Key Changes in CFC Taxation from 2025: A Guide for Controlling Persons

Significant changes to the rules for taxing profits of Controlled Foreign Companies (CFCs) came into force in Russia on January 1, 2025. These amendments, enshrined in Federal Law No. 176-FZ, aim to increase the transparency of Russian residents’ operations through foreign jurisdictions and ensure a fair tax burden. Here’s what controlling persons need to know:

I. Key Regulatory Changes for CFCs:

1. The “Fixed Profit Regime” became less cost-effective for owners of multiple CFCs:
   1. Before: The fixed profit amount for tax calculation was 5 million rubles, regardless of the number of CFCs.
   1. Now (2025): Fixed profit is calculated as 5 million rubles per CFC, but the total amount cannot exceed 25 million rubles.
   1. Consequence: The tax burden under the fixed regime significantly increases for controlling persons with two or more CFCs.
2. Mandatory Audit for CFCs from the Federal Tax Service’s (FTS) “Black List”:
   1. If a CFC is registered in a jurisdiction from the updated List of States Not Providing Tax Information Exchange with the Russian Federation (including some EU countries, Australia, Japan, etc.), a mandatory audit is now required to calculate its profit based on financial statements.
   1. Consequence: Without an audit report confirming the reliability of the CFC’s financial statements, using this method to calculate profit becomes impossible.
3. Alternative: Calculating CFC Profit under Russian Rules (Chapter 25 of the Tax Code):
   1. A more clearly defined alternative is now available for CFCs not engaged in active operations or without substantial income, as well as for CFCs with Russian branches maintaining records according to Russian standards.
   1. Option: Transition to calculating the CFC’s taxable profit under the rules of Russian Chapter 25 of the Tax Code.
   1. Advantage: Potentially reduces costs for mandatory audits (if required) and avoids double taxation issues.
4. The Problem of Double Taxation on Dividends:
   1. A complexity arises if a CFC from the “Black List” receives dividends from a Russian company and then distributes them to a Russian individual controlling person.
   1. Change: The individual will not be able to reduce the amount of Personal Income Tax (NDFL) payable on the received dividends by the amount of corporate income tax already withheld in Russia when the dividends were paid to the CFC.
   1. Consequence: This leads to an increase in the overall tax burden (an effect of “double” taxation on the same income stream).
5. Reporting Difficulties for CFCs from “Unfriendly” Countries:
   1. Under current geopolitical conditions, obtaining and verifying financial statements for CFCs registered in countries designated by Russia as “unfriendly” may involve additional complexities.
   1. Problems: Difficult communication, specific requirements for the format and content of reporting, potential legal restrictions.

II. Why CFC Tax Planning Should Start in Summer 2025?

1. Saving Time and Money on Audits:
   1. Summer months are traditionally less busy for audit firms.
   1. This allows for conducting the mandatory audit of the CFC’s 2024 financial statements faster and potentially at a more favorable price than during the peak autumn-winter period.
2. Time Buffer for Adjustments:
   1. Six months (from summer to year-end) is a critical timeframe for making strategic decisions:
      1. Dividend Payouts: Distribute profits before the end of the reporting period to impact the taxable base.
      1. Regime Selection: Evaluate and choose the optimal taxation regime (“Fixed Profit”, based on audited statements, under Chapter 25 of the Tax Code).
      1. Structural Changes: Take other actions affecting CFC tax liabilities (e.g., reorganization of the ownership structure).
3. Planning for a Change in Tax Residency:
   1. For individuals who were not previously tax residents of Russia but plan to become one (while holding foreign assets and CFCs), summer is the time for detailed transition planning.
   1. Special Attention: It must be considered that the taxable base for the CFC may include profit earned before acquiring Russian tax resident status. This requires thorough analysis and professional assessment.

The 2025 changes have significantly tightened the rules for CFC owners. The Fixed Profit regime became less advantageous for owners of multiple companies, reporting requirements (especially for the “Black List”) became more complex with mandatory audits, and the double taxation issue for dividends added to the burden. Geopolitical factors also create additional risks and complexities with document preparation.

The beginning of summer 2025 is a critically important time for action. Delaying audits, analysis of the optimal taxation regime, and necessary adjustments to the structure or profit distribution could lead to a significant increase in the tax burden, administrative complications, and the risk of disputes with tax authorities. Controlling persons are strongly advised to conduct a comprehensive assessment of their foreign assets and liabilities in light of the new rules in the coming months.