Earlier, we provided you with an overview of the current situation with the liquidation of LLCs in Russia.

In addition to the previous review, we would like to further draw your attention to this year’s innovation: a simplified liquidation procedure.

A simplified liquidation procedure is available for SMEs (for the latest information on the status of SMEs, see here and here) and allows you to reduce the time and cost of the liquidation procedure, as well as reduce possible risks of improper liquidation (for example, restrictions on participation and management in new companies within three years).

However, not all SMEs are eligible for simplified liquidation by default. To do this, the company must comply with a list of certain additional criteria.

What conditions must be met to be eligible for simplified liquidation?

1. All founders (members) of the company made a resolution to terminate activities unanimously.
2. The company is included in the unified register of small and medium enterprises (SMEs).
3. The company is not a VAT payer (it is on a simplified tax system) or is exempt fr om VAT.
4. The company does not have debts to creditors, including debts to employees and the state budget.
5. There are no marks in the Unified State Register of Legal Entities about the inaccuracy of data and about the initiation of bankruptcy proceedings.
6. The company has no real estate and vehicles in the property.
7. The organization is not in the process of liquidation, reorganization or in the process of forced exclusion from the Unified State Register of Legal Entities by decision of the Federal Tax Service.

How to implement simplified liquidation?
To start a simplified liquidation, you must submit an application to the tax service on form P19001. At the moment, the paper and electronic formats of this form have not yet been approved, at the current stage, you can familiarize yourself with the draft form.

In the application, the founders (members) of the company confirm that:

• All financial obligations to counterparties have been fulfilled.
• All payments due to dismissed employees have been made.
• No later than one business day before exclusion from the Unified State Register of Legal Entities, all taxes have been paid and final tax reporting has been provided.

The application can be submitted electronically (using an enhanced qualified electronic signature of each participant), directly to the tax service on paper (notarization of signatures will be required) or through a notary public.

What is the time lim it for simplified liquidation?
The tax service will check the application and within 5 business days will make a decision on the upcoming exclusion of the company from the Unified State Register of Legal Entities or refusal.

In case of a positive decision by the tax service, information about the upcoming exclusion of the company from the register will be published in the Unified State Register of Legal Entities and in the State Registration Bulletin.

Within 3 months from the date of publication in the bulletin, the creditors of the company will be able to send their objections, if any.

If there are no objections from creditors within 3 months, the liquidated company will be excluded from the register.

It is important to know:
The initial conditions for simplified liquidation must be met at the time of exclusion. If during this period the company accumulates debts or assets, or fails to submit reports, simplified liquidation will not take place.

From December 1, 2021, in accordance with amendments to the Federal Law “On Communications” No. 126-FZ dated July 7, 2003, corporate mobile communications will be provided to organizations and individual entrepreneurs only if there is data about the corporate communications user in the Unified Identification and Authentication System (ESIA).

If this requirement is not met, organizations will be disconnected from corporate communications services from December 1.

What is ESIA?

ESIA is a Russian information system used for authorization on the state portal “Gosuslugi”.

How is data entered into ESIA?

Data is entered into ESIA in three stages. The procedure is as follows:

The organization enters the following information about employees using corporate mobile communications in its personal account on the website of the operator providing corporate communications:

personal data of an individual (passport data);
subscriber number;
name of the organization / full name of the individual entrepreneur.
Employees who have access to the personal account of the corporate communications operator can also enter information about themselves.

The employee confirms the transfer of information through the personal account on the State Services portal, after which the information is sent to the mobile operator.
The mobile operator enters the data into the Unified Identification and Authentication System.
When should the information be provided?

Data on users of corporate mobile communications under contracts concluded before 01.06.2021 must be entered into the system no later than 30.11.2021. When starting to use corporate mobile communications from June 1, 2021, the information must be transferred to the operator before the start of services.

Corporate users using M2M (Machine to machine) SIM cards for ATMs, POS terminals, video surveillance systems, the deadline for submitting information, according to Government Resolution No. 844 of 05/31/2021, must provide information no later than September 1, 2021.

