What should be noted?

The said friendly non-residents must meet the following criteria:

• the foreign person is a citizen of a friendly state, or the place of incorporation, the place of principal business activity, or the place where the foreign person derives most of its income is a friendly state (i.e. the state must not be included in the List established by Order of the Government of the Russian Federation No. 430-r dated 05.03.2022); or

• the foreign person is controlled by foreign persons from friendly states, regardless of their place of incorporation or place of principal business activity.

At the same time, such foreign persons must not be controlled by foreign persons affiliated with foreign states that take unfriendly actions against Russian persons (Clause 1 of Decree of the President of the Russian Federation No. 95 dated 5 March 2022).

As an exception, under Decree of the President of the Russian Federation No. 95 dated 5 March 2022, controlled foreign companies (hereinafter — CFCs) affiliated with foreign states taking unfriendly actions are also recognized as friendly non-residents, provided that information about the control over them has been disclosed to the Russian tax authorities.

Accordingly, foreign exchange residents may, until 31 March 2023, provide foreign currency loans to friendly non-residents, as well as to their CFCs, the information on which has been disclosed to the Russian tax authorities, regardless of the jurisdiction of incorporation or tax residency of the CFC.

Reminder!

At the same time, we would like to remind you that until 28 February 2023, individuals have the opportunity to submit a special declaration under the fourth stage of the capital amnesty in respect of controlled foreign companies of which they are controlling persons. Filing a special declaration provides individuals with guarantees of exemption from liability for violations related to the disclosure of CFCs in Russia (except for tax on CFC profits), and may also help with financing CFCs from the territory of the Russian Federation.

What should you consider?

This permission opens up the possibility of financing CFCs controlled by Russian tax residents. Such financing may be made in any currency, including unfriendly currencies, i.e. US dollars, euros, etc. If the CFC has not previously been disclosed to the Russian tax authorities, we recommend using the special declaration mechanism in order to avoid claims under both currency control and tax legislation.

If you would like a detailed analysis of this CFC financing opportunity, its support, as well as special declaration matters, the specialists at ALPINE TAX can assist you.