Navigating CFC Reporting for Russian Clients 

The rules around treatment and reporting of Controlled Foreign Companies (CFC), for tax residents of the Russian Federation are complex, especially where a trust or foundation is involved. It can often be difficult for clients and their advisers to know exactly how to apply the rules and, in particular, when to report the structure to the Russian tax authorities.


As a rule, a tax resident of the Russian Federation who has settled or founded a foreign structure (the Founder), namely a trust, foundation or company, must notify the Russian tax authorities within three months of the date of establishment. This is regardless of whether the Founder retains a power of control over the structure.


According to the current Russian legislation, foreign structures are recognised as a CFC if their controlling persons are tax residents of the Russian Federation. In this case, the exercise of control applies to a person who undertakes certain actions or holds specific rights in relation to the CFC, as follows:

- establishes the structure

- the right to demand or receive directly or indirectly all or part of the profit;

- the right to receive the profit in full or in part;

- the right to benefit from the property transferred to the structure (ie the property transfer is revocable);

- the right to receive property in the event of termination of the structure.

Controlling persons may also include independent third party actors such as Trustees. In such an arrangement, the Trustee holds the assets of the CFC, subject to a trust agreement, for the benefit and in the interests of the actual beneficiary of the structure on a discretionary and irrevocable basis.


Given that the above list of grounds for control is relatively wide, the controlling person status may apply to the founder, but also the beneficial owner or any other third party actor. They key factor is whether, in one way or another, they have the opportunity to influence the decisions of the CFC.

Conversely, a Founder is not recognised as a controlling person of a foreign structure, if they:

- are not entitled to directly or indirectly receive or claim the profit of the structure;

- are not entitled to receive the profit of the structure or part thereof;

- do not retain the right to use the property transferred to this structure (ie an irrevocable transfer of the property);

- do not retain the right to receive any of these rights in the future throughout the existence of the structure.

However, even in the absence of the above rights, the Founder of the foreign structure is obliged to notify the Russian tax authorities of the creation of the foreign structure.


In respect of structures recognized as CFCs, the controlling person has an obligation to submit a declaration for CFC’s in accordance with the requirements of Russian legislation, and to pay the relevant CFC profit tax if it arises. However, clause. 67 of Article 217 of the Tax Code provides for an exemption from tax on income received from a foreign structure if certain criteria are met. These are:

- where there is no underlying legal entity (company or monetary fund for example) and/or;

- the property was previously contributed to the structure:

- by the income recipient and/or;

- persons who are, in accordance with the Family Code of the Russian Federation, members of the income recipient’s family and/or close relatives.


This article was written as a collaboration with Kira Egorova KEgorova@alrud.com. Kira is a Counsel in the Private client’s practice of Alrud Law Firm specifically advising HNW Russian clients.