Russia's CFC Rules: Compliance Priorities for Foreign Individuals with Russian Holdings

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Practice Analysis

Byline:
By Kristina Kornouhova

May 2026

INSIGHTS ARTICLES — russian cfc rules foreign individuals

Russia's controlled foreign company rules — Chapter 3.4 of the Tax Code — have been in force since 2015. In the intervening decade, the FNS has developed its enforcement approach significantly: the number of CFC notifications filed annually has increased substantially, the quality of FNS information exchange with overseas tax authorities has improved, and the consequences of non-compliance have become more material. For a foreign national who is a Russian tax resident with a CFC structure, or for a Russian-national client with offshore holdings, the compliance question is not academic.

Who Is Subject to the CFC Rules

The rules apply to Russian tax residents — both individuals and legal entities — who control a foreign company. Control is defined by reference to participation thresholds: an individual or entity with a direct or indirect participation of more than 25% in a foreign company is treated as a controlling person; if Russian residents collectively hold more than 50%, the threshold falls to 10% for each individual resident.

For individuals, Russian tax residency is determined primarily by time spent in Russia: an individual who spends 183 days or more in Russia in a calendar year is a Russian tax resident. For a foreign national working in Russia or with significant Russian connections, the residency analysis is the essential first step.

What the Rules Require

A controlling person who is a Russian tax resident must: notify the FNS of the existence of their CFC (irrespective of whether the CFC has taxable profit); file an annual CFC notification with the details of the foreign company; include the CFC's undistributed profit in their Russian tax base if that profit exceeds the applicable threshold (5 million roubles as of 2026 for individuals filing under general rules); and pay Russian personal income tax (NDFL) on the includible CFC profit at the applicable rate.

The notification obligations apply even when the CFC qualifies for an exemption. The filing requirement cannot be avoided by structuring the CFC so that its profit falls below the threshold.

Available Exemptions

The Insolvency Law provides several exemptions from CFC taxation — situations where the CFC's profit is not included in the controlling person's Russian tax base. The most practically significant are: the active business exemption, which applies to CFCs that conduct genuine business operations and whose passive income does not exceed certain thresholds; the effective tax rate exemption, which applies where the CFC's jurisdiction imposes an effective tax rate of at least 75% of the Russian corporate rate (i.e., above 18.75%); and the information exchange exemption, which requires the CFC's jurisdiction to have an effective automatic information exchange agreement with Russia.

The availability of exemptions depends on the CFC's specific facts — jurisdiction, income composition, and the existence of qualifying information exchange — and must be assessed on a case-by-case basis. An exemption that applied in a prior year may not apply in the current year if the CFC's income composition has changed.

Recent Developments

Russia's automatic exchange of financial account information under the CRS framework has materially improved the FNS's visibility into offshore structures. Russian tax residents who previously relied on the practical difficulty of offshore detection are now exposed to information received directly from the relevant jurisdiction's tax authority.

In addition, the suspension or termination of Russia's double-taxation treaties with a number of Western jurisdictions since 2022 has affected the tax treatment of income flows within CFC structures — in some cases eliminating the treaty benefit that was part of the structure's original rationale.

Planning for De-offshorisation

For individuals who wish to reduce or eliminate their CFC exposure, the principal options are: disposal of the CFC interest below the control threshold; actual liquidation of the CFC with the distribution of assets to the controlling person (for which Russia provides a temporary tax exemption for certain qualifying liquidations); transfer of the CFC's assets to a Russian personal foundation under Federal Law No. 287-FZ; or cessation of Russian tax residency.

Each option has different tax, legal, and practical consequences, and the optimal approach depends on the nature of the CFC's assets, the individual's longer-term plans for their Russian business connection, and the relationship with other jurisdictions in which the individual is tax resident or connected. We advise on de-offshorisation planning as a standard component of our Private Wealth & Tax practice.