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Controlled Foreign Company Audit and Reports

As a rule, a controlled foreign company audit is conducted to avoid calculation of profit under the Russian legislation if the company conducts its activity in a low-tax jurisdiction, or to confirm observance of the limits of income not subject to taxation.

Our company provides services on conduct of foreign controlled company reporting audits

To avoid calculation of profit under the Russian regulations when a company conducts its activity in a low-tax jurisdiction, the company must have a positive opinion of a financial reporting audit.

The information on profit calculation methodology and the audit opinion shall be included both in the Foreign Controlled Company Audit Notice (Sheet В) and the declaration. If the declaration contains information on the foreign controlled company profits, then such declaration must be accompanied by reporting and audit opinion, if such audit is mandatory for such company or is conducted on a voluntary basis.

A foreign controlled company financial reporting audit may be performed by a Russian auditor on the basis of International Standards on Auditing, the application of which has become mandatory for all Russian audit companies on January 1, 2017. The self-regulating organization of auditors provided a written confirmation of the capabilities of Russian auditor companies for conduct of foreign controlled company financial reporting audits.

It should also be noted that limits for exemption of a foreign controlled company from tax payments on profit have been established for 2015–2017 (profit of 50 million roubles in 2015, 30 million in 2016, and 10 million roubles in 2017 and further on). This profit is not subject to reflection in declarations. However, this fact does not relieve a company from the obligation to provide a notice of a foreign controlled company for a certain year. And it is our opinion that there is a possibility that tax authorities may require clarifications in relation to foreign controlled company’s profits not shown in the declaration. A company may confirm its observance of profit limits by providing financial reporting with an auditor report attached.

Therefore we believe that if an individual or a legal entity participate in a foreign controlled company in a low-tax jurisdiction, preparation of reporting and its confirmation by an audit report is required regardless of the profit amounts.

The goal here is to avoid any claims by tax authorities and to possess a documentation package sufficient for justification of the company’s position.

Cost

The cost of services shall be determined on a case-by-case basis taking into account the specifics of the foreign company’s business activity.

Time Limits

From 2 weeks to 2 months.

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