 27.99 million rubles for one CFC, roughly 52.7 million for two, and about 75.4 million for three, which works out to close to 5 million rubles of tax for each of the first few. The election for 2025 had to be filed by 31 December 2025 and binds the taxpayer for several years, so it fits large, genuinely profitable structures far better than dormant ones.

> 🧭 Fixed profit buys predictability. There are no foreign financial statements to translate and defend, only a flat annual bill. The arithmetic favours large, active portfolios; for a small or idle CFC the fixed charge can run well above the real liability.

## Reporting and Deadlines

> 🔗 **Related**
> [foreign account reporting for Russian resi](https://wiki.private.law/en/russia-foreign-account-reporting)

Two filings sit at the centre of the regime. A participation notice falls due within three months of acquiring or changing a qualifying stake. A CFC notice is due every year, for individuals by 30 April of the year after the profit is recognised, whether or not any tax is payable. Both are information returns, and their penalties attach to the filing itself, which is why even a loss-making or sub-threshold structure still has to be declared on time. Foreign-account reporting runs in parallel and on its own calendar; see foreign account reporting for Russian residents.

## When Residency Ends

> 🔗 **Related**
> [ending Russian tax residency](https://wiki.private.law/en/russia-tax-residency-exit)  ·  [relocation from Russia](https://wiki.private.law/en/relocation-from-russia)  ·  [the EU ATAD CFC rules](https://wiki.private.law/en/eu-atad-cfc)

The whole regime hangs on Russian tax residency. Someone who spends fewer than 183 days in Russia across a calendar year stops being a resident and falls outside CFC reporting for that year, though the year of departure is rarely clean and obligations already accrued do not vanish. Anyone restructuring around a foreign trust should settle the residency question first; see ending Russian tax residency and relocation from Russia. The European pattern is stricter still, with mandatory attribution under the EU ATAD CFC rules.

## Russia: the personal fund alternative

> 🔗 **Related**
> [recognition of foreign trusts](https://wiki.private.law/en/trust-recognition-hague)  ·  [private foundations](https://wiki.private.law/en/private-foundations)  ·  [EU ATAD CFC Rules](https://wiki.private.law/en/eu-atad-cfc)  ·  [US CFC Rules](https://wiki.private.law/en/us-cfc)  ·  [US Reporting for Foreign Trusts](https://wiki.private.law/en/us-foreign-trusts-form-3520)  ·  [Trust Types](https://wiki.private.law/en/trust-types)  ·  [Personal and Inheritance Foundation](https://wiki.private.law/en/russian-personal-fund)  ·  [Foreign Account Reporting](https://wiki.private.law/en/russia-foreign-account-reporting)

This is why a Russian personal fund (личный фонд) is often cleaner for a resident than a foreign trust. It lives inside Russian law, so there is no CFC reporting and no beneficial-ownership question about an offshore entity. Its profit is taxed at a reduced 15%, against the 25% general corporate rate that applies from 2025, provided at least 90% of its income is passive; active business income returns it to 25%.

The fund's appeal goes beyond the rate. Moving assets into it is not itself a taxable event, and distributions to the founder's close family, meaning children, a spouse, or parents, are exempt from personal income tax. After the founder's death, payments to beneficiaries are exempt regardless of where they live or how they were related to the deceased, which makes the fund a practical succession vehicle. For the offshore comparison, see recognition of foreign trusts and private foundations.

> ⚠️ The 'tax-free offshore trust' is the costliest misconception in this area. Without CFC accounting the bill does not disappear; it accrues quietly as back-taxes and fixed penalties that arrive the moment the structure is discovered.

> 🔗 **Related**

> EU ATAD CFC Rules · US CFC Rules · US Reporting for Foreign Trusts · Recognition of Foreign Trusts · Trust Types · Personal and Inheritance Foundation · Private Foundations · Foreign Account Reporting

This material is for informational purposes and does not constitute individual legal advice.

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## Sources

- [BEPS Action 3](https://www.oecd.org/tax/beps/designing-effective-controlled-foreign-company-rules-action-3-2015-final-report-9789264241152-en.htm)
- [Anti-Tax-Avoidance Directive](https://taxation-customs.ec.europa.eu/taxation/business-taxation/anti-tax-avoidance-directive_en)