In accordance with the Federal Law № 100-FZ of 20.04.2021 additional responsibilities for foreign companies, as well as foreign entities without incorporation, registered with the Russian tax authorities were added. This includes directly foreign companies, which have received Russian TIN for a bank account in Russian Federation, branches and representatives (hereinafter, – foreign organizations).

In particular, the law obliges foreign organizations, as well as foreign entities without incorporation to report the following information to the tax authorities at the place of their registration:

• Information about the participants of the foreign organization;
• Information on founders, beneficiaries and managers (for a foreign entity without incorporation);
• Information on participation (if any) of a natural person or company, if the share of their direct and (or) indirect participation in the foreign company exceeds 5%.

The above-mentioned information should be submitted to the tax authority annually not later than March 28, considering that the information should be formed in the tax authorities as of December 31 of the year preceding the year of its submission. Thus, the next report with information as of 2021 should be submitted not later than March 28, 2022. The form of this report will be approved additionally.

Previously p. 3.2 of Art. 23 of the Tax Code provided for the above obligation only for foreign organizations that had their own taxable immovable property in Russian Federation.

Failure to provide this information in accordance with p. 6. of Art. 1 of the Federal Law № 100-FZ of 20.04.2021 shall entail a penalty of 50 000 ruble. Please note that this obligation does not apply to foreign companies which are registered with the Russian tax authorities only due to the provision of services in electronic form, as well as subsidiaries (OOO) with foreign ownership. 

We would like to introduce you to the new standard FAS 27/2021 “Documents and document flow in accounting”, approved by Order No. 62n (registered with the Ministry of Justice on 07.06.2021).

The standard introduces new concepts and legislative norms that significantly change the order of document flow and storage of companies’ documents (except for organizations in the public sector).

The new standard regulates such things as the procedure for signing documents, the date of documents, the language of documents, making corrections and other aspects mandatory for local accounting services in Russia after the introduction of the standard. For your convenience, we have prepared a consolidated overview of the main changes introduced by the new FAS (the overview is available in Russian at the link).

Special attention of foreign companies operating in Russia deserves paragraph 25 of the standard:

Storage of accounting documents
An economic entity must keep accounting documents as well as data contained in such documents and locate the databases of such data in the territory of the Russian Federation.

If the laws or regulations of the country – the place of business outside the Russian Federation – require storage of accounting documents in the territory of this country, such storage should be ensured.

The paragraph about the need to keep accounting registers in the Russian Federation raises the most questions from foreign companies.

Many international companies (especially those using SAP, Navision and other international accounting systems) often use servers outside the Russian Federation, which are shared by the group of companies, so the requirement to store registers within the country may entail significant structural changes.

At the moment, however, there is no direct indication in the standard (paragraph 25) as to whether the primary accounting registers should be stored in Russia or whether it will be sufficient to ensure the storage of a copy of the registers to meet the requirements of the new FAS.

In this connection, collective appeals by international business associations to the Ministry of Finance requesting the necessary clarifications are currently being prepared. We are closely monitoring the situation and will be happy to offer updates on this topic should further information become available.

We will be glad to answer your questions!

In case your activity involves processing of personal data by using a website, we recommend that you check compliance with all legal requirements for the protection of personal data.

Starting March 27, 2021 the liability for violation of the processing of personal data became more strict: provisions of the Federal Law dated February 24, 2021 Nr. 19- FZ “On Amending the Russian Federation Code of Administrative Offences” will come into force.

This law increases the following fines:

• Legal entities may face a fine from sixty thousand to one hundred thousand rubles for unlawful and/or non-purpose data processing.
• In the absence of legally required consent to the processing of personal data, legal entities face a fine of thirty thousand to one hundred and fifty thousand rubles.
• Failure to provide users/subjects of personal data with access to the personal data processing policy or information on the personal data protection requirements being met may subject legal entities to a fine of thirty to sixty thousand rubles.

