November 6, 2019

Autumn 2019 Trends: What’s Hot, What’s Not in International Wealth Planning for Russians

Autumn 2019 Trends: What’s Hot, What’s Not in International Wealth Planning for Russians

Russia

No change of definition of tax residency. It was announced on October 31, 2019 that the proposed amendments of the definition of the Russian tax residency are unlikely to take place soon. This means that the current definition of 183 days is likely to remain in place for the year 2020. It also means that many Russian businessmen could continue running their Russian empires from abroad without triggering Russian tax residency test. UK, Monaco, Cyprus, Malta, Dubai, Switzerland, Italy, Israel and Portugal are still a popular choice for Russian non-tax residents with significant ties to Russia.

Amnesty. In the last two months there was a lot of controversy around the use of tax amnesty declaration in the criminal proceedings against Valery Izrailit. Finally, on October 24, 2019 the Russian High Court has confirmed that the information provided in an amnesty declaration cannot be used as the basis (or evidence) for criminal prosecution. Nevertheless, this case has highlighted and affirmed the general lack of trust in the governmental institutions by the Russian business community.

United Kingdom

Are the rich not welcome anymore? The UK general election of December 12, 2019 could make Jeremy Corbyn the next Prime Minister of the UK. It is known that a Labour government led by Corbyn would be likely to take measures against the super-rich. If this will take place, Russian nationals based in the UK will also be affected.

In practical terms the rates of personal income tax in the UK might be increased, wealth tax can be introduced, and the favourable regime for resident non-domiciled might be abolished. In year 2019 our clients based in the UK saw an increased number of inquiries from the HMRC regarding their links to the UK. This, together with general uncertainly of unending Brexit saga, make that UK RNDs of Russian origin doubt if the UK is the right place to be. If you are considering relocating to another more stable country with a better tax regime, relocation can be arranged within 1 to 6 months depending on the country.

International

Offshore companies. Not only BVI, but also many other international financial centres important for Russian clients (e.g. Cayman Islands, Bermuda, Bahamas), have implemented economic substance legislation in 2019. Economic substance requirements, together with the on-going developments of making registers of beneficiaries open to public, as well as CRS/AEOI, resulted in costs of running those companies rising, and the risk of information about beneficiaries becoming publicly available more real.

However, in our experience it is wrong to assume that you need to relocate all your offshore companies on-shore. In many cases, an offshore company is still the most efficient way to conduct business, as there are no comparable alternatives available onshore. It is important to remember that doing business via an offshore vehicle requires more effort now, and knowledgeable administrators are a must.

Compliance. Maintaining your foreign bank accounts, corporate structures and providing updated KYC to banks and fiduciaries is becoming more complex and time-consuming. The technical challenge of understanding the interaction of the legislation of various countries with one another make compliance difficult, even for the most law-abiding and willing clients. What we see often in our practice is that complexity breeds errors. What to do? Simplify, check and double-check. And – be ready for potential information leakage.

What’s next?

Boltenko Law can help. We will be happy to advise you on the effect of the change on your overall tax burden and propose available solutions.

We will also continue discussing those subjects at the VI Annual Russian Wealth Advisor Forum on January 29 and 30, 2020 in Zurich. You can find more information about the forum here.

We take the first introductory call or meeting on no commitment basis; further work will be done on the agreed contractual terms. We are based in Zurich, and regularly travel to Moscow, London, Geneva and Cyprus, and can meet you or your clients there.

Please contact Olga Boltenko (olga.boltenko@boltenkolaw.com and +41 79 900 2526) or Evgenia Martin (evgenia.martin@boltenkolaw.com and +41 79 126 3195) for further advice.