February 12, 2020

Trends Winter 2020: Russian Wealth Home and Abroad

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At the Russian Wealth Advisors Forum, which took place on 29-30 of January in Zurich, we have identified several trends affecting Russian wealth in Russia and abroad. Here is a quick synopsis of what’s going on.

Big picture

  • Geopolitically, Russia is becoming a stronger player. Economically, Russia is still weak, and will probably remain this way for a while. US/EU sanctions have had a strong negative effect, and there is concern that secondary sanctions will hurt the Russian economy even further.
  • The new Russian government is perceived as good news, as the business community looks forward to work with strong competent government. However, the arrival of technocrats, known for successfully implementing effective administration through sophisticated monitoring, is also viewed as an assent of a “big brother” surveillance state.
  • Russians who are unaffected by the US/EU sanctions still prefer to keep money and wealth abroad, fearing both the economic instability of Russia and weak protection of property rights.

Russian taxes

  • It is expected that in 2020 most Russian domestic tax audits will focus on currency control violations and establishing domicile of foreign companies in Russia based on management and control test.
  • Benefits in kind – i.e. free use of foreign houses, yachts and aircraft, as well as purchase of luxury goods by foreign vehicles without declaring their value as an income – is another expected focus of Russian tax authorities in the near future.
  • Court practice is developing so to establish that shareholders of companies (and possibly their relatives) are vicariously liable for the debts of their companies.
  • Exchange of information between Russian tax authorities and Federal Security Service is expected to come into force during 2020.

International exchange of information

  • Internationally, exchange of information has been both successful and a mess. Successful – as reporting to Russia is taking place from many countries of the world, and a mess – as there are many examples of double reporting and erroneous filing. The consequences of it in some instances might lead to human rights violations.
  • On the Russian domestic front, tax authorities are very effective in using both automatic and on request exchange of information, sending requests to many countries, including IFCs, eg Cayman Islands. The usual questions are on benefits in kind, management and control, UBOs and ownership rights.

Offshore vs Onshore

  • It is too early to announce the end of the use of IFCs by Russians, as local substance requirements in IFCs introduced in 2020 do not apply to many practical scenarios.
  • Relocation of companies onshore, eg to Cyprus or Liechtenstein, might be a good choice in some instances, but will bring higher level of taxation, administration and costs.
  • If relocation is being considered, reputation of new jurisdiction is a crucial criterion, and countries like Switzerland, offering low corporate tax rates after recent tax reform, can be an excellent choice.

Use of Trusts and Family Governance

  • Russian wealth is becoming more mature, and the question of wealth transfer in a meaningful way is the focus of many Russian HNWIs.
  • The time of simple solutions is long gone. Increased international compliance and transparency together with the mobility of wealthy and diversity of their investments call for tailor-made structures with almost permanent fine-tuning.
  • Trust as an effective wealth preservation vehicle is becoming increasingly popular. It is crucial whom you work with, as the cost of poorly thought-through solutions and hastily put together structures can be huge.
  • Engaging family members in a discussion about use of money and assets is crucial in sustaining wealth through generations. Experts on family governance, education of the young, as well as a psychologist, can be of help.

What’s next?

Boltenko Law can help. We will be happy to advise you on what options you have to mitigate your problems and to propose available solutions.

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.