In addition to the fines increase, the warning as a form of administrative responsibility for violation of legislation on personal data is eliminated. According to clause 2 of the mentioned law, the limitation period for that kind of violation is increased to 1 year. Please note that Federal Supervision Service for Communications, Information Technologies and Media (Roskomnadzor) may inspect the compliance of the data collection and processing with Russian law. The first check may take place after three years from the date of registration of a legal entity by the tax authority. The second check will also be possible after the expiration of the three-year period from the date of the last scheduled check of the operator.

We recommend that you check your company for inclusion in the inspection plan on the official website of Roskomnadzor and prepare the necessary documents in case of an inspection. Unscheduled inspection of the company can be initiated if violations on the website are detected or if previously detected violations have not been eliminated. We will be happy to answer your questions!

Contacts:
Maria Matrossowa, Project leader swilar OOO
M: maria.matrossowa@swilar.ru, T: + 7 499 978 37 87 (ext. 308)
Tatiana Ushakova, Project manager swilar OOO
M: tatiana.ushakova@swilar.ru, T: +7 499 978 37 87 (ext. 309)

The latest news regarding the revision of double taxation avoidance agreements (DTAAs)

The DTAA protocol with Luxembourg was ratified in February, thus the protocol entered into force on 5 March 2021 and its provisions will apply from 1 January 2022 (the changes were previously expected to be adopted from 1 January 2021).

The protocol increases the withholding tax rate on dividend and interest income to 15%, with some exceptions for institutional investments.

In 2020, protocols to make similar changes to the DTAA were also signed with Cyprus and Malta, with effect from 1 January 2021.

On 26 May 2021, the law No. 1147902-7 on the denunciation of the double taxation avoidance agreement with the Netherlands was approved and published. The adoption of the law leads to the fact that parent companies registered in the Netherlands will pay tax on dividends at a rate of 15% instead of 3-5%, and the rate for interest and royalties will be 20%.

On June 7, 2021 Russia notified the Netherlands about denunciation of the agreement, the changes will come into force on January 1, 2022.

Switzerland is the next major jurisdiction in the negotiation process initiated by Russian Ministry of Finance. There are 2 more key jurisdictions remaining for revising the DTAAs, said Deputy Finance Minister Alexei Sazanov, namely, Hong Kong and Singapore.

There have been no official announcements of changes to other DTAAs yet.

Recently, there have been an increasing number of cases in which Russian companies that are part of an international group of companies have been asked to submit the global documentation (so-called master file) to the Russian tax authorities, especially in the context of the formation of the regular transfer price declaration and documentation.

As a reminder: the global documentation (master file) must be provided to the supervisory authority upon their request within 3 months fr om the date of having received an according notice. The file is to be provided in Russian language.

The master file may be requested not earlier than 12 months and no later than 36 months after the end of the reporting year, so e.g. starting from 01.01.2022 till 31.12.2024 for the year 2020. The documentation must comply with the requirements of Article 105 16-4 of the Russian Tax Code.

Please note that the violation of the rules of the Tax Code – failure of the taxpayer to submit global documentation in time (paragraph 2 of Article 129.11 of the Tax Code) may result in a fine in the amount of 100,000 rubles.

From 2020 onwards, the benefits of the so-called “Transitional period” (2017-2019), for which no fines were imposed, no longer apply. From 2020, failure to comply with the requirement to submit the master file to the authorities upon request can result in a maximum amount of fine.

In order to provide the required information to the tax authorities on time, if requested, we recommend the Russian member companies of international company groups to fulfill the following steps in advance:

• request the Global Documentation from the parent company,
• check it for compliance with the requirements of Article 105 16-4 of the Tax Code of the Russian Federation and, if necessary, supplement the File;
• translate the Global Documentation into the Russian language, if applicable.

Expert comment

Eugenia Chernova, Project Leader at swilar: “Not every taxpayer who is a member of an international group of companies may be required to provide global documentation. The existing limits are bound to the total revenue of the group. The lim it depends on the country of residence of the parent company.” If you have any questions about the necessity of global documentation for your company, swilar specialists will be happy to give you qualified advice.

