Digest of Tax and Legal News for Investors for January 2025

Mark Gindileyev

Feb 24, 2025

The text of the new agreement on the avoidance of double taxation (DTA) between Russia and the UAE has been published

Russia and the United Arab Emirates signed a draft agreement on the avoidance of double taxation (DTA). Recall that at the end of November 2022, it became known about the proposal of the Russian Ministry of Finance to change tax agreements with a number of countries, including the UAE. As expected, a tax rate of 10% was set for dividends, interest, and royalties. Unlike the current agreement, the new one will apply to both individuals and companies. The document also provides mechanisms for eliminating double taxation (through a tax credit). In addition, the agreement includes provisions on the mutual agreement procedure, information exchange, and other important provisions.

If all necessary procedures for the agreement to come into force are completed by 2025, the new double taxation avoidance agreement (DTA) will take effect on January 1, 2026.

The tax website published the results of the activities of the Federal Tax Service (FTS) of Russia for the period from January to October 2024

The FTS of the Russian Federation published the results of activities for 2024. They contain data that allow an approximate assessment of the popularity and dynamics of the use of foreign structures for business and investments by Russians. The most interesting data disclosed by the FTS:

1. In the first three quarters of 2024, controlling persons declared 40,966 controlled foreign companies (CFCs) for the 2023 reporting period.

For comparison:

• In 2023, taxpayers declared 45,632 CFCs for 2022.
• In 2022, 37,505 CFCs were declared for 2021.
• In 2021, 34,643 CFCs were declared for 2020.

1. 98–99% of CFCs are foreign organizations, and 1–2% are foreign structures without legal entity formation, such as trusts, partnerships, funds, and associations.
2. In the first three quarters of 2024, 20,130 taxpayers filed notifications about CFCs for 2023. Of these, 83% are individuals.

For comparison:

• In 2023, notifications for 2022 were submitted by 18,329 taxpayers.
• In 2022, notifications for 2021 were submitted by 16,575 taxpayers.
• In 2021, notifications for 2020 were submitted by 14,473 taxpayers.

1. As part of the automatic exchange of financial information in 2024, the FTS of the Russian Federation received information about 1,825 thousand accounts of Russians abroad. This is 164% higher than the previous year's figure.
2. The number of account holders abroad, according to the FTS of the Russian Federation, amounted to 539.1 thousand people. This is 70% higher than the previous year's figure.
3. Since 2020, 585 people have switched to paying personal income tax on fixed CFC profits.
4. From January to October 2024, the FTS of the Russian Federation initiated more than 91 thousand cases for violations of currency legislation. This is 3.1 times higher than the previous year's figure.

Thus, the demand observed by the FTS of the Russian Federation for foreign accounts and companies is growing every year. This is accompanied by an increase in interest from tax authorities, as well as the improvement of mechanisms for analyzing and using data about them.

The government commission approved a mechanism for the confiscation of foreign property in Russia

The government commission on legislative activities approved a mechanism for the confiscation of foreign assets in response to unfriendly actions by other countries against Russia or the Central Bank, reported sources of Vedomosti.

This refers to a draft law prepared by the Ministry of Justice, which was submitted on January 20 to the agenda of the government commission. The document defines the procedure for establishing compensation for damage caused to the country or its Central Bank by other countries.

In May 2024, the President of the Russian Federation signed a decree. It prescribes "in connection with the unfriendly and contrary to international law actions of the United States" to take measures to establish a compensation procedure that applies in the case of "unjustified deprivation of Russian rights holders of property rights" (governments and the Central Bank).

After the start of the conflict in Ukraine, Western countries blocked Russian assets abroad, including funds belonging to the Central Bank and Russian entrepreneurs under sanctions. The Kremlin has repeatedly called such a decision a violation of international law and promised to take retaliatory measures.

This process deserves attention because it could potentially affect not only the interests of foreign states on Russian territory but also the rights of private investors from "unfriendly" countries. If the process goes in this direction, mirror measures in "unfriendly" countries against Russians cannot be ruled out, although the likelihood of this is small.

