New requirements for all Russian companies to identify their ultimate beneficiaries enter into force on 21 December 2016.

What the Law says

As of 21 December 2016, Federal Law "On Amendments to Federal Law On Combating Money Laundering and the Financing of Terrorism and the Russian Code of Administrative Offences" (the "Law") introduces a new requirement for all Russian companies to annually collect and keep information on their ultimate beneficiaries.

An "ultimate beneficiary" is defined as an individual that ultimately − directly or indirectly (through third parties) − either:

  • owns (i.e., has a dominant participation interest in the capital exceeding 25%) a Russian entity; or
  • has an opportunity to control a Russian entity's operations.

There is no requirement to automatically report ultimate beneficiaries to any state bodies. However, Russian companies will need to take measures to identify their ultimate beneficiaries, record the received information (including the measures taken for such identification) for five years and provide it on request to the Federal Financial Monitoring Service, tax authorities and other federal bodies. Failure to provide the required information, e.g., due to a complicated shareholding structure, may lead to tax audits by the Russian tax authorities or other investigations. Currently, certain issues on application of the Law may not be sufficiently clear, including when exactly the Russian tax authorities may request information, how the information will be verified, used and interpreted.

Currently there is only a monetary penalty for failure to provide the required information to the state authorities in the amount of: RUB 30,000-40,000 (approx. USD 470-620) for company officers; and RUB 100,000-500,000 rubles (approx. USD 1,550-7,700) for companies. Paying the penalty may not free the Russian company from the obligation to disclose information.

Actions to consider

Russian companies are recommended to:

  • ascertain what companies and individuals in the group will need to provide information to Russian companies for the identification process;
  • review consequences of disclosure of information on ultimate beneficiaries (including Russian beneficial ownership rules for tax purposes, thin capitalization and controlled foreign companies rules), or engage an international tax counsel for such analysis; and
  • consider restructuring opportunities (including choosing appropriate reporting companies and individuals in the structure) to better control the information that may be disclosed; these measures may need to be aligned with other future rules, e.g., automatic exchange of information (on financial accounts) under the CRS Multilateral Agreement;
  • develop internal rules and procedures for requesting and keeping of information on ultimate beneficiaries.