New list of the offshore zone: Changes for small and medium-sized enterprises

At the end of March 2024, the Ministry of Finance approved a special list of offshore companies. This is important for taxation and could have an impact on the procedure for determining the status of small and medium-sized enterprises (hereinafter “SME”). 

Background

Last year, the Ministry of Finance approved a list of offshore countries and territories (hereinafter “List-2023”), which includes 91 countries, including EU countries, the US, the UK, etc. Previously, the list mainly included “classic” offshore countries.

It was assumed that the expansion of the list of offshore countries and the inclusion of foreign countries would result in Russian companies with participants (shareholders) from these countries losing their SME status by 1 January 2024 at the latest. The point is that such shareholders must not only fulfil a number of requirements regarding income and the number of employees, but must also not be registered in the offshore zone.

Nevertheless, many companies with such shareholders have retained their SME status to this day, including many of our clients with foreign capital from the EU, which are still listed in the SME register.

The role of the new offshore list

In March 2024, another offshore list with 40 items was published, which does not include the EU, the UK, the USA, etc. (Decree of the Ministry of Finance of the Russian Federation No. 35n of 28 March 2024). 

It follows from Decree No. 35 that the new list should be taken into account when determining the tax base for the profit tax of controlled foreign companies and, in some cases, other companies. This does not cancel the effect of the List-2023. Decree no. 35n makes no reference to the cancellation of the 2023 list and explicitly states that the new list is “special”.

In this regard, we believe that SMEs with companies from the EU and other countries listed on the List-2023 may still lose their SME status during the current year, as the EU continues to be considered an offshore zone for the purposes of SME qualification.

However, as we have already mentioned, the pessimistic predictions of losing SME status and being excluded from the relevant register at the beginning of this year have not yet materialised.

We still recommend checking whether your company has SME status, despite all the intricacies involved in obtaining this status for legal entities with foreign participation. SME status offers direct savings on contributions to funds and helps in a number of cases, including administrative liability.