All covered with benefits…
On August 3, 2018, the Russian Parliament adopted a number of legislative acts regulating the possibility of conducting the redomiciliation procedure of foreign companies in the Russian Federation in exchange for providing tax advantages. As follows from the initial explanations to the bills, these acts regulate the creation of special administrative areas in the Russian Federation (offshore zones) in the territory of Kaliningrad Region (Oktyabrsky Island) and Primorsky Territory (Russky Island) in order to increase investment attractiveness for foreign investors.
In particular, the following main legislative acts have been adopted:
- Federal Law of 03.08.2018 N 290-ФЗ On International Companies;
- Federal Law of 03.08.2018 N 291-ФЗ On Special Administrative Regions in the Territories of Kaliningrad Region and Primorsky Territory;
- Other acts providing for changes in civil, tax legislation, and legislation on currency regulation.
At first, the logic of the legislator is simple and uncomplicated – if you finally failed to de-offshorize foreign business, then you need to make this business offshore, but in Russia. Let’s try to understand the main aspects of the adopted innovations.
Who can register a company in the Islands?
A company can be registered in special administrative districts – Russky Island in Primorsky Territory and Oktyabrsky Island in Kaliningrad Region – by foreign organizations that have received the status of the international company subject to certain conditions.
What is the international company?
The international company is a foreign legal entity that is a commercial corporate organization that has decided to change its personal law.
The status of the international company is granted to a foreign legal entity simultaneously with the entry of information into the United State Register of Legal Entities under the following conditions:
- Conducting activities of the company in several states (including the Russian Federation);
- Investment in the territory of the Russian Federation of the amount not less than 50 million rubles;
- Company registration in the Member State of Financial Action Task Force on Money Laundering or Moneyval;
- Conclusion of the agreement on implementation of activities as a member of a special administrative region.
What is meant by investments in the territory of the Russian Federation?
The investments in the territory of the Russian Federation mean:
- Capital investments (carried out in accordance with the Federal Law of 25.02.1999 No. 39-ФЗ On Investment Activity in the Russian Federation, Carried Out in the Form of Capital Investments);
- Investments in the authorized capital, fund or contributions to the property of business entities that are Russian legal entities.
The agreement on implementation of activities in the territory of a special administrative region
This is the agreement concluded between a participant in a special administrative region and the management company, which establishes the types of activities of a participant in a special administrative region, the conditions for carrying out such activities, the rights, duties and responsibilities of the parties.
The management company is a Russian legal entity, which is created in a special administrative region and is entrusted with the functions of ensuring the functioning of a special administrative region.
What is an international holding company?
An international holding company is an international company that simultaneously meets the following conditions:
- An international company is registered in order to redomicile a foreign organization in the territory of the Russian Federation.
- The foreign organization was registered in accordance with its personal law in the period up to 01.01.2018.
- An international company, no later than 15 days from the date of its registration, submitted to the tax authority at the place of registration the following documents and information:
- Financial statements of a foreign organization for the last financial year that ended before the date of registration;
- Positive audit report;
- Information about the controlling persons of the international company.
What are the tax benefits for international holding companies?
Based on the amendments to the Tax Code of the Russian Federation, international holding companies for the period up to 2029 receive the following tax benefits:
- 0% – on income in the form of dividends received by an international holding company, provided that:
- On the day of the decision to pay dividends, the international holding company continuously holds the ownership for not less than one year at least 15% in the authorized capital of the organization that pays dividends;
- The dividend paying company is not offshore.
- 5% – on income in the form of dividends received by foreign persons from international holding companies (provided that at the date of payment of dividends the international holding company is public).
- 0% – on income from the sale of shares or interests in Russian or foreign organizations that are received by an international holding company, subject to the following conditions:
- Such shares (interests) as of the date of their sale belong to the international holding company for at least a year and constitute at least 15%;
- Such shares (interests) shall not constitute the authorized capital of organizations, more than 50% of assets of which consist of Russian real estate;
- Such shares were not included in the authorized capital of the international holding company (or acquired as a result of reorganization) during the year before or after the date of registration of such a company as an international one;
- In the case of the sale of shares of foreign companies – such foreign companies shall not be offshore.
- The profit of the international holding company shall be exempt from taxation and shall not be taken into account when calculating the profit of its controlling entity.
- The international holding company will not have to take into account in its tax base the profit of its controlled companies.