New mechanisms for encouraging investments have been approved in Russia

The President of Russia approved a list of instructions following the 15th VTB Investment Forum. Among the key initiatives:

• Creation of a family savings instrument. It is instructed to develop a mechanism that will allow citizens to receive a personal income tax deduction of up to 1 million rubles per year on funds invested in savings. This should become an incentive for family savings and investment.
• Encouraging the placement of shares on the domestic market. Additional measures are planned to encourage Russian joint-stock companies to enter the domestic financial market. The possibility of receiving state support will be linked to the placement of shares on the capital market.
• Support for organizations attracting equity financing. Measures will be taken to support companies that attract equity financing, especially within programs aimed at developing priority sectors of the economy.
• In addition, the following changes to Russian legislation are proposed:

• Providing a personal income tax deduction on amounts paid under life insurance contracts and other long-term life insurance contracts, within the limits of the deduction for long-term savings contracts.
• Introducing the possibility for banks to remotely identify clients, including using video conferencing, within the framework of an experimental legal regime.
• Simplifying the procedure for registering non-residents of the Russian Federation for tax purposes.

These measures are aimed at stimulating savings, developing the domestic financial market, and simplifying administrative procedures for investors.

In the Czech Republic, a law has been adopted suspending the issuance of Czech citizenship to Russians

The President of the Czech Republic, Petr Pavel, signed a law effectively suspending the issuance of citizenship to Russians. This is the so-called Lex Ukraine bill, which regulates the stay of Ukrainian refugees in the Czech Republic. It concerns their right to stay in the country, register cars, have access to medical care, and more.

The law suspends indefinitely all already submitted applications from Russians over 15 years old. In addition, Russian citizens must renounce their Russian citizenship if they want to obtain Czech citizenship. Those who already have passports from both the Czech Republic and Russia will not need to renounce the latter.

Initially, the bill was aimed at expanding temporary protection for Ukrainian refugees. However, an amendment was added to the document regulating the conditions for obtaining Czech citizenship for people coming from Russia.

It should be noted that deputies from the opposition movements ANI and SPD, as well as representatives of the diaspora of Russians living in the Czech Republic, stated that the discrimination of Russians by this law is unacceptable.

Tax authorities check cash transactions of Russians with foreigners

Tax authorities have resumed control over transactions made between Russians and currency non-residents, that is, with foreign citizens without a residence permit in Russia. If payments for them were made in cash, inspectors recognize such operations as illegal and issue fines of 20–40% of the payment amount. This was reported to Vedomosti by interviewed lawyers and consultants. Previously, information about fines for buying cars from foreigners was spread by Telegram channels. The increased control over such cash transactions is related to the end of 2023 moratorium on administrative liability for violations of currency legislation, say Vedomosti's interlocutors.

Russian currency legislation generally prohibits any cash transactions with foreigners, so tax authorities may have claims not only for the purchase and sale of cars but also for other property. The basis for them is part 3 of Article 14 of the Federal Law "On Currency Regulation and Currency Control." According to it, individuals who are residents must make settlements with foreigners through accounts in Russian banks. Violation of the prohibition, according to Article 15.25 of the Code of Administrative Offenses, is punishable by a fine of 20–40% of the transaction amount.

Thus, on February 6, the National Automobile Union reported a fine of 855 thousand rubles to a Moscow resident who bought a Kia Sorento car in April 2023 for cash from a citizen of Kyrgyzstan. The fine amounted to 30% of the transaction amount.

The Government of the Russian Federation extended the moratorium on the collection of penalties from developers

The Government of the Russian Federation extended the moratorium on the collection of penalties from developers for 1.5 years. The previously introduced moratorium, which was in effect until the end of 2024, prohibited the accrual of such penalties for both parties. This rule also applied to the collection of damages and the accrual of interest for the use of funds in case of termination of the shared construction agreement (SCA) at the initiative of the shareholder. In addition, developers had a deferral on the payment of penalties, fines, and interest until December 31, 2024, for claims made by citizens before March 22, 2024.

Recall that in case of delay in the delivery of housing under the shared construction agreement (SCA) in Russia, the buyer has the right to demand a penalty for each day of delay. The developer has a similar right if the shareholder delays payment.

According to the new resolution, all these measures are extended and will be in effect until June 30, 2025. This decision is aimed at supporting the construction industry and reducing the financial burden on developers facing difficulties in the current economic conditions.

This provision may negatively affect investors who invested money in housing construction at the initial stage of construction, planning to make a profit after selling the completed object. If the developer violates the deadlines for the delivery of the object, such an investor will now not be able to count on appropriate compensation.

Mark Gindileev, tax lawyer

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