A Special List of Offshore Zones Approved
On April 26, 2024, the Russian Ministry of Justice registered Order No. 35н of the Russian Ministry of Finance dated March 28, 2024, which approved[1] a Special List of States and Territories that provide Preferential Tax Treatment and/or do not require the Disclosure and Provision of Information when Financial Transactions are Conducted (Offshore Zones) (the “Special List”).
The Special List contains 40 offshore countries and territories:
Andorra, Anguilla, Anjouan (Comoro Islands), Antigua and Barbuda, Aruba, Bahrain, Belize, Bermuda, British Virgin Islands, Brunei Darussalam, Cayman Islands, Cook Islands, Curaçao and Sint Maarten (Dutch part), Dominica, Gibraltar, Grenada, Isle of Man, Labuan Island Malaysia, Liberia, Liechtenstein, Macao Special Administrative Region (Macau) of the People’s Republic of China, Maldives, Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, Niue, Palau, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Seychelles, some administrative units of the United Kingdom of Great Britain and Northern Ireland: Channel Islands (Guernsey, Jersey, Sark, Alderney), the Bahamas, Turks and Caicos Islands, United Arab Emirates, and Vanuatu.
It will apply to legal relations arising from January 1, 2024 and will be valid until December 31, 2026.
The Special List will be used where:
- The profits of a controlled foreign company (CFC) are exempted from tax, if that CFC is an active holding/subholding company (Articles 25.13-1(5) 25.13-1(6) of the Russian Tax Code);
- The profits of a CFC are adjusted by a specially calculated amount, if the dividends of that CFC cannot be distributed due to restrictive sanctions (Article 25.15(1.2) of the Russian Tax Code);
- Property received free of charge from a subsidiary is exempted from income tax (Article 251(1)(11)(3) of the Russian Tax Code);
- The income tax rate is determined when a Russian company or an international holding company receives dividends from a foreign company (Article 284(3)(1.1)(1) of the Russian Tax Code.
The Special List should be distinguished from the ‘General’ List of Offshore Zones[2], approved back in 2023 by Order No. 86н of the Russian Ministry of Finance dated June 5, 2023 On the Approval of a List of States and Territories that provide Preferential Tax Treatment and/or do not require the Disclosure and Provision of Information when Financial Transactions are conducted (Offshore Zones), which comprises 90 countries and territories (including all so-called ‘unfriendly’ countries), and which applies in other circumstances. The ‘General’ List will be used, for example, to determine the possibility of applying a 0% income tax rate or exempting from personal income tax (PIT) income derived from the sale of shares (interests) (Articles 217(17.2) and 284.2(2) of the Russian Tax Code). The longer list will also be used to determine whether a transaction with a foreign person is a controlled transaction (Article 115.14(1)(3) of the Russian Tax Code).
If you have any questions left or you would like to discuss something, please send an email to Anton Kabakov or Nadezhda Danilenko.
Sincerely,
[1] Order No. 35н of the Russian Ministry of Finance dated March 28, 2024 ∙ Official Publication of Legal Acts (http://publication.pravo.gov.ru/document/0001202404270007)
[2] http://publication.pravo.gov.ru/document/0001202306150015