The list of countries for automatic exchange of financial information has been updated

The Federal Tax Service has approved a new list of countries with which financial information is automatically exchanged. The relevant Order will enter into force on 16 December.

Switzerland and the Cayman Islands have been removed from the list, but Kazakhstan, the Maldives and Oman have been added. What does this mean for Russian tax residents?

Automatic tax exchange

In light of recent developments, a significant number of Russians are opening foreign accounts and setting up foreign companies en masse, while retaining their status as tax residents of the Russian Federation. Russian residents have a general obligation to declare their foreign accounts, i.e. to notify of the opening of an account and to report on the movement of money through the account.

In this context, the issue of international tax exchange is of particular relevance. 

In 2018, Russia began participating in the automatic exchange of tax information - Common Reporting Standard, CRS. As part of this exchange, financial organisations collect and transmit data on accounts opened by non-resident taxpayers to the tax authorities of their country. The tax authorities, after collecting and processing the data, forward them to the tax authorities of the countries with which there are agreements on the exchange of financial information.

In July 2022, the Russian FTS published a list of jurisdictions with which information is exchanged. It included the same countries as in previous years, while adding new countries to the list (Albania, Brunei, New Caledonia, Ecuador and Peru). In mid-September, Switzerland decided to suspend the data exchange.

If a Russian resident intends to open an account with a banking organisation in a country out of this list, the following should be taken into account:

• Any money from foreigners can be deposited into such bank accounts;

• It is possible not to report the movement of money and other financial assets in any accounts (bank and non-bank) if the total amount of money credited and debited from the account during the year does not exceed 600 thousand roubles, or the balance of money in the account at the end of the year does not exceed 600 thousand roubles if no money has been credited during the year.

Since Switzerland has been removed from the list, any money can no longer be credited to accounts in banks in this country from foreigners, including payment under a consultancy contract, any service contract, from the sale of any property, investment income from the sale of securities, interest, coupons, dividends. 

Such crediting will incur a fine of 20 to 40 per cent of the amount credited as an illegal foreign exchange transaction. However, the use of such credited funds may also be treated as a separate currency offence.

Only the following funds may be credited:

• Wages and other payments under an employment contract;

• Money paid in accordance with decisions of foreign courts, except for decisions of international commercial arbitration;

• Pensions, scholarships, alimony and other social security payments;

• Insurance payments from insurers, except payments from insurers that may operate in Russia;

• Refunds of money previously paid, including refunds of money mistakenly transferred, refunds for goods or services previously purchased from a non-resident;

• Income from the sale of precious metals recorded in residents' foreign bank accounts, paid due to the requirements of foreign law.

As a result, all persons who have accounts with banks in Switzerland will have to analyse each deposit of money from a foreigner into their account to determine whether the deposit is authorised or not, and report on the movement of money in the account.

In addition, delisting Switzerland would have severe consequences for owners of CFCs.

Owners and other controlling persons of companies located in countries not included in the list will not be able to use a number of benefits to exempt profits from taxation in Russia from such CFCs in full.

In connection with these changes, we recommend that you consider restructuring your accounts and financial flows. For example, transfer securities from Swiss accounts to countries with which the exchange of information is not suspended. You should keep all documents confirming the nature of payments and monitor further changes to the list of countries.

Also note that these rules apply only to individuals who live in Russia for the majority of the calendar year. 

You can find the text of the Order below*: 

http://www.consultant.ru/document/cons_doc_LAW_433333/

Nadmitov, Ivanov & Partners law firm provides tax support and advice on CFC, foreign accounts and foreign exchange law issues.

*In Russian