Capital amnesty
Several laws putting in place a “second capital amnesty” in Russia came into force on February 19, 2018 [1]. As previously, the main purpose is the deoffshorization of the economy and return of capital to Russia. Businessmen who did not declare their assets and accounts during the first capital amnesty in 2015 – 2016 are expected to do so now and to return their assets to Russia on completely lawful grounds without incurring any risk of being brought to tax, administrative and criminal liability.
The amnesty will start on March 01, 2018 to last a year. Businessmen should be able to declare their foreign assets and accounts in foreign banks from March 01, 2018 to February 28, 2019. They should also be able during that period to return their cash assets to Russia with no negative tax consequences. Although these laws are very similar to those adopted for the first amnesty of 2015-2016, a number of significant improvements have also been introduced, and they seem to provide additional guarantees to Russian businessmen. This should give them an incentive to disclose information about their foreign accounts and assets, as well as return their assets to Russia. In particular, the following has been provided for:
- Under the amnesty of 2015-2016, businessmen could count on personal income tax exemption only for property received as a result of the liquidation of a foreign organization or structure they controlled. Such guarantee now applies also to cash assets;
- Upon sale [2] of property, securities, and other property rights received from an owner of record (nominal owner), the actual owner will be able to reduce the amount of tax payable on the costs incurred to purchase such property by the owner of record [3]Incidentally, the right to such deduction was not provided for the amnesty of 2015 -2016;
- Foreign bank accounts, other assets as well as participation in foreign organizations the rights to which arose as a result of operations completed before January 01, 2018 may be declared. In addition, those who already submitted a declaration during the first amnesty of 2015-2016 are also entitled to file a similar declaration up until January 01, 2018. Moreover, such persons are entitled to declare information relating also to the period before January 01, 2015, but which, for some reason, were not declared earlier;
- When submitting a declaration, it is not required to disclose how as well as the operations resulting in the acquisition of declared assets. However, such information may be disclosed voluntarily.
As with the previous amnesty of 2015-2016, those who decide to declare their foreign assets and accounts in foreign banks expect under this new amnesty to be exempted from criminal liability for tax, currency and some customs offenses related to such assets and accounts [4]. The law, however, does not clearly answer the question as to whether this amnesty also applies to criminal liability for money laundering. Surely, if, on the back of a tax offense, funds end up in offshore zones where they are used to successfully give the appearance of legitimate funds, such actions could be deemed laundering, and they would constitute a crime not exempted by the amnesty.
This second capital amnesty is intended to complete the deoffshorization of the economy initiated in 2015-2016. Over 2,500 declarations were submitted by individuals in the first stage of tax amnesty. The vagueness of the law has been cited as one of the main reasons for such poor results together with, of course, the usual distrust in the government. In particular, before deciding to voluntarily disclose information about their foreign accounts and assets, many businessmen wondered whether they would be subject to special control from state authorities.
The current capital amnesty seems to be a positive step on the part of the government. The laws on voluntary declaration have been substantially updated taking into account what happened during the first amnesty. In addition, by not prosecuting the businessmen who declared their foreign assets during the previous amnesty, state authorities have raised the trust in them and shown that they are ready to cooperate with the business community.
It is, however, not worth hoping that such amnesty will be repeated every year from now on. Starting from 2018, tax authorities will automatically receive information about the bank accounts opened by Russian citizens abroad, including offshore. So tax authorities could still find out about the accounts and assets of those businessmen who have not taken advantage of the second amnesty and could bring them to criminal, administrative and tax liability.
We recommend seriously considering submitting a special declaration taking into account the risks and opportunities offered by the law. We also recommend bearing in mind the risk that tax authorities could find out about undeclared accounts through the international automatic exchange of information on financial accounts.
We would be pleased to assist in submitting such special declaration and in preparing the documents necessary for the forthcoming capital amnesty, as well as with any business restructuring and tax risk minimization that you may require.
If you have any questions , please feel free to contact Anton Kabakov
Yours faithfully,
The Forte Tax & Law Team
[1] Federal Law No. 33-FZ dated February 19, 2018; Federal Law No. 34-FZ dated February 19, 2018; Federal Law No. 35-FZ dated February 19, 2018
[2] Or other disposal of assets
[3] Such expenses will be taken into account if they are documents, and only in an amount not exceeding their market value on the date of transfer to the actual owner
[4]Articles 193 and 194 (1 and 2), 198, 199, 199.1, 199.2 Russian Criminal Code