Russia: Russia amends concept of beneficial ownership

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Russia: Russia amends concept of beneficial ownership

Sponsored by

sponsored-firms-kpmg.png
intl-updates-small.jpg

At the very end of 2018, Federal Law No. 424-FZ was passed, seeing several significant changes to Russian tax legislation regarding the beneficial ownership concept.

At the very end of 2018, Federal Law No. 424-FZ was passed, seeing several significant changes to Russian tax legislation regarding the beneficial ownership concept. The law is now in force, although some of its favourable provisions are now being applied retroactively from January 1 2018.

The law's key provision aims to simplify the procedure by which the status of a beneficial owner is confirmed for certain foreign recipients of Russian-sourced income. These include: individuals, sovereign funds, listed companies (provided certain conditions are met), and direct subsidiaries of Russian or foreign states. In order to confirm the status of the beneficial owner, the recipients listed above should provide a self-declaration of their status as beneficial owners, along with documents confirming the aforementioned criteria.

In addition, the law introduces some technical (but rather favourable) amendments regarding the application of the 'look-through' approach. For instance, it is now directly stated that the 'look-through' approach can be applied to all types of Russian-sourced income, not just dividends.

Another positive change is confirmation of beneficial ownership in situations where several payments are made under a single contract. In this scenario, it is no longer necessary to obtain confirmation prior to each payment. Instead, one relevant confirmation can cover them all.

Unfortunately, some important issues with the application of the 'look-through' approach has not been resolved. In particular, the new law contains no provisions allowing investments made in Russian companies by the direct shareholder to be treated as investments made by the beneficial owner (an indirect shareholder), which was probably the most hoped for amendment in the business community.

Thus, if a double taxation agreement (DTA) between Russia and the jurisdiction in which the beneficial owner resides contains an investment requirement in order to access DTA benefits, the beneficial owner – without making the necessary direct investment in the Russian company – should not be able to enjoy the withholding tax (WHT) reduction in Russia.

The beneficial ownership concept in Russia has been rather dynamic in recent years, with numerous court cases and a multitude of clarifications and guidance being issued by authorities. The new law introduces some positive provisions that simplify beneficial ownership requirements in Russia, although it remains silent on certain important 'deal-breaking' issues concerning the 'look-through' approach.

As such, investments in Russia need to be carefully structured with regard to beneficial ownership requirements in order to obtain WHT reductions, especially given the negative court practice on this issue over the past several years in Russia.

more across site & shared bottom lb ros

More from across our site

Countries which care about fair taxation of tech multinationals and equitable global distribution of wealth should back the UN’s tax framework, writes economist Abdelmalek Riad
The cuts disproportionately affected staff in certain positions, the report also found; in other news, MHA announced the €24m acquisition of Baker Tilly South East Europe
The plan aims to improve the efficiency, transparency, and effectiveness of direct tax administration in India
Meanwhile, South Africa’s finance minister has accepted a court decision on suspending a VAT increase and US President Donald Trump mulls a 100% tariff on foreign films
Jaime Carey speaks about the benefits of his tax background, DEI values, the use of AI for a smarter legal practice, and other priorities that will define his presidency
Historically low levels of attrition over consecutive years made a ‘difficult decision’ necessary, PwC has reportedly said
WTS Global is also vetting new potential member firms in Algeria, Cote D’Ivoire and Benin, Kelly Mgbor tells ITR in an exclusive interview
The scope of qualifying pillar two tax credits could reportedly be broadened; in other news, hundreds of IRS appeals staff are to resign
For many taxpayers, the prospect of long-term certainty that a bilateral APA offers can override concerns about time, cost and confidentiality
Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
Gift this article