1 / 30

Russian Succession Law Practical Aspects

Russian Succession Law Practical Aspects. General Overview of Russian Succession Rules. 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;

clyde
Download Presentation

Russian Succession Law Practical Aspects

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Russian Succession LawPractical Aspects

  2. General Overview of Russian Succession Rules • 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; • Succession takes place under will or, if the deceased left no will, under statutory intestacy rules; • 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;

  3. Trendsof 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.

  4. 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Taxation at Succession (part 1) • No Special Taxation Upon Inheritance and Donation • No Inheritance Tax (previous tax repealed in 2006) • No Gift Tax (no special regulations, though personal income tax can apply) • No Special Property Transfer Taxes • No Special Stamp Duties or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)

  5. 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 samplesare subject to RF personal income tax at the rate of 13%

  6. Forced Heirship: Russian Perspective

  7. 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

  8. 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 Property inherited by will72% • 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.

  9. Inheritance Taxation in the RF:Common Rules Key factor – Date of Inheritance Certificate Issuance January 1, 2006 Before After No tax applies as a general rule Tax on inherited property 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.

  10. Typical Case of Inheritance without Will Wife Child 1 (Minor) Child 2 (Minor) Child 3 (Minor) Child 4 (Minor) Mother Father (PEP) Heirs NO WILL Head of Family (Deceased)

  11. 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;

  12. 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) • NO TAX • Dividends • Interests under loan agreements • (payable after death date) • INCOME TAX

  13. Types of Assets: Real Estate and 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; Land plot • 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’.

  14. 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.

  15. 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.

  16. 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.

  17. Taxation of Inherited Dividends and Interests Change of tax residence influences applicable income tax rate on income from inherited assets (dividends and interests).

  18. 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. Re-calculation of tax from the start of the tax period Change of residence in the middle of a tax period • Liability of taxpayers and tax agents: • Tax liability (20% fine from outstanding tax + interests) • Criminal liability Otherwise

  19. 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 28-10/076242@ dated August 9, 2007. • Little court practice confirming parents’ responsibility for committing tax offences by Minor Heirs.

  20. Case Study. Consequences of Inheritance of Russian Assets by Minors under Intestate Rules • Special rules for Minor Heirs: • Obligation of Minor Heirs to pay income tax for assets, providing income in future (shares, receivables, etc.); • Consent of guardianship and trusteeship authorities for all transactions with Minor Heirs’ inherited property; Bequeathing of Property to All Heirs Land plot 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) Joint Ownership of Inherited Property No Will

  21. Solutions for Change of Asset Distribution • Special rules for Minor Heirs: • Entering into Inheritance Sharing Agreement requires consent of state guardianship and trusteeship authorities; • Inheritance Sharing Agreement is concluded in notarial form by Guardianship and trusteeship authorities on behalf of Minor Heirs • General prohibition to decrease Minor Heirs’ property; Inheritance Sharing Agreement No Will

  22. What are the Limits to the Use of International Succession Planning Structures? No Will

  23. Limits to the Use of International Succession Planning Structures Main principle: the testator is free in choosing heirs by will. No Will Inheritance Sharing Agreement

  24. Cross-Border Inheritance Cases Affecting Succession Planning

  25. Case Study Russia Switzerland Real Estate (apartments, house, commercial office); Head of Family(Deceased) • If there is no International agreement, according to: • last place of residence • OR • location of property Place of Inheritance opening According to International Agreement

  26. 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);

  27. Applicable Law and Conflicting Norms

  28. Applicable Law and Conflicting Norms • National conflict-of-laws rules stipulate the following procedure:

  29. Applicable Law and Conflicting Norms

  30. ThankYou For Attention!

More Related