1. law, govt and politics

 Memorandum from MGAP Attorneys at Law.
Russian Federation residents and cash flow reports for foreign bank accounts.
When is it necessary for Russian Federation citizens to report on the movement of money
(cash flow) through bank accounts (deposits) opened abroad.
Starting January 1, 2015, a number of material changes come into effect in Federal Law No.
173-FZ of February 10, 2003 "On Currency Regulation and Currency Control".
Thus, from January 1, 2015, ALL resident individuals of the Russian Federation have an
obligation to submit to their local tax authorities cash flow reports for their accounts (deposits)
with banks located outside the Russian Federation together with supporting bank documents
(hereinafter – accounts with foreign banks) (para. 7, art. 12 of the Federal Law "On Currency
Regulation and Currency Control").
Previously, resident individuals of the Russian Federation needed to notify the tax authorities on
opening (and closing) accounts with foreign banks only; the obligation to provide the tax
authorities with cash flow reports from these accounts only existed for individuals who were
registered as individual entrepreneurs and who used these accounts for their business activities.
You are now obliged to submit to your local tax authorities cash flow reports for foreign bank
accounts if both of the following conditions are met:
1) You are a resident of the Russian Federation;
2) You have opened an account with a foreign bank.
Which individuals are recognized as residents of the Russian Federation for the purposes
of currency regulation and currency control.
Pursuant to subpara. 6, art. 1 of the Federal Law "On Currency Regulation and Currency
Control", residents shall include:
a) Individuals who are citizens of the Russian Federation, other than citizens of the Russian
Federation permanently residing in a foreign country for at least one year, including those having
residence permits issued by an official government agency of the relevant foreign country, or
temporarily staying in a foreign country for at least one year by virtue of a working visa or an
educational visa having a validity period of at least one year or by virtue of a number of such
visas having a total validity period of at least one year;
b) Foreign citizens and persons without nationality who are permanently residing in the Russian
Federation by virtue of a residence permit as prescribed by the laws of the Russian Federation.
Therefore, if you are a citizen of the Russian Federation, you will have non-resident status
provided that you:
1) have permanently resided in a foreign country for at least one year (including on the basis of a
residence permit);
2) have temporarily stayed in a foreign country for at least one year on the basis of a working
visa or an educational visa.
It is worth noting that the term "resident" as defined in the Federal Law "On Currency Regulation
and Currency Control" is receiving criticism from lawyers and law enforcement authorities as it is
open to multiple interpretations and raises a great number of questions.
For instance, how can Russian Federation citizens staying temporarily in foreign countries on a
visa-free basis confirm their status?
The most problematic question is regarding continuity of stay in a foreign country: does a Russian
Federation citizen cease to be a non-resident if he visited the Russian Federation, for instance, for
one or two days?
The Federal Service for Financial and Budget Supervision of Russia adheres to the following
position (http://www.rosfinnadzor.ru/work/valutnii_control/vopros_otvet/3971422/): on entering the
Russian Federation, a citizen of the Russian Federation who has earned non-resident status
subject to the provisions of the currency legislation shall lose this status. In this case, such citizen
of the Russian Federation may recover his non-resident status if he stays continuously in a foreign
country for at least one year.
Consequently, according to the Federal Service for Financial and Budget Supervision, the only
important fact regarding loss of non-resident status is crossing the border of the Russian
Federation.
This position has come under intense criticism. The law-maker of the Federal Law "On Currency
Regulation and Currency Control" uses the term "permanent residence", rather than "continuous
stay". These terms are not identical at all.
Whether a Russian citizen "permanently resides" in a foreign country may only be resolved in
accordance with the laws of such foreign country. For which reason, it appears that a Russian
citizen ceases to be a non-resident according to the currency legislation of the Russian Federation
only by the termination of his status as a person permanently residing in a foreign country which is
based on the legislative provisions of such country. And if the laws of such foreign country do not
associate a Russian citizen visiting his home country with his ceasing to be a permanent resident
of this foreign country, then this shall not result in the latter's loss of non-resident status for the
purposes of Russian currency legislation.
