Records of beneficial owners for the Federal Tax Service and Rosfinmonitoring

Foreign organizations (except for those that are tax registered in the Russian Federation only because they provide e-services) and unincorporated foreign structures must provide every year by March 28^th the Federal Tax Service with information about their shareholders, beneficiaries, and managers as of December 31^st of the reporting of the year. They must also disclose the procedure for indirect participation (if any) of individuals and public companies if the share of their direct and/or indirect participation exceeds 5% (Article 23(3.2) Russian Tax Code).

Requirements of Federal Law N 115-FZ and Tax Code

Foreign organizations (except for those that are tax registered in the Russian Federation only because they provide e-services) and unincorporated foreign structures must provide every year by March 28^th the Federal Tax Service with information about their shareholders, beneficiaries, and managers as of December 31^st of the reporting of the year. They must also disclose the procedure for indirect participation (if any) of individuals and public companies if the share of their direct and/or indirect participation exceeds 5% (Article 23(3.2) Russian Tax Code):
“3.2. Foreign organizations (except for those registered with tax authorities only on the grounds provided under Article 83 (4.6) of this Code), as well as unincorporated foreign structures must, in addition to the obligations provided under this Article, every year no later than March 28^th report to the tax authority at their place of registration information about their shareholders (for unincorporated foreign structures – information about their founders, beneficiaries, and managers) as of December 31^st of the year preceding the year of submission of such information, including disclose the procedure for indirect participation (if any) of an individual or a public company, if the share их of their direct and/or indirect participation in the foreign organization (unincorporated foreign structure) exceeds 5%.”

Russian and foreign legal entities must keep records of their beneficial owners and be ready to provide documented information about them to Rosfinmonitoring or tax authorities within 5 days of receipt of such request (Article 6.1 Federal Law No. 115-FZ).
Important note: The law requires responding within 5 7 working days (February 18, 2022 Government Decree) and there are 3 5 working days (February 18, 2022 Government Decree) to correct errors but it is practically impossible to prepare all the necessary documents and get appropriate answers (or collect the necessary body of evidence, translate and certify documents, etc.) in such a short time. We therefore recommend preparing and having all the necessary documents ready in advance.

Update as of May 15, 2021 Amendments to the Russian Tax Code became effective on May 20 (Federal Law N 100-FZ dated April 20, 2021). The new rules provide that foreign organizations (save for organizations providing electronic services) and foreign structures operating without the formation of a legal entity must every year by March 28 submit to the Federal Tax Service information about their founders, beneficial owners, and managers as of December 31 of the reporting year. The procedure for indirect participation of individuals and public companies (if applicable) will also need to be disclosed if their share of direct and/or indirect participation exceeds 5%.
Update as of June 28, 2021 New Federal law № 233 has been published. Organizations have to update information about their beneficiary owners not once a year, but each time when the beneficiary owners change. These requirements are also applied for foreign organizations in Russia.
Update as of December 30, 2021 The report format has been defined by the Federal Tax Service (Federal Tax Service order).

Definition of beneficial owners

Article 6.1(8) of Federal Law N 115-FZ provides that an individual who directly or indirectly owns more than 25% of a legal entity’s capital or has the ability to control the legal entity’s actions is a beneficial owner. The law does not specify what controlling the actions of a legal entity entails so general directors or sole executive bodies in some cases may be referred to as beneficial owners.

The definition of the term “beneficiary” is found in letters from the Central Bank of the Russian Federation as well as in recommendations provided by the FATF and Rosfinmonitoring.

Definition from the FATF recommendations:

“a) An individual(s) who directly or indirectly owns a minimum percentage stake in a legal entity (threshold approach, capital participation of more than 25%)
b) Shareholders exercising control solely or jointly with other shareholders under civil law relations;
c) An individual(s) who manages a legal entity in other ways such as, for example, personal contacts with people in charge or exercising property rights;
d) An individual(s) who exercises control with no ownership title through participation in the financing of the enterprise, or because of close family relationships, historically established or formed as a result of cooperation, or if the company has defaulted on certain debts;
e) An individual(s) responsible for making strategic decisions that have a decisive impact on business development or the overall direction of the enterprise;
f) An individual(s) from a legal entity’s senior management exercising executive control over the daily or regular activities of the legal entity;
g) An individual whose contractual relationship enables him/her to exert a significant influence on the nature of the organization’s activities.

The following information, among other things, is used to identify the beneficial owner of a trust or other legal arrangement, or to identify such persons in a chain of ownership: information about founders, trustees, beneficiaries or classes of beneficiaries, and information about any other individuals who have effective control over the trust or other legal arrangement.”

In special cases, CEOs may also be recognized as beneficial owners as outlined in Bank of Russia Letter No. 14-T:

“If, following the adoption of measures provided under federal law to identify the beneficial owners of a legal entity (client), no beneficial owner is identified, the client’s CEO is recognized as the beneficial owner.

