Changes in taxation of life insurance policies in Russia
From the 1st of January 2020 significant changes were made to the law ФЗ-173 “About currency control and currency regulation”, which regulates the taxation of foreign accounts, including life insurance policies, for currency-control residents of Russia. The changes concern a new definition “Account in other organizations of the financial market” (which previously was limited to accounts opened in banks). (For a Russian text version please click here)
Below we describe what these changes in taxation mean for a holder of a foreign life insurance policy and what needs to be done so that the owner of a foreign life insurance policy remains compliant with the law.
FAQ on taxation and notification on life insurance policies:
1 Is it legal to invest using a foreign life insurance policy?
Foreign life insurance policies, both for regular saving as well for portfolio investments, opened with foreign life insurance companies, are a legal way for residents of Russia to reach their long-term goals. There are no restrictions whatsoever concerning the invested amounts into, or withdrawals from policies. The only exclusion concerns those individuals who by law are not allowed to have a foreign account. (Politicians, security services personnel)
2 Are foreign (life) insurance companies considered to be “other organizations of the financial market” for the purpose of law 173 about currency control?
The federal tax authorities answered clearly: “Foreign insurance companies are considered as ‘other’ organizations of the financial market” (no changes)
3 Is a life insurance policy issued by a foreign life insurance company considered to be an “ACCOUNT” in “OTHER ORGANIZATIONS OF THE FINANCIAL MARKET” for which a notification of opening and closing is required?
In the new version of the law a life insurance policy issued by a foreign life insurance is considered as an account in another organization of the financial market, for which notification about opening and closing is required. This is a new development. Before January 2020 a notification was only required upon the complete closure of the policy upon maturity of full surrender.
4 Is notification about opening/closing of policies now required for policies opened before January 2020?
For existing policies, which were opened before the 1st of January 2020, there is no need to file a notification about the opening or ownership. Only policies opened after the 1st of January need to file a notification after opening. This is a new development.
5 Should a yearly declaration about the movement in and out of the account (policy) be filed?
From 2021, when you file taxes for the year 2020, it now is required to make a notification about the movement of capital to and from accounts in other organizations of the financial market. This includes premiums paid into foreign insurance policies and withdrawals received from the policy and concerns all such policies regardless when they were opened. This is a new development
6 What about taxation on life insurance policies proceeds?
There are no changes concerning the taxation of proceeds from life insurance policies issued by foreign life insurance companies. The taxable event occurs after the policy has matured or is fully surrendered. This creates an advantage compared to investment accounts with banks or dedicated brokerage accounts on which a capital gains tax has to be paid on an annual basis.
7 What do I need to do?
If your policy was opened before January 2020 you don’t need to notify the authorities about its opening.
Before the 1st of June 2021 you need to file a notification about the movement of capital regarding your policy. Payments made into the policy in 2020 and payments received from the policy (if any). The forms can be downloaded from the website of the tax authorities.
As becomes clear from the above there have been significant changes in the treatment of foreign life insurance policies, but luckily they still form an attractive tool to accomplish long term financial planning goals for residents of Russia.
Shoreline offers a wide spectrum of financial planning services:
- International bank accounts
- Medical insurance
- International life insurance
- Regular saving plans
- Lump-sum investments
- Asset management
Request a personal consultation with one of our specialists.