Dear Readers,
In March 2023, the President signed the Tax Code amendments on tax administration of transactions with distressed assets of banks and microfinance organizations. The amendments introduce the cash method of taxation for nonresidents' income from the assignment of rights to loans or microcredits.
Reporting on Distressed Assets
Financial market participants will be required to quarterly report to the tax authorities information on transactions involving a transfer of rights to claims:
- A bank or a banking organization is obliged to provide the tax authorities with information on taxpayers exercising creditor rights in relation to the assigned rights (claims) on bank loans under trust management agreements with collection agencies.
- The Agency for the Regulation and Development of the Financial Market is obliged to provide the tax authorities with information about rights/claims transfer agreements related to taxpayers engaged in debt collection activities;
- Collection agencies are required to provide the tax authorities with information about agreements on a transfer of rights (claims) to collection agencies, and about taxpayers exercising their creditor rights associated with the assigned loan agreements under a trust management agreement with the collection agency.
The amendments introducing reporting obligations for the financial market participants will enter into force on 21 May 2023.
Taxation of Nonresidents
The amendments introduced the cash method of taxation for income from the assignment of rights to claims for nonresidents authorized to purchase distressed assets from banks or microfinance organizations (similar to the taxation of such income for resident buyers).
Under the new procedure, taxable income of a nonresident from the assignment of rights to claims on a loan (or a microcredit) will be an excess of the amount actually paid by the debtor over the cost of the acquired right. Income from the assignment of rights will be recognized in the tax period in which the positive difference arises (increases). Gains included in the taxable income of previous tax periods will not be subject to taxation.
The following entities will be regarded as tax agents obliged to withhold income tax from the nonresidents' income from the assignment of rights to claims:
- Service companies providing nonresidents with services for the management of distressed assets under trust management agreements;
- Debtors under the transferred distressed loans, in the absence of a trust management agreement between the nonresident and a service company.
The new taxation procedure for nonresident buyers of distressed assets will take effect on 1 January 2024.