Law #140-Z applies to all citizens irrespective of their tax residency and allows for the disclosure of foreign and Russian assets owned directly by a taxpayer or via a nominee, foreign bank account, or controlled foreign company.
Under the program, which is open until the end of the year, there is no requirement for disclosure participants to declare all assets, and they will be guaranteed from prosecution and receive exemptions from criminal, tax, and administrative liability for a number of offshore tax violations committed before 1 January 2015.
Under the scheme, there is no automatic requirement to repatriate assets in Russia unless they are currently based in a non-treaty jurisdiction or in a jurisdiction included in the Financial Action Task Force List.
Source
There is no requirement to disclose the source of funds, although Withers points out that there remains a question on whether this is beneficial for declarants, given the “nature of guarantees provided under the program”.
Additionally, unlike other disclosure schemes, such as the Liechtenstein Disclosure Facility, users do not have to pay tax on liabilities.
Olga Boltenko, co-head of the Russia-CIA tax team at Withers, said Russian tax resident individuals should consider taking advantage of the program as soon as possible to disclose assets or bank accounts; make tax free transfers of assets from nominees to the beneficial owner; and to liquidate foreign legal entities or structures before 1 January 2017 to receive these assets tax free.
“Non-Russian residents should also use the program to regularise any compliance issues, while trustees of foreign trusts or foundations with Russian resident settlors, beneficiaries or controlling persons should also seek advice on their position, as they may receive requests from clients to participate in the program.”
Additionally, under the program, international banks working with Russian resident clients will need to familiarise themselves with the new opportunities in order to be able to provide guidance to clients.
Onshore campaign
Ayshat Gaydarova, associate at Withers, said the programme has not come as a single piece of legislation, and is in fact part of a wider de-offshorisation campaign in Russia spanning the last couple of years.
“Russia has brought in many new reporting requirements for residents in order to help them regularise their financial affairs, come clean and have a fresh start,” she said, adding that before the latest program was introduced there was a “question mark” over whether de-offshorisation would work.
Gaydarova said that while the legislation allows the tax free transfer of Russian assets held by nominee back to the original beneficiaries there remains an ambiguity over whether some existing relationships are considered compatible with the program.
“Part of the legislation is targeted at violations of currency control regulations in Russia,” she added. “Unfortunately, this is ambiguous and has a lot of restrictions that foreign banks are unable to meet.
“It was quite usual for Russian residents who owned foreign bank accounts to trade in securities and other transactions which are not allowed by currency control regulations. Declaring the account would allow clients to identify any liabilities in regard to currency control regulations for transactions performed before 1 Jan 2015. Therefore, we see the majority of interest for this programme coming from these individuals.
