Different Lists of Offshore Zones: How to Understand Them?

As of today, there are two lists of offshore zones approved by the Ministry of Finance of the Russian Federation. One of them was approved in 2023 (dated 05.06.2023 No. 86n), and the other in 2024 (Order dated 28.03.2024 No. 35n). The first list includes more than 90 countries, including “unfriendly” countries, while the second list contains only 40 countries (excluding, for example, Germany and Austria).

Let us explain how to navigate these two lists.

The 2023 list of offshore zones (let’s call it the General List) was issued for the purpose of applying subparagraph 1, paragraph 3, Article 284 of the Tax Code of the Russian Federation (NK RF). This provision provides for a zero percent profit tax rate on dividends if certain conditions regarding the share size and holding period are met. Additionally, it states that if dividends are paid by a foreign organization, the zero rate can only be applied if the country of registration is not included in the General List. Therefore, if dividends are paid by a foreign parent company from Germany, the zero rate cannot be applied to these dividends.

However, subparagraph 1, paragraph 3, Article 284 of the NK RF contains a caveat: “unless otherwise provided by tax and fee legislation.” This is where the different order established in Article 4 of Federal Law No. 595-FZ dated 19.12.2023 comes into play.

This article provides for transitional provisions for the period 2024-2026, within which a different list of offshore zones must be applied, namely the 2024 list (let’s call it the Special List). Accordingly, until the end of 2026, the tax preference will be possible even in cases where the source of dividends is a company resident in an “unfriendly” country (including Germany).

There are also other tax preferences that are affected by the presence of the country of registration of the foreign company in the relevant lists and for which a transitional period of 2024-2026 is also provided:

• for the purposes of exemption from taxation of CFC income in accordance with the third paragraph of paragraph 7, Article 25.13-1 of the NK RF;
• for the purposes of adjusting CFC income in accordance with subparagraph 3, paragraph 1.2, Article 25.15 of the NK RF;
• for the purposes of applying exemption for gratuitously received income in accordance with the third paragraph of subparagraph 11, paragraph 1, Article 251 of the NK RF.