On January 23, a group of deputies from the faction “Spravedlivaya Rossiya – Za Pravdu” submitted a bill to the State Duma “On deoffshorization” (see https://sozd.duma.gov.ru/bill/281874-8), which provides for the re-registration of a number of assets registered in offshore zones, in Russia.
The explanatory note to the bill contains an assessment according to which more than half of Russia's large private enterprises are registered in offshore zones, which leads to the control of foreign states, primarily those unfriendly to Russia. In this regard, the bill attempts to transfer control over the assets of offshore companies to Russia, and also provides an opportunity for owners to register them in Russia. If the owners do not take action within 6 months, then the property is confiscated into the ownership of Russia or transferred to the management of the Russian state.
What deoffshorization measures are proposed?
1. Assets of offshore companies located in Russia are transferred to the management of an authorized Russian body;
2. If such offshore companies are owned by Russian legal entities and individuals, then these Russian persons can register the ownership of offshore assets located in Russia within 6 months from the date of adoption of the law by submitting certificates of ownership to the authorized body;
3. If offshore companies manage assets located in Russia, then the owners of assets can transfer asset management to any Russian legal entity or individual within 6 months from the date of adoption of the law;
4. Assets located in Russia and owned by offshore companies, the ownership of which is not registered in Russia, within 6 months are confiscated into the ownership of Russia as ownerless property.
5. If offshore companies manage assets located in Russia, and management is not transferred to a Russian legal entity or individual within 6 months, then the assets are transferred to the management of Russia.
First of all, the bill will affect Russian companies with corporate structures under tax planning schemes intended to hide real ownership. For example, in a Russian LLC, 100% participation of a company from the British Virgin Islands, which in turn is owned by a company from an offshore jurisdiction or a nominal owner. At the same time, it is almost impossible to find out the real owner in such a scheme of ownership. The bill also applies in general to all assets owned by foreign companies from offshore jurisdictions.
At the moment, the bill has only been submitted to the State Duma and has not even passed the first reading. Since it was introduced by a group of deputies, has not been finalized in terms of legal technique and provides for too harsh measures (for example, confiscation of property), the chance that the bill will eventually be adopted is rather low. However, the introduction of this bill is generally in line with the general trend of deoffshorization, which was started by the Russian government several years ago. We will monitor the progress of the bill and will notify you of changes.
If you have assets in Russia, the ownership of which is structured through foreign companies, we recommend that you analyze the ownership chain and assess it for possible risks (offshore or unfriendly jurisdictions).
The law firm Nadmitov, Ivanov & Partners provides tax support services and advises on CFC issues, offshore jurisdictions, and corporate law.
Email: info@nplaw.ru
Tel.: +7 (495) 649-87-12