Transcript AT Lawyers Presentation_Russian Succession Law (ID 183825)

Russian Succession Law
Practical Aspects
General Overview of Russian Succession Rules
1. Rules on succession are regulated by the RF Civil Code
(part III) and the RF Notarial Framework Legislation N
4462-1 dated 11.02.1993;
2. Succession takes place under will or, if the deceased left
no will, under statutory intestacy rules;
3. Heirs by law are called to succession in the order of
priority established by Art. 1142-1145 and 1148 of the RF
Civil Code;
Unless Russian assets are “packed” into trust or
foundation, they are inherited under will or applicable
law;
Trends of Russian Succession Law
 Establishment of the Unified Informational Notarial
System (UINS)
See: Federal Law No. 166-FZ as of October 2, 2012 “On
amendments in the RF Notarial Legislation” (will come into force
in July 1, 2014)
 From July 1, 2014 UINS will contain registers:
- on certified wills and notifications on will revocations;
- on opened inheritance cases.
Beneficiaries would be able to track wills and revocations.
Russian Taxation at Succession (part 1)
 No Special Taxation Upon Inheritance and Donation
 No Inheritance Tax (previous tax repealed in 2006)
 No Gift Tax (no special regulations, though personal
income tax can apply)
 No Special Property Transfer Taxes
 No Special Stamp Duties or Transfer Fees
 No Net Wealth Tax or Endowment Tax
BUT: State Duties and Notary fees can apply
Conclusion: Inheriting on the Russian level can be
effective tool of succession planning (save for practical
issues)
Russian Taxation at Succession (part 2)
 Personal Income Tax Legislation: Proceeds (both
monetary and in-kind) received from individuals by way
of an inheritance are generally exempt from taxation in
Russia (art. 217 para 18 of RF Tax Code)
 Exceptions: Royalties paid to the heirs (successors) of
authors of works of science, literature and art and of
discoveries, inventions and industrial samples are subject
to RF personal income tax at the rate of 13%
Forced Heirship:
Russian Perspective
Case study
Will under CY legislation
Wife
RF Legislation:
Existence of heirs entitled to inheritance
notwithstanding
the
will
content
(compulsory share) (art. 1149 of the RF
Civil Code):
• Disabled spouses, parents, dependents
• Disabled or minor children
Beneficiary
CY company
Russian company
Rules of Compulsory Share
Property inherited by law
28%
• The right to a compulsory
share is satisfied out of the
residual non-bequested part of
the estate.
• Consequences: risk of
diminishing the rights of other
legal heirs to that portion of
estate
INHERITED PROPERTY
0%
Property inherited by will
72%
• If non-bequested part of
assets is insufficient to
satisfy the right to a
compulsory share, it is
satisfied out of bequeasted
assets.
Compulsory share: not less than half of the share which the heir is entitled to in
case of succession by operation of law.
Inheritance Taxation in the RF: Common Rules
Key factor – Date of Inheritance Certificate Issuance
Before
January 1, 2006
After
Tax on inherited property
No tax applies as a general rule
Law of the RF N 2020-1
dated December 12, 1991
“On taxation of inherited or
gifted property”
(cancelled by Federal Law N
78-FZ dated July 1, 2005)
Exception: 13% tax rate applies to
fees paid to heirs of authors of
works of science, literature, art,
discoveries, inventions, industrial
designs.
Typical Case of Inheritance without Will
Heirs
NO WILL
Head of Family
(Deceased)
Wife
Child 1 (Minor)
Child 2 (Minor)
Child 3 (Minor)
Child 4 (Minor)
Mother
Father (PEP)
Types of Inherited Assets
Dividends and Interests;
Real Estate (apartments, house, commercial property);
Land plot
Land (agricultural);
Shares of public companies (main business)
Shares of private companies;
Funds on bank accounts;
Receivables and rights under loan agreements;
Types of Assets: Dividends and Interests
Key factor for taxation – death date of the deceased.
