Tax risks for individuals in connection with limitations aimed at preventing the spread of Covid-19

Pepeliaev Group advises of potential tax risks in a situation when individuals have to stay in the Russian Federation for an extended period of time in view of the current restrictions that are preventing the spread of COVID-19.

Tax residency of foreign legal entities

During the forced and long-term stay in Russia of individuals who manage foreign companies (e.g. participate in boards of directors by telephone, adopt resolutions as the executive body of a foreign company and so on), the relevant legal entities may be recognised as having a tax presence (tax residency or a permanent establishment) in the Russian Federation.

In this regard it is required to assess the potential exposure to such risks and to prepare for the possible tax implications. To identify potential tax risks of foreign legal entities becoming tax resident, it would be advisable to perform a stress-test of the entire ownership structure, to identify the vulnerabilities from which the risks stem and to take measures to mitigate them, as well as to develop alternative strategies for how to act when there is no certainty.

Payment of personal income tax and currency control

In view of the restrictive quarantine measures, Russian tax authorities have limited personal visits of taxpayers to local offices of the tax service based on Order No. ED-7-2/181@ dated 20 March 2020, which, in turn, will make it necessary to use an electronic document flow system.

In accordance with clause 6 of the above Order, audits of compliance with currency legislation are suspended until 1 May 2020, except in situations when violations have already been identified during audits in progress, and when the limitation period for holding persons liable for the corresponding violations under administrative law expires before 1 June 2020.

The Russian Government together with the Federal Tax Service is exploring the possibility of postponing the deadline for submitting a tax return under form 3-NDFL from 30 April 2020 to a later date. However, this measure does not relieve individuals from the obligation to file a tax return and to pay tax, as well as to file cash flow reports with respect to foreign accounts.

The operation of foreign companies / unincorporated foreign structures

In connection with quarantine measures having been introduced in other countries, interaction with foreign lawyers, attorneys, auditors, accountants, corporate service providers and banks may become more difficult.

Help from your adviser

Pepeliaev Group's team is ready to support electronic document exchange with tax authorities in a situation of quarantine as well as to promptly assist you with filling in the tax return under form 3-NDFL and reports on the movement of funds on foreign bank accounts. We will perform stress-tests of personal and holding structures, will identify tax residency risks faced by foreign legal entities and the risks of a permanent establishment being formed, will suggest measures for managing such risks and will assist in communications with foreign partners.