Tax Messenger Tax Edition - Changes in the tax regime for SADs - EY
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18 February 2022
Tax Messenger
Tax Edition
Changes in the tax regime
for SADs
What has happened?
International Tax Review
ranked EY Russia Tax & Law A bill extending the range of organizations that may obtain
practice as a leading tax firm international holding company (IHC) status has been passed in
(Tier 1) in Russia in its annual the third reading. The status would become available to
World Tax guide for 2018. companies that were established before 1 January 2018 and
have relocated to one of the special administrative districts
(SADs) (see draft federal law No. 20492-8 “On Amendments to
Parts One and Two of the Tax Code of the Russian Federation
and Certain Legislative Acts of the Russian Federation”).
This means that the Tax Code would provide for two separate
types of holders of IHC status:
1. an international company formed by means of the
redomiciliation of a foreign legal entity to a SAD
2. a Russian organization that has relocated to a SAD and
submitted an application for IHC status
Reasons for the adoption of the bill in infrastructure (social and cultural,
transport, power, housing and utility,
The proposed additions to the Tax Code followed
engineering) in the region in which the IHC
media reports that Russia was to be included in
is located
the European’s “grey” list (“List of non-
cooperative jurisdictions for tax purposes”). The For Russian organizations with IHC status, the
European Union’s main complaint was that the bill defines who qualifies as a controlling person
benefits accorded to residents of a SAD were of the IHC – namely, a person who has an
available only to foreign companies that ownership share of more than 15% and is:
redomiciled to a SAD, but not to Russian An individual
organizations.
A state sovereign fund
IHC status provides the following benefits:
An organization in which a direct or
0% profits tax for incoming dividends indirect ownership interest is held by
5% personal withholding tax until 1 Russia or a foreign state that exchanges
January 2029 for payments to foreign tax information with the Russian
residents, provided that the IHC had the Federation where that ownership interest
status of a public company as at 1 January is at least 50% (see Federal Tax Service
2018 Order No. MMV-7-17/511@ of 11 October
2019)
tax exemption for income received by an
IHC in the form of profits of CFCs A public company (a) whose shares have
(controlled foreign companies) been admitted for trading on the Russian
organized securities market, or (b) whose
At present, the SAD regime applies to Russky
shares, representing more than 25% of the
Island in the Primorye Region and Oktyabrsky
charter capital, have been admitted for
Island in the Kaliningrad Province (see Federal
trading on foreign stock exchanges in
Law No. 291-FZ of 3 August 2018).
OECD countries
New conditions for claiming benefits are What does it mean?
also introduced
Firstly, the bill eliminates the inequality around
As from 2026, any IHC must meet the following IHCs based on the country in which a company
conditions in order for preferential profits tax was founded. Russian holding companies that
rates to be applied: have relocated will be able to claim benefits
It has a controlling person that is a tax available to IHCs. Also, if a Russian holding
resident of Russia company was a public company as at 1 January
2018, it will be able to apply a 5% rate when
Passive income (dividends, interest,
calculating and withholding tax on dividends
royalties and other income referred to in
paid to foreign individual shareholders.
clause 4 of Article 309.1 of the Tax Code)
makes up more than 90% of total income Secondly, substance requirements are
established to prevent companies from
Expenses for the acquisition of goods
redomiciling to a SAD in formal terms only, i.e.,
(work, services) incurred in Russia make up
actual holding activities must take place in the
more than 70% of total expenses
SAD. The criteria established by the bill are
The IHC is managed within the SAD intended to prevent conduit companies from
being established in a SAD.
It does not have autonomous subdivisions
outside the SAD Authors:
It has a staff of at least 15 employees Dmitri Babiner
Victor Alexeev
It has office space of at least 50 m2
Dmitry Ilyinykh
It makes investments of least 300 million
roubles in the form of capital investments
2For more information, please contact the author of this publication: Dmitri Babiner +7 (812) 703 7839 dmitri.babiner@ru.ey.com 3
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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a
substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the g lobal
Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of
any material in this publication. On any specific matter, reference should be made to the appropriate advisor.
© 2022 Ernst & Young Valuation and Advisory Services LLC
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