We would like to inform you that in accordance with the Decree of the President of the Russian Federation dated 23.04.2021 No. 242 non-working days will be established in the period from 1 to 10 May 2021 (in contrast to the initially planned state holidays on 01.05.-03.05., 08.05.-10.05.2021). Herewith 11.05. will be the first working day after the holidays.

However, the decree retained the right for organizations to determine the number of employees to support the functioning of the organization during the specified period.

Our recommendations in connection with this decree:

• to monitor the deadlines for the payment of salaries, taxes and other mandatory payments carefully; better is to proceed these payments before the start of the specified period;
• to analyze and check the working schedule of employees at your Russian branches/subsidiaries during the newly specified non-working period;
• to request in advance information about the working schedule of your Russian business partners on those days.

We are at our disposal in case of any questions or inquiries!

We would like to inform you that in accordance with the Order of the Russian Government № 814-rs dd 31.03.2021 starting with the April 1, 2021 the flights with Germany were resumed.

According to the official announcement of the Russian Government dd. 25.03.2021 the flights are resumed on the following routes:

• Frankfurt am Main – Moscow – Frankfurt am Main – 5 times a week;
• Frankfurt am Main – St. Petersburg – Frankfurt am Main – 3 times a week;
• Moscow – Berlin – Moscow – 5 times a week;
• Moscow – Frankfurt am Main – Moscow – 3 times a week.

Thus, citizens of Germany with a valid visa to Russia (including business visa) can enter the Russian Federation.

Please note that according tothe Order of the Chief State Sanitary Inspector of theRussian Federation from 27.07.2020 № 22 for foreign citizens it is necessary to have a negative PCR-test made not earlier than 72 hours before the flight to Russia. The requirement (point 6.1. of the mentioned above Order №22) to keep a two-week quarantine for citizens arriving from Germany in order to perform employment activities is still in force.

We will be happy to answer your questions!

Client Information

In August 2020, the Russian Federal Tax Service issued a Letter detailing the tax authorities’ approach to the analysis of in-house services. In particular, it drew attention to the fact that in-house activity can be considered as service if it provides economic benefit to the company-taxpayer, is not a shareholder activity and similar services can be purchased from the third parties.

In-house services include administrative support, financial services, legal advice, internal control and audit, services related to the development of production and sales, and information technology support.

Nevertheless, taxpayers still have questions regarding shareholder activities.

In February 2021, the Federal Tax Service published another Letter further defining the term “shareholder activity”.

As defined by the Federal Tax Service, shareholder activity:

• is based on the needs of the shareholders themselves, not the individual members of the group of companies;
• economic benefit from such activities is evident for the whole group;
• the members of the group of companies would not engage third independent parties to provide such services against payment.

In addition to the characteristics, the Letter also included a list of specific functions related to shareholder activity.

Strategic management functions:
1. drafting of the development strategy of the group of companies;
2. market research;
3. evaluating the relevance and costs in implementing investment projects.

Business planning and control functions:
1. strategic planning and budgeting;
2. consolidated financial and management accounting;
3. analysis of the effectiveness of investments in the group of companies;
4. controlling of the financial and business activities of the group;
5. financing of the group of companies;
6. developing standards, methods, guidelines and/or other internal regulations to be applied to group of companies;
7. implementing and controlling compliance with such standards, methods, guidelines and/or other internal regulations;
8. approval of significant decisions and transactions.

However, in practice, some of the functions mentioned above may not be related to shareholder activity. Taxpaying organizations in Russian Federation should take an individual approach to each specific case.

The test to identify shareholder activity includes three questions:

• Has the subsidiary in Russia received a benefit from the service rendered, and if so, what kind of benefit?
• Is the benefit obvious and defined, and how is it expressed?
• Would a subsidiary in Russia pay an independent company to provide a similar service?

Please note that if the nature of payments abroad is disputed, expenses may be excluded from the income tax base and the relevant payments may be reclassified as dividends or other passive income with an additional withholding tax charge in Russia (up to 15% for countries without a signed CIT). It is also possible that fines and penalties of up to 20% of the underpaid tax will be imposed.

Our experts are ready to provide you with expert assistance in analyzing the current situation with regard to in-house services and assessing the need for changes in documents and processes.