December 12, 2019

End of the Year 2019: Wealth Preservation Checklist for Russian HNWI

End of the Year 2019: Wealth Preservation Checklist for Russian HNWI

With just a couple of weeks left until the end of 2019, we would like to draw your attention to some of the year end wealth planning points to consider.

  1. Your tax residency.
    If you are travelling a lot, please check how many days you spent where. Some countries have a very low threshold for assuming an individual is their tax resident, e.g. you can become a UK tax resident after spending there only 45 days or in Switzerland – 90 days. If you have property in France or Germany, you can be considered tax resident there. You can be viewed as a tax resident by several countries at the same time.
  2. CRS reporting for 2019.
    Check with your bank/fiduciary what they are going to report under AEOI on the controlling persons of your bank accounts and of accounts of your structures. For structures like trusts check what value the settlor is going to be reported with, how the reporting party recorded tax residency of the settlor, protector, beneficiaries and any other controlling person, like a loan holder. In case the trust has discretionary beneficiaries, which did not get any distributions from the trust in 2019, inform the bank and ensure that the bank will not report on such beneficiaries. CRS reporting in the international context is complex, and mistakes/misconceptions are common.
  3. Open registrars of companies – information on controlling persons.
    In 2020 the 5th EU AML Direction comes into force and it requires most of the EU states to ensure that the company’s registers have information on the UBOs. Some of those registrars are open for search to general public either now or will be soon. In some countries family foundations or trusts are subject to the same requirements (e.g. the Netherlands).
  4. Benefits in kind.
    If personal expenditure of you or your family members, such as travel, school fees, use of yachts and aircraft, purchase of watches and jewelry, were paid by your offshore companies or trusts, this is a reportable taxable benefit in Russia and in some other countries, too. It is not too late to consider if any of the payments were a loan instead or to pay back for the use of the benefit from your after-tax income.
  5. Compliance file for year 2019.
    Question by banks or fiduciaries on where you have got your money from are not going to stop. We advise our clients to keep a compliance file for every tax year, clearly stating where you are a tax resident, how and how much you have earned, what your overall wealth is and what you pay in tax and if little, why. Now it is time to review the year and finalize the file.
  6. CFC structures.
    If you are a Russian tax resident individual in 2019 and your foreign structure has accumulated income in 2019, review the consequences and consider making a dividend distribution to the UBO or to the upper holding vehicle. It might buy you time and it can provide you with a simpler way of complying with Russian tax requirements.
  7. Russian currency control obligations.
    Several changes concerning Russian currency control resident individuals have been implemented during 2019. One of the most important changes is that many previously allowed receipts to your foreign bank account (e.g. income from a disposal of your house in London) are now effectively disallowed by being referred to the list of countries which exchange financial information automatically with Russia. We should wait for a list of such countries to be published by the Russian Federal Tax Services however, based on the existing information we can assume that some countries, such as the UK and the USA, do not automatically exchange information with Russia. Therefore, in case you have a bank account in the UK and USA, check with your bank or consultant which transactions you can make on your account in 2020 or how to change the jurisdiction of your bank account.

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.