Permitted and prohibited transactions on a foreign bank account for a Russian citizen. Fines

It has now become clear that, in light of new trends aimed at de-offshorisation and increasing transparency in the international financial sector, our compatriots would be well advised to embrace the new rules now and understand the implications for them in the near future of the disclosure of relevant financial information by foreign banks and other financial institutions, given the intentions of a number of countries to commence the automatic exchange of information in the very near future.

In this regard, Cyprus has also announced that the automatic exchange of information concerning new accounts and existing large accounts held by individuals, as well as accounts held by legal entities, is due to commence by the end of September 2017 or September 2018. These deadlines depend on exactly when financial institutions identify the need to disclose information on such accounts, and how they will do so in practice.

Let us clarify which transactions involving a foreign bank account are lawful for a Russian citizen, and which are prohibited.

Withdrawals from foreign bank accounts are permitted provided that the funds were credited to the account as a result of a lawful (permitted) transaction.

Permitted transactions:

1. You may transfer funds from your own other accounts held in both Russian and foreign banks.
2. You may transfer money from the Russian accounts of close relatives (for example, a spouse, parents, children, grandparents or grandchildren).
3. Interest may be credited to the deposit balance.
4. You may make a minimum deposit if required by a foreign bank to open an account.
5. You can receive cash gifts from close relatives or your spouse.
6. You can have your salary paid into the account by a foreign employer.
7. You may receive pensions, scholarships, maintenance payments and other social benefits.
8. You can receive insurance payouts from foreign insurance companies.
9. You may receive refunds of money previously paid.

The following six permitted transactions are possible and lawful only for accounts opened with banks in OECD and FATF countries; but as Cyprus, whilst not yet a member of either of these organisations, is a member of MONEYVAL, which adopts the FATF’s core recommendations, it is reasonable to conclude that these transactions are also permitted for holders of Cypriot accounts, namely:

1. The crediting of loans and credits under agreements with a term of more than two years.
2. Receipt of rent from the letting of property and other assets located outside the Russian Federation.
3. Receipt of dividends on foreign shares.
4. Payments on foreign bonds or promissory notes.
5. Receipt of funds from the transfer of money or securities to a foreign manager for management.
6. Proceeds from the sale of securities listed on a stock exchange (effective from 1 January 2018).

All other transactions are prohibited.

Double taxation

It should also be noted that, in addition to all the new measures and efforts to ensure transparency in financial relations between countries, there is also in force the Agreement between Russia and Cyprus for the avoidance of double taxation with respect to taxes on income and capital, as amended by the Protocol of 7 October 2010, Articles 26 and 27, which also cover the exchange of information between the two countries and assistance in tax collection.

Examples

1. A Russian citizen works in Cyprus and receives their salary into a Cypriot bank account. This is a permitted transaction.
2. A Russian citizen who is permanently resident in Cyprus and visits Russia once a year rents out his house in Cyprus (Cyprus is a member of Moneyval, which complies with FATF recommendations) and transfers the money to an account at a Cypriot bank. This is a permitted transaction.
3. A Russian citizen who is a permanent resident of Cyprus and visits Russia once or twice a year owns a house in Cyprus (a member of Moneyval, which complies with FATF recommendations), but has decided to sell it and buy a new, larger one. He has deposited the proceeds from the sale into a Cypriot bank account. This is a transaction prohibited by law. The penalty is between 75% and 100% of the sale proceeds.
4. A Russian citizen permanently resident in Cyprus, as in example 3, spends the money on buying a new house, a car, household appliances, etc. This is a prohibited transaction, as the money was credited to an account in a foreign bank as a result of an unauthorised transaction. The fine ranges from 75% to 100% of the amount spent.

If the fine is not paid within the specified time limit, it is doubled.