Digest of tax and legal news for investors in September 2024.
Mark Gindileev
Oct 24, 2024Russia may exclude EU member states from the official list of countries exchanging tax information with Russia
The Federal Tax Service of Russia developed a draft of a new order, which presents an updated list of countries and territories conducting automatic exchange of financial information with the Russian Federation. In the new version, the list will consist of 63 countries and 12 territories. It excludes 26 EU member states in response to the fact that in 2022 a number of EU countries announced the cessation of financial information exchange with Russia.
Currently, the list of countries with which Russia conducts automatic exchange of financial information is established by the Order of the Federal Tax Service of Russia dated October 28, 2022, No. ED-7-17/986@. This list includes 85 countries and 11 territories, among which are also European Union (EU) countries.
The Federal Law of December 10, 2003, No. 173-FZ "On Currency Regulation and Currency Control" allows Russian residents to freely credit funds received from non-residents to their foreign accounts if these accounts are in banks of EAEU countries or other states with which the Russian Federation exchanges financial information. Crediting funds to accounts in banks of countries not part of the EAEU or not participating in the information exchange is possible only on several strictly defined grounds. Transactions with securities, including receiving dividends, coupons, income from sales, etc., will be considered illegal currency operations.
Thus, from the moment the new order of the Federal Tax Service of Russia comes into force, Russian residents crediting money to their accounts in EU banks from investment activities will be subject to administrative liability and must pay up to 40% of the amount of each transaction. We remind you that this measure of responsibility does not apply to persons who spend more than 183 days outside Russia in a calendar year. Currently, the date when this new order will be signed and come into force is unknown.
The EU Court recognized the ban on European lawyers providing consultations and other legal assistance to Russian companies as lawful
On October 2, the EU Court confirmed, that the ban on providing legal services to Russian companies, introduced in October 2022, does not contradict the EU Charter of Fundamental Rights. The ban, which came into effect on January 8, 2023, prohibits almost all legal services except for court representation.
Bar associations from Brussels and Paris challenged this ban, arguing that it violates rights to defense and access to justice. The court dismissed the claims, stating that the purpose of the sanctions is to hinder Russian authorities and companies from accessing legal assistance, which is proportionate in the context of the situation in Ukraine.
The court also emphasized that the restrictions apply only to consultations not related to legal proceedings. Services necessary for the protection of rights in courts are allowed.
The EU Court ruled that sanctions do not extend to the provision of notarial services to Russian companies
On September 5, the Court of the European Union issued a decision in case C-109/23 Jemerak, according to which notarial actions performed in relation to Russian companies do not fall under the ban on providing legal advisory assistance and are not considered a violation of EU sanctions. This decision was made as a result of a dispute in which a Berlin notary refused to certify a purchase agreement for an apartment for a Russian company due to concerns about violating the ban on legal services for Russian companies.
The court indicated that certifying a real estate sale transaction owned by a Russian company does not violate sanctions. A notary, by certifying documents, does not provide legal consultations but acts independently and impartially within the function assigned to them by the state.
The court also noted that actions by a notary, such as collecting fees, removing encumbrances from property, paying money to the property seller, registering the transfer of ownership, will not be considered as providing legal advisory services. Additionally, the restriction does not apply to translators who assist with translation during notarial certification for persons not fluent in the required language.
The Ministry of Finance proposed taxing income from gifting bonds and derivatives
The Ministry of Finance proposed to levy personal income tax (PIT) on the gifting of all types of securities and derivative financial instruments (DFIs or derivatives, such as futures), if such transactions are made by non-close relatives and family members, as stated in the "Main Directions of Budget, Tax, and Customs-Tariff Policy of the Russian Federation for 2025 and the planned period of 2026 and 2027."
The taxation procedure for gifted securities and derivatives is currently regulated by paragraph 18.1 of Article 217 of the Tax Code. It states that "income in monetary and natural forms" received from individuals as a gift is not subject to tax. This rule does not apply to cases of gifting real estate, vehicles, shares, digital financial assets, digital rights, including simultaneously digital financial assets and utility digital rights, shares, and stakes, as stated in the code. However, if "the donor and the recipient are family members and/or close relatives," then no tax is required to be paid on the exception assets, as clarified in the code.
The Ministry of Finance included in the budget a twofold increase in collections from the deposit tax
Next year, federal budget revenues from the tax on interest income on deposits may amount to 251.5 billion rubles, according to the draft budget for 2025–2027 developed by the Ministry of Finance. This is 2.3 times the estimated amount of collections in 2024, which is 108.5 billion. In 2026, such revenues should amount to 262.1 billion rubles, and in 2027 — 173.3 billion, according to the document.
The tax on deposit income has been in effect in Russia since 2021, but the first time it was due was in 2024 for income from 2023. Accordingly, tax revenues in 2025 will be formed from deductions on Russians' income from deposits for the current year. The tax affects those whose income from placing money in bank accounts and deposits exceeds the non-taxable base. It depends on the size of the key rate of the Bank of Russia and is calculated as follows: the maximum value of the Central Bank rate for the reporting year is multiplied by 1 million rubles. What the non-taxable base for 2024 will be is still unknown: there are two planned Central Bank meetings on the key rate left before the end of the year, and the indicator may change. Currently, it is 19% per annum. The head of the Bank of Russia, Elvira Nabiullina, did not rule out that the regulator may raise the rate again at upcoming meetings. If the rate remains unchanged, then for the deposit tax, the non-taxable base for 2024 will be 190 thousand rubles.
The State Duma and the Ministry of Finance are discussing the abolition of the tax on deposits for terms of three years and longer
To stimulate long-term savings in Russia, it is necessary to abolish the tax on deposits for terms of three years or more, stated to "Rossiyskaya Gazeta" the head of the State Duma Committee on Financial Markets Anatoly Aksakov in the corridors of the XXI International Banking Forum. The Federation Council supports his initiative, but the Ministry of Finance expressed opposition. "In the Bank of Russia, they understand this idea, the Ministry of Finance, let's say, has taken it under consideration, and the Federation Council supports it," Aksakov said.
The restrained reaction of the Ministry of Finance to the initiative to abolish the tax on deposits for terms of three years is related to the fact that these deductions are used by the state in the interests of society as a whole, explained to "Rossiyskaya Gazeta" the director of the financial policy department of the ministry Alexey Yakovlev.
In general, preferential taxation for long-term deposits coincides with the logic of tax benefits provided by Russian tax legislation to investors in the stock market who hold securities for a long time.
The Federal Tax Service of Russia explained how VAT will be calculated from 2025 when applying the simplified tax system
The Federal Tax Service of Russia provided explanations regarding the procedure for calculating VAT for taxpayers using the simplified tax system (STS). From January 1, 2025, organizations and individual entrepreneurs working under the STS will also become VAT payers.
However, they may be exempt from this obligation if their income does not exceed 60 million rubles. This exemption will not require applications and will be provided automatically. If during the year the income exceeds 60 million rubles, the right to exemption is lost from the first day of the following month after exceeding the threshold.
If the income threshold is exceeded during the year, taxpayers will be able to choose:
• pay VAT at general rates with the possibility of deducting input VAT;
• pay VAT at reduced rates (5% for income up to 250 million rubles, 7% for income from 250 to 450 million rubles), but without the right to deduct input VAT.
For buyers purchasing goods from taxpayers under the STS, the presented VAT amounts are subject to deduction in the generally established order, regardless of the VAT rate used by the seller under the STS.
Mark Gindileev, tax lawyer
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