Submission of a CFC notification

LEGAL DIGEST, NEWS \ 23.03.2021

Please be reminded that it is necessary for individuals to submit a Notification of controlled foreign companies for 2020.

Notification of controlled foreign companies (hereinafter – CFC) should be submitted by those individuals who are recognized as controlling persons of such foreign companies, namely, they meet one of the following criteria:

• share of participation in CFC is more than 25%;
• share of participation in the CFC is more than 10%, if the share of participation of all persons recognized as tax residents of the CFC is more than 50%.

The deadline for submitting the notification for 2020 (i.e., based on the results of the profit of the 2019 financial period of the CFC) is not later than April 30, 2021. The document can be submitted in both paper and electronic form to the tax inspectorate at the place of residence of the individual.

The following should be attached to the notification:

• CFC’s financial statements for the financial year, prepared in accordance with its personal law. If it is not possible to submit such statements, the individual has the right to submit other documents confirming the CFC’s profit;
• an auditor’s report on the financial statements of a CFC, if the audit of such a company is mandatory or was conducted voluntarily.

The documents should be submitted regardless of the financial figures of the CFC.

Also, individuals have to pay income tax from the income of the CFC by submitting a tax return on the form 3-NDFL. The deadline for submitting the tax return for 2020 is the same as for the Notification – April 30, 2021.

Please note that individuals have the right to switch to the income tax payment regime from the fixed profit of CFC, the amount of which is equal to:

• 38,460,000 rubles – for the tax period of 2020;
• 34,000,000 rubles – for the tax period of 2021 and subsequent periods.

Therefore, from the specified amount of profit, an individual will pay tax on all CFC in the amount of 5,000,000 rubles. To switch to the new regime, it is necessary to submit a special notification to the tax authorities:

• until February 1, 2021 – if an individual plans to switch to the new regime for 2020;
• until December 31, 2021 – if an individual plans to switch to the new regime for 2021 and later periods.

If the transition occurred in the current year, the new regime should be applied for at least 3 years, if the transition is carried out later – at least 5 years. This regime does not cancel the obligation to submit a CFC Notification, but the CFC’s financial statements and the auditor’s report do not need to be attached in this case.

For failure by an individual to submit a CFC notification within the prescribed time limit or for a submission of a notification containing inaccurate information, liability is provided in the form of the imposition of a fine of 500,000 rubles for each CFC in respect of which such violations were committed.

In the matters of the preparation and the procedure of submission of a CFC notification to the tax authorities, please contact Acsour specialists.