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Deoffshorization in Russia: C.F.C. Legislation Comes into Effect

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Federal law No. 376 of November 24, 2014, On Amendments to Part One and Part Two of the Tax Code of the Russian Federation (concerning the taxation of controlled foreign companies and foreign organizations), and commonly referred to as the “C.F.C. Law,” came into force on January 1, 2015. It marks the beginning of deoffshorization of the Russian economy and introduces entirely new tax rules for Russian businesses having affiliates based outside Russia.

The C.F.C. Law introduces the following three new legal concepts, previously nonexistent in Russian tax legislation:

  • Controlled foreign company (“C.F.C.”),
  • Russian tax residence for foreign companies, and
  • Beneficial owner of income.

The C.F.C. Law establishes the obligation of taxpayers to notify the tax authorities of their participation in foreign entities. It also establishes rules for computing and taxing C.F.C. profit and share transactions of companies that own real estate in Russia. It provides for recognition of foreign non-corporate structures (such as trusts, private foundations, partnerships, etc.) as separate taxpayers.

Following the O.E.C.D. lead in the B.E.P.S. proposals, these amendments have two broad goals: (i) they ensure business transparency and (ii) they combat the use of low-tax jurisdictions to obtain unjustified tax benefits.


A controlled foreign company is a foreign entity (or non-corporate structure) that is:

  1. Not a tax resident of the Russian Federation and
  2. Controlled by Russian tax residents, either legal entities or individuals (“Controlling Persons”).