The reasons that made it impossible to identify the beneficial owner should be specified in the decision recognizing the CEO as beneficial owner, and information indicating that the client’s CEO was recognized as the beneficial owner because no credit institution could identifying the beneficial owner or because there is no individual who ultimately directly or indirectly (through third parties) owns the client or has the ability to control the client’s actions should be indicated in the client’s questionnaire (file).”

Do all companies have beneficial owners? Often, the ultimate owner of an organization owns less than 25% of the organization’s share capital. In such case, in the absence of other signs, the organization has no beneficial owner.

What companies have to do

Article 6.1 of Federal Law 115-FZ requires legal entities to:

• Identify their beneficial owners;
• Take measures to identify mandatory information regarding their beneficial owners;
• Have documents supporting information about their beneficial owners or measures in place to draw them up;
• Update and document information about their beneficial owners every year;
• Keep information about beneficial owners and/or the measures to identify mandatory information about beneficial owners for at least 5 years;
• At the request of the Federal Service for Financial Monitoring (Rosfinmonitoring) and the Federal Tax Service, provide information and documents prepared in compliance with the requirements of Government Decree No. 913. The Federal Tax Service request form has been approved by Federal Tax Service Order N ММВ-7-2/824@ dated December 20, 2018.
  Update as of February 10, 2022 New Government decree № 127 has been published. The Decree № 913 is amended with additional requirements for the information formats and signatures.

Legal entities are therefore entitled to request their founders, shareholders, and controlling persons to provide the information necessary to establish that they are beneficial owners, while founders, shareholders, and controlling persons must provide this information (Article 6(4-5) Federal Law 115-FZ).

What information about beneficial owners must be ascertained?

For individuals

• Surname, name, patronymic (if any);
• Citizenship;
• Date of birth;
• Details of identity document;
• Migration card details;
• Details of document entitling foreign citizen or stateless person to stay or reside in Russia;
• Address of residence (registration) or stay;
• Taxpayer Identification Number (INN), if any.

For legal entities

• Name;
• Legal form;
• Taxpayer Identification Number (INN) or code of foreign organization (for legal entities registered under Russian law);
• Main Registration Number (OGRN) and address of legal entity (for legal entities registered under foreign law);
• Registration number;
• Place of registration;
• Address of legal entity in the country of registration.

Recommended documents

1. Regulations on the procedure for establishing, recording, and storing information about beneficial owners approved by appropriate order;
2. Beneficial owner questionnaire;
3. Register of beneficial owners;
4. Log of incoming and outgoing documents;
5. Form of extract from the register of beneficial owners;
6. Beneficial owner request form (legal entity);
7. Beneficial owner request form (individual);
8. Form to reply to request from an authorized body.

There may be cases where information about beneficial owners cannot be found and is not available. In such cases, the main task is to ensure that there is proof and constantly update the body of evidence that measures are in place to identify beneficial owners. If state authorities consider the body of evidence sufficient, legal entities will not be brought to administrative liability. Rosfinmonitoring Letter N 01-04-05/17015 dated July 29, 2019 states as follows:

“The abovementioned requests to founders (other controlling persons) and replies to these requests may serve as documents confirming that measures have been adopted and are in place.”

The following may be used as proof:

• Correspondence with the legal entity’s founders and shareholders;
• Requests to state authorities, including foreign state authorities, and answers to these requests;
• Information database printout;
• Other documents confirming that the legal entity has taken all measures to ascertain the details of its beneficial owner.

We recommend drawing up all abovementioned documents and procedures based on Rosfinmonitoring guidelines for establishing beneficial ownership.

How to obtain information about beneficial owners

Legal entities are entitled to use all means available to obtain information:

• Enquiring from the legal entity’s shareholders by sending questionnaires;
• Reviewing the foundation documents of the legal entity and founders (shareholders);
• Interviewing founders (shareholders) and other persons and recording information in a questionnaire;
• Using legally available sources of information;
• Other ways at the discretion of the organization.

The law provides legal entities with the right to request any information necessary to ascertain beneficial owners from individuals and legal entities who are the founders or shareholders of a given legal entity or otherwise control it.

In turn, the persons from whom information is requested must provide it (Article 6.1(5) Federal Law No. 115-FZ). Since such process is not, in practice, a well-oiled machine, the legal entity that has duly requested information may refer to this provision of the law as an argument in its defense when provision of information is denied.

Article 6.1(5) also provides that the transfer to a legal entity of information necessary to ascertain its beneficial owners is not a violation of the law on personal data. So it is unlawful not to provide information referring to personal data law.

Exceptions

The following organizations are not required to keep records of their beneficial owners:

• Legal entities with state participation of more than 50%;
• Issuers of securities approved for organized trading;
• Foreign companies traded on foreign exchanges listed by the Central Bank;
• Foreign structures operating without the formation of a legal entity;
• International organizations.