Death date
• Dividends (declared
and not paid)
• Interests under loan
agreements (payable
before date death)
• Dividends
• Interests under loan
agreements
(payable after death
date)
NO TAX
INCOME TAX
Types of Assets: Real Estate and Land Plot
Land plot
No special tax applies to inheritance of real estate and
land plots;
Obligation to pay state duties and notary fees:
for children, spouse, parents, brothers and sisters of the
deceased - 0,3% from the value of inherited property, but
not more than 100 000 rubles (circa $2800);
for other heirs - 0,6% from the value of inherited
property, but not more than 1 000 000 rubles (circa $28
000);
Obligation to pay land tax and property tax in future;
Minor heirs cannot dispose or encumber inherited property unless under
consent of guardianship and trusteeship authorities;
Consent is feasible only if transaction is not to minor’s detriment;
Effectively real estate and other assets passed to minors are ‘trapped’.
Types of Assets: Shares (Private and Public Companies)
No special tax applies to inherited shares.
Obligation to pay state duties and notary fees:
for children, spouse, parents, brothers and
sisters - 0,3% from the value of property, but not
more than 100 000 rubles (circa $2800);
for other heirs - 0,6% from the value of
inherited property, but not more than 1 000 000
rubles (circa $28 000);
Minor heirs cannot dispose of shares unless under consent of guardianship
and trusteeship authorities, save for expenses below threshold (circa $200);
Voting is “grey area” and the safe route is to seek authorities’ consent;
Consent is feasible only if transactions and voting are in minor’s benefit;
Management in companies with minor shareholders can be obstructed.
Types of Assets: Funds on Bank Accounts
No special tax applies to inherited funds on bank
accounts.
Obligation to pay state duties and notary fees:
for children, spouse, parents, brothers and sisters 0,3% from the cost of inherited property, but not
more than 100 000 rubles (circa $2800);
for other heirs - 0,6% from the cost of inherited
property, but not more than 1 000 000 rubles (circa
$28 000);
Minor heirs cannot dispose of funds unless under consent of guardianship
and trusteeship authorities, save for expenses below threshold (circa $200);
Consent is feasible only if funds are spent exclusively for minor’s benefit;
Use of funds passed to minors can be seriously limited.
Types of Assets: Receivables (under Loan Agreements)
No special tax applies to inherited receivables.
Obligation to pay state duties and notary fees:
for children, spouse, parents, brothers and
sisters - 0,3% from the cost of inherited property,
but not more than 100 000 rubles (circa $2800);
for other heirs - 0,6% from the cost of inherited
property, but not more than 1 000 000 rubles
(circa $28 000);
Minor heirs cannot dispose of receivables unless under consent of
guardianship and trusteeship authorities, save for expenses below threshold
(circa $200);
Consent is feasible only if funds are spent exclusively for minor’s benefit;
Use of receivables passed to minors can be seriously limited.
Taxation of Inherited Dividends and Interests
Change of tax residence influences applicable income tax rate
on income from inherited assets (dividends and interests).
Income from
sources in Russia:
Dividends (payable
after death date)
Tax rate for
The RF Residents:
Tax rate for
Non-residents:
Individuals Legal Entities
Individuals Legal Entities
9%
15%
15%
30%
20%
Interest under loan 13%
agreements (payable
after death date)
9% or 0% (in case of
50% participation in a
paying company during 1
year)
20%
Taxation of Inherited Dividends and Interests
Tax resident is any citizen of Russia or any other country, living in Russia
not less than 183 days during 12 consecutive calendar months.
Change of residence
in the middle of a
tax period
Liability of taxpayers and tax
agents:
1) Tax liability (20% fine from
outstanding tax + interests)
2) Criminal liability
Re-calculation of tax
from the start of the
tax period
Otherwise
Tax Liability of Minor Heirs
 Minor Heirs are obliged to pay taxes. Taxes for Minor Heirs are paid
on their behalf by their parents. Parents are liable for failure to pay
taxes from minor heirs’ income
See: Resolution of Russian Constitutional Court N 5-P dated March 13,
2008, Ruling of Russian Constitutional Court N 25-O-O dated January
27, 2011).
 The age of tax responsibility is 16 years old. Since this age heirs bear
their own tax liability.
See: Letter of Russian Federal Tax Service N 3-5-04/495@ dated April 23,
2009, Letter of Russian Federal Tax Service in Moscow N 2810/076242@ dated August 9, 2007.
