The Russian-control exception: disclosing control to the Federal Tax Service and what it unlocks

Where the exception comes from

Paragraph 12 of Decree No. 95 of 5 March 2022, as extended by Decrees No. 254 and 618, provides that a person is not treated as a person of an unfriendly state — for the purposes of sub-paragraph “a” of paragraph 1 of Decree No. 81, Decree No. 95, paragraph 1 of Decree No. 254 and paragraphs 1–2 of Decree No. 618 — if two conditions are met together: it is controlled by Russian legal entities or individuals, including through a chain of foreign companies connected with unfriendly states, with the ultimate beneficiaries being the Russian Federation, Russian legal entities or Russian individuals; and information about that control has been disclosed to the Russian tax authorities. The Bank of Russia's Clarification No. 3-OR of 2 June 2023 added that control is determined by the criteria of Article 5 of Federal Law No. 57-FZ (the strategic investment law), and that a mere ability to block decisions is not control.

The effect, where the exception applies: the foreign company may be paid dividends, loan repayments and other amounts without the RUB 10 million cap and without a type C account; it may receive rouble loans from Russian residents without a permit; and transactions with its interests in Russian LLCs and shares in Russian joint-stock companies need no sub-commission permit. It does not switch off everything — see the last section.

What “disclosed to the tax authorities” means

The Federal Tax Service settled the question in Letter No. ShYu-4-13/13043@ of 30 September 2022. Disclosure is the controlled-foreign-company notification that Russian controlling persons already file under Article 25.14 of the Tax Code — no new form was created. The tax authority is treated as holding information about control once a CFC notification naming the foreign company has been filed by the Russian controlling person for the relevant period. A controlling person for this purpose is one who holds more than 25% of the foreign company; or more than 10% where Russian tax residents together hold more than 50%; or who exercises control in its own interest or that of a spouse and minor children without a formal shareholding; or who has declared itself a controlling person (Article 25.13(3), (6) and (13) of the Tax Code).

The filing deadlines are the ordinary CFC deadlines: 20 March for organisations and 30 April for individuals, for the year in which the control existed. A company that was Russian-controlled but whose owners never filed CFC notifications — common where the owners are not Russian tax residents, who have no CFC obligation — cannot use the exception until a notification is filed. That is the trap: control by Russian citizens living abroad does not help unless at least one of them is a Russian tax resident who files, or a Russian legal entity sits in the chain.

Obtaining the confirmation

Banks, notaries and the Ministry of Finance cannot see CFC notifications, which are protected by tax secrecy (Article 102 of the Tax Code). The Letter therefore created a confirmation procedure. The controlling person sends a free-form request to its tax office — the inspectorate at the organisation's location, the individual's place of residence or the office for largest taxpayers — stating the reporting period and the date the CFC notification was filed, the name of the foreign company exactly as it appears in the notification, and its registration number and country. The request goes by telecommunication channels, through the taxpayer's personal account, in person or by registered post with an inventory. If the data match the notification on file, the inspectorate issues a confirmation in the form of Annex 1 to the Letter, reciting the filing date, the reporting period, the registration number of the notification and the identifiers of the foreign company; if they do not match, a refusal in the form of Annex 2. The Letter sets no response deadline; in practice the confirmation arrives within the general 30-day period for taxpayer correspondence.

The confirmation is then presented to the Russian bank executing the payment, to the notary certifying the transaction, or attached to a sub-commission application to show that no permit is needed. Because it refers to a specific reporting period, counterparties ask for a fresh one each year once the next notification has been filed.

What the exception does not do

Three limits are routinely overlooked. First, the exception is written into specific provisions — Decree 81 paragraph 1(a), Decree 95, Decree 254 paragraph 1, Decree 618 paragraphs 1–2 — and nowhere else: the resident-side restrictions of Decree No. 79 (foreign-currency loans to any non-resident) and Decree No. 126 (payments for shares in foreign companies above RUB 30 million) apply regardless of who controls the foreign counterparty. Second, the reverse rule applies with equal force: a company in a friendly state controlled by unfriendly persons is treated as unfriendly, so inserting a Kazakh or Emirati intermediary under a German parent changes nothing. Third, the exception is a Russian-law construct; it has no bearing on EU, UK or US sanctions, under which a Russian-owned Cypriot company may face its own difficulties with banks and counterparties.

Typical uses

A Russian entrepreneur's foreign holding company receiving dividends from the Russian operating company without a type C account. A Russian group's European trading subsidiary repaying an intra-group loan to Russia and receiving a new one. A sale of a Russian LLC interest between two foreign companies both controlled by Russian persons, closed at the notary without a sub-commission permit. In each case the sequence is the same: confirm that CFC notifications have been filed for every Russian-controlled entity in the chain, obtain the tax office confirmation for the period, and hand it to the bank or notary before, not after, the operation.