25 October 2012

Reporting on Foreign Bank Accounts: Fines to Rise Significantly for Non-Compliance

Not that many Russian citizens travelling abroad for personal or business purposes, arranging employment or educational programs and opening bank account within a foreign bank take a trouble to inquire that one must notify the Russian tax authorities and that in case of violation of this rule one may be held liable on the territory of Russia.

On 28 July, 2012 the Russian State Duma introduced amendments into article 15.25 of the Code for Administrative Violations of Russia, increasing the penalties for Russian residents who fail to report to Russian tax authorities on opening (closing) of the account within banks located outside Russia, as any alteration of respective bank account details. The amendments will enter into force already the next week – on 29 October, 2012.


Russian currency residents of the RF – who are they?

Just to remind, this summer, on 5 June 2012, amendments to the Law “On Currency Regulation and Control” came into force, defining clearly the term “a Russian currency nonresident”. The Russian currency nonresident is a citizen of Russia permanently residing on the territory of a foreign state for at least one year period, including those having a residence permit, or temporary staying in a foreign country for at least one year period on the basis of business or educational visa valid for at least one year. One of the main benefits of a Russian currency nonresident status is lack of restrictions for opening of accounts with foreign banks and performing transactions without limitations.

Therefore, as follows from the recent amendments, if your child is studies in the UK for more than 1 year and is getting scholarship to the account opened with UK bank or, for example, you have a Spanish residence permit, you live there for more than 1 year and use an account with Spanish bank to pay your rent, in this case you can be qualifies as s Russian currency nonresident, are entitled to perform foreign account transactions without limitations, including transactions between each other.


Russian currency residents – what’s new in the status?

Any Russian citizen not falling under the above mentioned criteria shall deem as Russian currency resident and is subject to restrictions on foreign bank account transactions. In practice this means that any Russian currency resident, including those temporary staying on the territory of a foreign country, is not entitled to receive salary to his foreign account (including cases when salary is paid by foreign employers), dividends, and is restricted from getting a loan and committing any other transaction with his foreign bank account.

Moreover, in case of opening (closing) bank accounts abroad, change of the account details, a Russian currency resident shall be obliged to notify the local tax authorities by way of filing of application and putting down the mark of the tax authority, accepting the application, within not later than 1 month after such change takes place. Furthermore, in accordance with the Russian legislation, any transactions with such accounts may be conducted only upon provision of a relevant foreign bank with the notification of tax authorities.

In the meantime, it shall be reminded that starting from the November 16, 2007 the Russian currency residents are not obliged to provide reports on foreign account balances as of the beginning of every calendar year. Moreover, In accordance with effective Russian legislation, there is no obligation to report to Russian tax authorities on movement of funds on foreign bank accounts, except for cases when the Russian tax authorities issue such a specific request.


As for the newly introduced penalties for breach of currency control legislation by the Russian currency residents, the following amendments will enter into force as of October 29, 2012:

Violation

Before October 29, 2012

Starting from October 29, 2012

Breach of term or form of notification

Penalty for individuals in the amount of 1 000 - 1 500 RUB

Penalty for officials in the amount of 5 000 - 10 000 RUB

Penalty for individuals in the amount of 1 000 - 1 500 RUB

Penalty for officials in the amount of 5 000 - 10 000 RUB

Penalty for companies in the amount of 50 000 - 100 000 RUB

Failure to provide tax authorities with the notification

Penalty for companies in the amount of 50 000 - 100 000 RUB

Penalty for individuals in the amount of 4 000 - 5 000 RUB

Penalty for officials in the amount of 40 000 - 50 000 RUB

Penalty for companies in the amount of 800 000 - 1 000 000 RUB


However, the prospective increase of penalties will hardly lead to increase of cases on disclosure of information regarding foreign accounts by Russian individuals and to reduction of demand on international companies. Taking into account that the amount of penalty for individuals opening the bank accounts abroad is insignificant (1 000 – 5 000 RUB) such a trend will most probably not be observed. Apart from that, the newly introduced amendments do not take into account the practice of opening foreign bank accounts for nonresident companies instead of opening personal foreign bank accounts, which would not qualify as formal breach of currency control legislation in this case.

The experts of CONFIDERI Advisory Group will be happy to give you advice and recommendations on application of Russian legislation in your specific case, taking into account all the risks connected with holding foreign bank accounts.