Starting from July 1, 2023 by the order of the Ministry of Finance No. 86-n from June 5, 2023 49 countries were included to the list of countries providing preferential tax treatment and / or not requiring the disclosure and provision of information about financial transactions.
The main difference of the new List from the previous one is that it more than doubled the number of states and territories recognized as offshore zones (from 42 to 91), mainly due to inclusion of the so-called “unfriendly” jurisdictions (UK, EU member countries, Canada, USA, Ukraine, South Korea, Japan, etc.).
Under these circumstances, the suspension of the Double Taxation Agreements with “unfriendly” countries is quite probable. This means that after July 1, 2023, foreign organizations - tax residents of the countries on the list will lose the right to apply a 10% rate of income tax on dividends, interest and royalties paid by international holding companies that are not public companies.
Problems will also arise for Russian businesses.
Firstly, with regard to the taxation of profit of controlled foreign companies whose permanent location (place of tax residence) is a state included in the List, the exemptions established by the Tax Code for active holding and sub-holding companies will no longer apply. Since the conditions for the application of exemptions for profits of CFC are determined in relation to the financial year of foreign companies, it can be assumed that in the absence of special regulation in this respect, profits of active holding and sub-holding companies from jurisdictions on the new List will not be exempt from taxation under Russian rules for CFC in relation to the financial years of such companies that began or ended after 1 June.
Also, Russian holdings will not be exempt from taxation for the sale of shares in foreign subsidiaries. In addition, there will be no benefits for dividends. Now the payment of dividends to Russian businesses from subsidiaries in countries not included in the blacklist is not taxed, if the company owns the shares for more than 365 days. From July 1, dividends from “unfriendly” countries will be taxed at the full rate of 13%.
The main difference of the new List from the previous one is that it more than doubled the number of states and territories recognized as offshore zones (from 42 to 91), mainly due to inclusion of the so-called “unfriendly” jurisdictions (UK, EU member countries, Canada, USA, Ukraine, South Korea, Japan, etc.).
Under these circumstances, the suspension of the Double Taxation Agreements with “unfriendly” countries is quite probable. This means that after July 1, 2023, foreign organizations - tax residents of the countries on the list will lose the right to apply a 10% rate of income tax on dividends, interest and royalties paid by international holding companies that are not public companies.
Problems will also arise for Russian businesses.
Firstly, with regard to the taxation of profit of controlled foreign companies whose permanent location (place of tax residence) is a state included in the List, the exemptions established by the Tax Code for active holding and sub-holding companies will no longer apply. Since the conditions for the application of exemptions for profits of CFC are determined in relation to the financial year of foreign companies, it can be assumed that in the absence of special regulation in this respect, profits of active holding and sub-holding companies from jurisdictions on the new List will not be exempt from taxation under Russian rules for CFC in relation to the financial years of such companies that began or ended after 1 June.
Also, Russian holdings will not be exempt from taxation for the sale of shares in foreign subsidiaries. In addition, there will be no benefits for dividends. Now the payment of dividends to Russian businesses from subsidiaries in countries not included in the blacklist is not taxed, if the company owns the shares for more than 365 days. From July 1, dividends from “unfriendly” countries will be taxed at the full rate of 13%.