We begin a series of articles on the currency legislation in Russia. Who needs to notify the Russian tax authorities about foreign accounts? 2020

We begin a series of articles on the currency legislation in Russia. Who needs to notify the Russian tax authorities about foreign accounts?

19.03.2020 17:00
Autor: Natalia Kiyan

How is it related to buying property abroad? It’s directly related for Russians, as this area of legislation regulates the following issues:

  • Who and when should notify about opening accounts in foreign banks; 
  • How to report cash flow on accounts;
  • What transactions can be carried out on foreign accounts (for example, who has the right to receive money from sailing or renting an apartment to their account outside the Russian Federation, and in what cases it is prohibited);
  • In which countries you can get loans on your personal account, and when obtaining a mortgage will become an illegal currency transaction and can lead to huge fines.

Who will find these issues interesting and important?

People who are recognized as currency residents of the Russian Federation by the «Currency Regulation and Currency Control» law. This concept has changed twice in the last few years, and since January 1, 2018, Russian currency residents are:

  1. Citizens of the Russian Federation (regardless of the number of days they have spent outside the country). 
  2. Foreign citizens and stateless persons permanently living on the Russian Federation territory based on a residence permit.

Who needs to notify the Russian tax authorities about foreign accounts?

Currency residents of the Russian Federation need to notify. The legislation has eased the requirements for those currency residents who are outside Russia for a total of more than 183 days a year. These people have the right not to report about their accounts. However, there is one moment: if you lived abroad and used this right, but in the next year returned to Russia and stayed in the country for more than 183 days, you will have to notify about previously opened accounts. This has to be done by June 1st of the year following the one when your status has changed.

If you stay in Russia for more than 183 days a year, you should notify the tax office within 1 month of:

  • opening an account; 
  • closing an account;
  • account details changes.

Previously, FTSI had to be notified only about accounts opened in banks outside of Russia. But from January 1, 2020, the rules about notifying and reporting began to apply to accounts opened in «other financial market organizations.» Thus, now it applies to brokerage accounts owners, accounts in investment funds, insurance organizations and even in PayPal, Payoneer and other payment systems.

If a citizen ignored the requirements of the law and didn’t report to the tax office about his foreign account, he will have to pay 4 to 5 thousand rubles fine. The fine is not big but the danger is different. Transactions on an account that the tax authority has not been informed of as appropriate may be considered as illegal currency transactions. In this case, the sanction is very different: the fine will be from 75% to 100% of the operation amount.

For example, a Russian citizen living in Russia sold apartments in Spain, received €200 thousand to their account in a Spanish bank, which they had to notify about but did not do so in time. If FTSI knows about this operation, a case of foreign exchange laws violation may be prosecuted and a fine of €150 to €200 thousand may be applied.

Taking into account the fact that Russia has agreements on automatic exchange of financial information with almost 90 jurisdictions, the FTS authorities already have access to information about many accounts of its citizens. It means that there’s no need to hope that the tax agency won’t get to know.

What to do if there is an undeclared account and there were funds movements there? Each situation should be analysed individually and a solution will be found depending on many factors:

  1. How many days did you spend abroad and how many in Russia by the time the account was opened?
  2. Which transactions were carried out on the account: prohibited or allowed by the currency legislation on accounts which the tax authority hasn’t been notified of. 
  3. Whether a case on violation of foreign exchange laws has already been opened or not. 
  4. Is it possible to apply the statute of limitations? 
  5. Is it possible to take advantage of the amnesty of capital, if it is still valid?

If you take care of this issue before the FTSI sends a request for information, the chances of successfully resolving the issue are much bigger.

Author: Natalia Kiyan (Spain, Marbella / Czech Republic, Prague), a lawyer, a specialist in currency legislation of the Russian Federation, a consultant on tax residency and declaration of income of Russian citizens living abroad.

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