 Little court practice confirming parents’ responsibility for committing
tax offences by Minor Heirs.
Case Study. Consequences of Inheritance of
Russian Assets by Minors under Intestate Rules
Special rules for Minor Heirs:
Bequeathing of
1. Obligation of Minor Heirs to pay income tax for Property
assets, providing
to All
income in future (shares, receivables, etc.);
Heirs
2. Consent of guardianship and trusteeship authorities for all transactions
with Minor Heirs’ inherited property;
Heirs
Assets
Wife
Child 1 (15 y.o.)
Child 2 (12 y.o.)
Child 3 (5 y.o.)
Child 4 (1 y.o.)
Mother
Father (PEP)
Land
plot
No Will
Joint
Ownership of
Inherited
Property
Solutions for Change of Asset Distribution
Inheritance Sharing
Agreement
Wife
Shares of public
companies (main
business)
Bank accounts
Car
Special rules for Minor Heirs:
1. Entering into Inheritance Sharing Agreement requires
consent of state guardianship and trusteeship
No Will
authorities;
2. Inheritance Sharing Agreement is concluded in notarial
form by Guardianship and trusteeship authorities on
behalf of Minor Heirs
3. General prohibition to decrease Minor Heirs’ property;
Parents
Children
Real estate (flat)
Real estate (flat, house)
Land plot
Shares in private
companies
Car
Land plot
Receivables
No Will
What are the Limits to the Use of
International
Succession Planning Structures?
Limits to the Use of International
Succession Planning Structures
No in
Will
Main principle: the testator is free
choosing heirs by will.
Prohibition for parties with
foreign element to own
agricultural land;
Legal entities may inherit:
need to be in good standing
Inheritance and
Sharing
not liquidated;
Agreement
Existence of heirs entitled to
inheritance notwithstanding
the will content
• Obligation to sell such land within 1
year;
• Otherwise a lawsuit can be filed against
such owner for selling land on auctions;
• Legal successors of a reorganized
company may inherit;
• Possibility of inheriting by several legal
entities created during reorganization;
• Disabled spouses, parents, dependents
• Disabled or minor children
Cross-Border Inheritance Cases
Affecting Succession Planning
Case Study
Russia
Switzerland
Real Estate (apartments,
house, commercial
office);
According to
International
Agreement
Place of Inheritance
opening
Head of Family
(Deceased)
If there is no International
agreement, according to:
• last place of residence
OR
• location of property
Applicable Law and Conflicting Norms
Notary officers’ powers to deal with inheritance case are
defined by:
 The RF Civil Code and International agreements;
 National conflict-of-laws rules (in case there are no
applicable international agreements);
Applicable Law and Conflicting Norms
2 approaches according to the RF international agreements:
Approach 1
Approach 2
Immovable property – registration of rights in the
country of property location;
Movable property – registration of rights in Movable property – registration of rights in
the country of the deceased’s last residence; the country of the deceased’s citizenship OR
property location;
Confirmed by:
Confirmed by:
•Minsk Convention;
•International agreements on legal assistance
•Kishinev Convention;
between the RF and Bulgaria, Hungaria,
•Bilateral agreements on legal assistance Viet Nam, Poland, DPRK, Romania,
between the RF and Latvia, Lithuania, Slovenia, Macedonia and Montenegro.
Estonia, Azerbaijan, Czech Republic,
Slovakia, etc.
Applicable Law and Conflicting Norms
National conflict-of-laws rules stipulate the following
procedure:
Immovable property
• registration of rights in the country
of property location;
Immovable property,
registered in the RF
(sea and river vessels,
aircrafts, space assets)
• registration of succession rights
under Russian legislation;
Movable property
• registration of rights in the country
of the deceased’s last residence;
Applicable Law and Conflicting Norms
On defining
heirs under
intestacy
Russian notary may have difficulties in obtaining
information on foreign legislation and its
application to conflicting Russian legislation:
On validity of wills made
abroad and not complying
with the RF legislation;
On capacity of heirs to accept,
refuse from or divide inheritance.
Thank You For Attention!