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31 March, 2021

FTS of Russia checks owners of foreign accounts and assets: how it goes and what is the threat of check in 2021

The Federal Tax Service (FTS) has processed financial data on foreign accounts and assets of Russians for 2017. If the FTS finds discrepancies with a physical person's own information, it begins an audit. We tell you how the FTS receives financial information from other countries and what it checks in 2021.

FTS of Russia checks owners of foreign assets
Photo: Adobe Stock

Russians own 700,000 accounts around the world. The balances on such accounts are about 13 trillion rubles, or about $180 billion. The statistics were given by Dmitry Volvach, deputy head of the Russian FTS, in January 2021.

Financial information about foreign accounts and assets of Russians is automatically reported to the tax service. States exchange data according to a plan of the Organization for Economic Cooperation and Development. The exchange of information is needed to track cases of illegal money withdrawal and tax evasion.

What information the Russian FTS receives from other countries and why

Russia exchanges financial information with 75 states and 13 territories. Their complete list can be found in the Order of the Federal Tax Service No. ММВ-7-17/784С dated 4.12.2018.

Foreign countries submit to the Russian FTS:

  • names and account numbers of Russians in foreign banks;
  • account balances;
  • cash flow data for the year;
  • investment income of a Russian;
  • profits from the sale of shares;
  • interest on deposits and bonds.

The FTS analyzes the data received and reconciles it with the tax returns that Russians filed for the period under audit. First and foremost, the information is checked for global income tax and income tax on controlled foreign companies (CFCs).

If the tax authority finds discrepancies in the data, it has the right to check the taxpayer. For example, it may request documents with explanations of discrepancies.

Checks are usually carried out by the tax inspectorate at the place of residence. Individuals with an annual income of 500 million roubles or more are checked by a special division, the Interregional Inspectorate of the FTS for Major Taxpayers No. 10.

How the tax authorities will check foreign asset owners in 2021

At the end of 2020, some owners of foreign assets received notices from the tax authorities. The inspectorates warned individual taxpayers about the upcoming on-site inspection. It is carried out in accordance with Article 89 of the Tax Code of the Russian Federation.

An on-site tax audit takes place in the premises, which are provided by the taxpayer. If the taxpayer cannot provide premises or does not agree to the inspection at his residence address, the inspection takes place at the branch of the tax inspectorate.

The duration and thoroughness of an on-site audit differs from a standard desk audit.

Time period of an audit. The statutory term for an on-site audit is limited to two months. But the inspectorate has the right to suspend an audit until it receives the necessary documents from the taxpayer. Thus an audit may drag on for up to six months. That is, for notifications sent in December 2020, an audit may last until June 2021 inclusive.

What is being audited. By law, an inspectorate can only look at data for the three years preceding the start date of the audit. Field audits on December 2020 notices will reconcile information on accounts, assets, and tax returns for 2017.

The inspectorate asks for information individually, based on the situation of the person being inspected. An individual may be asked to provide:

  • confirmation of income tax payment;
  • information on foreign brokerage accounts;
  • Information on foreign real estate owned by the taxpayer;
  • Reports on the activities of foreign companies and divisions under the taxpayer's management.

Discrepancies in financial data do not always indicate that the taxpayer is dishonest. For example, a person could not include data on a brokerage account in the tax return, if he did not receive income on it for the reporting period.

If during the audit he confirms that there was no profit and taxes were paid in full, there will be no questions. But if the auditee refuses to provide the requested information, he will be held administratively or tax liability.

What taxes are paid by owners of foreign accounts and assets

If the owner of a foreign account is a tax resident of Russia, he pays taxes on income and profits in accordance with the Tax Code of the Russian Federation.

If a tax resident of Russia withdraws income to an account in a foreign bank, he pays taxes once if there is a double taxation treaty between the states. For example, since 2021 income from dividends when transferred to Malta is taxed in Russia at the rate of 15%. We talked about this in the article "Ratified Double Taxation Treaty with Malta".

A citizen of Russia has the right to change tax residency and pay taxes in another country. To become a tax resident of a foreign country, you need to live in its territory for more than 183 days a year.

A residence permit or second citizenship is needed to legally stay in another country for more than six months. The fastest way to obtain citizenship or residency status is to participate in a state investment program.

6 European countries and 5 Caribbean states offer residence permits or citizenship for contributing to the economy. Investment options range from buying real estate to set up a business in the country. The programs also differ in the amount of investment required and the conditions of participation - see which program might be right for you.

Immigrant Invest is a licensed agent for European and Caribbean residency and citizenship programs by investment. If you want to change your tax residency, seek advice from investment program experts.

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FTS of Russia checks owners of foreign accounts and assets: how it goes and what is the threat of check in 2021