Submission of a CFC notification

LEGAL DIGEST, NEWS \ 04.02.2022

Please be reminded of the need for legal entities and individuals to submit Notifications of controlled foreign companies for 2021.

Notification of controlled foreign companies (hereinafter – CFC) should be submitted by those legal entities and 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%;
• a person exercises control over the organization for his or her own benefit or for the benefit of his or her spouse and minor children.

The deadline for submitting the notification for 2021 (that is, based on the results of the profit of the 2020 financial period of the CFC):

• for legal entities – no later than April 30, 2022 (however, taking into account the spring holidays, the deadline for submitting the notification is postponed to May 4 of the current year)
• for individuals – no later than March 20, 2022.

An individual can submit a document both electronically and in paper form to the tax inspectorate at the place of residence. Organizations are required to submit the document only in electronic form.

The following should be attached to the notification:

• CFC’s financial statements for the financial year, prepared in accordance with its personal law. If individuals are not given the opportunity to submit such reporting, they have the right to submit other documents confirming the profits of the CFC;
• an auditor’s report on the financial statements of a CFC, if the audit of such a company is mandatory or was conducted voluntarily.

In addition to the above documents, organizations have to attach a profit tax declaration, and individuals have to pay income tax and submit a tax declaration on form 3-NDFL. The deadline for submitting the tax return for 2021 is the same as for the notification – April 30, 2022.

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 profits, an individual will pay tax on all CFC in the amount of 5,000,000 rubles.

For failure 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.