Third wave of capital amnesty in Russia

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On 18 April 2019, the Russian State Duma passed the third reading of the third package of documents related to the process referred to as the third wave of capital amnesty.

From 1 June 2019 to 29 February 2020, a period is set for the third stage of voluntary declaration by individuals who are tax residents of the Russian Federation of certain assets abroad, while retaining the guarantees that existed during the second capital amnesty.

These guarantees include:

exemption from criminal liability in terms of:

evasion of repatriation of funds in currency or roubles,

evasion of payment of customs duties levied on a legal entity or individual,

evasion of payment of taxes and levies,

failure to fulfil the duties of a tax agent,

concealment of money or property of an organisation or an individual entrepreneur at the expense of which taxes and (or) levies are to be recovered.

exemption from administrative liability in respect of currency transactions,

exemption from tax liability.

The amnesty applies to the following assets:

Land plots and other real estate abroad and in the Russian Federation,

Vehicles abroad and in the Russian Federation,

Shares in the authorised capital of controlled foreign companies,

Shares, bonds and other securities of controlled foreign companies,

Accounts in banks located outside the Russian Federation,

Accounts in banks, if the person does not hold the account directly

However, all of the above guarantees will be provided only upon repatriation of funds to Russia and redomiciliation of controlled foreign companies to Special Administrative Regions (hereinafter - SAR) in the Kaliningrad region on Oktyabrsky Island or in Primorsky Krai on Russky Island.

In order to redomicile to SARs, a foreign company must fulfil certain requirements, in particular:

be a legal entity that is a commercial corporate organisation;

conduct business directly or indirectly in the territory of several jurisdictions, including Russia;

be registered in a jurisdiction that is a member or observer of the Financial Action Task Force and/or a member of the Council of Europe's Committee of Experts on the Evaluation of Anti-Money Laundering Measures (e.g. EU countries, Switzerland, Singapore, Hong Kong). However, the most popular holding jurisdictions among Russians, such as the British Virgin Islands.

be registered in a state whose legislation provides for the possibility of redomiciliation to another jurisdiction. Such jurisdictions include: Cyprus, the Netherlands, Luxembourg and others.

apply for an agreement to operate as a participant in the ATS;

undertake obligations to invest in the territory of Russia an amount of not less than 50 million roubles within 6 months from the date of redomiciliation. It should be noted that any of the legal entities controlled by the redomiciled company may carry out the transfer.

Redomiciled companies enjoy certain tax benefits, namely:

The exemption from the 0% CPT rate on dividend income is extended: the exemption is applied when the share of ownership is 15% or more, rather than the 50% rate provided for Russian organisations without the status of an International Company;

Subject to certain conditions, the exemption from the 0% CPT rate on income from participation in the capital of both foreign and Russian organisations is extended.

A temporary reduced withholding tax rate of 5% on dividend income is introduced until 2029 if an international public company pays dividends to foreign shareholders.

Profits of foreign companies controlled by an International Company are exempt from taxation at the level of such controlling International Company.

Despite all the advantages described above, redomiciliation in the ATS is rather complicated and is not intended for small and medium-sized businesses. Nevertheless, redomiciliation to ATS's together with the third wave of capital amnesty may be a good solution for large businesses pursuing a deoffshorisation policy.