The registration procedure (redomiciliation) of the international company
Filing an application for conclusion of a contract on implementation of activities
A foreign company intending to become a member of a special administrative region submits an application to the management company for the conclusion of the agreement on the implementation of activities. The application shall indicate:
- Full company name of the applicant;
- Activities planned for implementation;
- The period for which the applicant intends to conclude the agreement on the implementation of activities;
- Contact information (telephone, fax, e-mail address, name of the contact person).
The application shall be signed by a person who has the right to act on behalf of the applicant without a power of attorney.
The procedure for redomiciliation of a foreign company shall be carried out by entering the relevant information into the Unified State Register of Legal Entities in a special manner prescribed by law. Information about the international company during its registration in the order of redomiciliation, reorganization and liquidation of the international company, as well as other information provided for by federal laws, shall be entered into the unified state register of legal entities by the registering authority on the basis of documents sent by the management company.
For the purpose of state registration of an international company in the manner of redomiciling, a foreign legal entity shall submit to the management company the following documents:
- Application for state registration of the international company in the prescribed form.
- A document confirming the state registration (creation) of a foreign company.
- A copy of the articles of association (constituent document) of the foreign legal entity with all the amendments and additions made to it.
- The decision of the competent management body of the foreign company to change its personal law and approve the articles of association of the international company.
- Approved articles of association of the international company.
- A copy of the annual financial statement for the last completed reporting year with a copy of the audit report (if any).
- A document confirming the authority of the person authorized to act on behalf of the foreign company without a power of attorney.
- The decision of the competent management body of the foreign company on the determination of the person performing the functions of the sole executive body of the international company.
- Information about the beneficial owners of a foreign legal entity.
- The assurance of a foreign legal entity of the absence of circumstances preventing the state registration of the international company.
- Documents required for registration of the issue of shares of the international company to be placed in connection with its state registration in the organizational and legal form of a joint stock company (according to the approved list).
- If the name of the international company indicates that it is a public joint-stock company, documents confirming that the company’s shares are listed on the stock exchange, as well as documents necessary for registration of the international company’s prospectus.
- Documents confirming compliance with the requirements for international companies (carrying out activities in several states, filing an application to conclude the agreement on carrying out activities, having obligations to make investments in the Russian Federation).
Consideration of documents by the Management Company
The management company reviews the documents within a period not exceeding two working days and decides whether to send the documents to the registering authority or the Bank of Russia (if the international company is registered as a joint stock company) or to refuse to send the documents to the appropriate authority (organization). The management company informs the applicant about the decision no later than one working day from the date of the adoption of the relevant decision.
State registration of the international company
In case of making a decision on sending documents for registration, the management company shall take the said actions no later than on the working day following the day of making such a decision.
The state registration of the international company is carried out by the registering authority within a period not exceeding three working days from the date of receipt of documents from the management company.
A foreign legal entity is subject to exclusion from the register of foreign legal entities in the state of its initial personal law within six months from the date the information on the registration of an international company is registered in the Unified State Register of Legal Entities, if the longer term is not established by the legislation of the state of the original personal law of the legal entity.
Consideration of the application for the conclusion of the agreement on the implementation of activities
According to the results of consideration of the application, the management company decides on the conclusion of the agreement on the implementation of activities or on the refusal to conclude the agreement on the implementation of activities. In the case of a decision to conclude the agreement on the implementation of activities, the management company shall send the draft of such agreement to the applicant within 5 working days from the date of the adoption of this decision. A model agreement on the implementation of activities in accordance with which an agreement on the implementation of activities can be concluded shall be approved by the authorized body.
Termination of the status of the international company
The status of the international company can be lost both voluntarily and by force. The status of the international company can be lost voluntary on the basis of the application that the international company can submit to the management company at any time after the date of its registration.
The status of the international company can be terminated by force:
- Based on the notification of the management company for non-compliance with the requirements;
- In case of joining as a result of reorganization of a legal entity registered outside the territory of a special administrative region.
When the international company is reorganized in the form of a merger, division and separation, the status of the international company does not pass to legal entities created as a result of such reorganization.
After the termination of the status of the international company, such a business entity continues to exist in the appropriate legal form (LLC, JSC, PJSC) on a general basis.
At first, the adopted package of legislation provides for significant tax privileges for foreign companies that have decided to move to the Russian islands. But only time will tell whether these privileges will be enough to finally complete the process of de-offshorization of Russian foreign business.
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