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  • UBO's in Russia

    Jan 23, 2017   

    As of the 21st of December 2016, Federal Law mandates that all subsidiaries in Russia must gather and maintain information about their ultimate beneficial owners (UBO’s). An UBO describes a person who, either indirectly or directly:

    * has possession of a Russian subsidiary (for instance, has a majority participation interest in the capital that surpasses 25%); or

    * has the ability to regulate the operations of a Russian entity.

    It is not necessary to automatically report UBO’s to a state body. That said, every five years (or upon request), Russian subsidiaries must address who their UBO’s are, make note of the details (which includes steps taken to acquire this identification), and present it to the appropriate tax authorities, Federal Financial Monitoring Service, and other federal bodies. If this information isn’t submitted (for example, because of a complex shareholding structure), it might result in an audit or similar investigation by Russian tax authorities. At the moment, some points on legal applications are not completely clear, such as when Russian tax authorities can ask for information, as well as how that information will be validated, utilized, and interpreted.

    Right now, there is a small fine for failure to present the necessary details to state authorities:

    * RUB 30,000-40,000 (approximately $470-$620 USD) for company officers; and

    * RUB 100,000-500,000 (approximately $1,550-$7,700 USD) for businesses.

    Paying the fine may not dismiss a Russian company from their information disclosure responsibility.

    Things to keep in mind

    Subsidiaries in Russia are advised to:

    * understand penalties for information disclosure about UBO’s (which includes Russian beneficial ownership protocols for tax purposes, narrow capitalization and regulated foreign business rules), and interact with an international tax counsel for this analysis; 

    * determine what businesses and people in the group can offer details to Russian businesses for the identification procedure;

    * internally produce procedures and rules to acquire and maintain details about UBO’s; and

    * think about modifying existing methods to properly regulate details to be disclosed; such steps might require alignment with other upcoming rules, for example, automatic information exchanges about financial accounts based on the CRS Multilateral Agreement.

    Please talk to us if you have any questions on how this will impact your subsidiaries in Russia.