However, it is evident that prior to introducing changes to the legislation, the final word on this
problem rests with legal precedents.
For which kind of foreign accounts does a resident need to submit cash flow reports?
Pursuant to the provisions of para. 9, art. 12 of the Federal Law "On Currency Regulation and
Currency Control", a resident does not need to report on cash flow for accounts (deposits)
opened with branches of authorized banks located outside the Russian Federation.
Authorized banks are credit institutions incorporated under the laws of the Russian Federation
and entitled, by virtue of licences issued by the Central Bank of the Russian Federation, to carry
out banking using funds in foreign currencies.
Therefore, if an account has been opened with a branch of Russian banks (for example, with VTB
or Sberbank) located abroad, a resident individual of the Russian Federation does not need to
report on cash flows for this account.
Form and procedure of reporting.
Pursuant to the provisions of the Federal Law "On Currency Regulation and Currency Control",
the procedure of reporting shall be established by the Government of the Russian Federation
subject to agreement with the Central Bank of the Russian Federation.
The procedure of reporting which has been approved by Decree of the Government of the
Russian Federation No. 819 of December 28, 2005 “The Regulations according to which residents
should provide the tax authorities with cash flow reports for accounts (deposits) opened with
banks located outside the Russian Federation” (hereinafter – the Regulations) is currently in
operation. The reporting form is specified in the Supplement to this Decree.
At the same time, on the basis of paragraph 1 of the Regulations currently in force, the
Regulations shall not apply to resident individuals of the Russian Federation.
In the meantime, official representatives of tax authorities believe that individuals should not wait
for adoption of the new Regulations or amendment of the existing ones. From January 1, 2015,
resident individuals of the Russian Federation shall provide reports on cash flows for foreign
accounts according to the form and subject to the procedure established by the applicable
Regulations.
According to the Regulations, the statements shall be submitted to the tax authorities irrespective
of whether there has been any account activity or otherwise.
For each account opened with a foreign bank, a separate report shall be provided together with
supporting banking documents.
Such report shall be provided on a quarterly basis, within 30 days of the end of each quarter.
Since the new obligation for resident individuals came into force on January 1, 2015,
representatives of the tax authorities believe that the first reporting period for resident individuals
of the Russian Federation shall be Quarter 1, 2015. Therefore, a report for Quarter 1, 2015 shall
be provided over the April 1 to April 30, 2015 period.
The report shall be provided in 2 copies. The report shall be accompanied by bank documents
(bank statements or other documents issued by a bank in accordance with the laws of the
country, where the bank is registered) proving the information specified in the report. The bank
documents shall be provided for the period beginning on the first day through to the last day of the
reporting quarter.
The documents shall be presented by the resident directly or through such resident's
representative whose powers have been confirmed according to the laws of the Russian
Federation, or shall be sent by recorded delivery.
Supporting bank documents shall be provided in the form of a copy notarized in accordance with
the requirements of the laws of the Russian Federation. Documents drawn up in a foreign
language shall be accompanied by a notarized translation in the Russian language.
One copy of the report marked by the tax authority shall be returned to the resident directly or
through the resident's representative against a signed receipt on the same day as the report is
presented day or shall be sent by recorded delivery within 5 business days from receipt of the
report. The second copy of the report, together with the supporting bank documents, shall be
kept by the tax authority.
The date on which the report and the supporting banking documents are submitted to the tax
authority shall be deemed: for the report and the supporting bank documents submitted by the
resident itself or by the resident's representative – the date specified in the tax authority's
acknowledgment; for the report and the supporting bank documents sent by recorded delivery –
the date on which the resident sends them by recorded delivery.
Liability for any failure to report on cash flow for foreign accounts.
It is important to emphasize that there is currently no administrative liability established for
resident individuals for failure to provide/untimely provision of the report. The Administrative
Offences Code of the Russian Federation only provides for penalties for companies and
entrepreneurs.
Please contact Maria Cherner, one of our attorneys at law, for more information:
[email protected].
March 2015
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