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The task. A client with assets in three countries asked us to build a single structure for holding his capital. Without it, each asset would have been managed and inherited separately, under the rules of its own jurisdiction.
The solution. We designed an ownership structure that takes account of the currency control and tax requirements of each of the three countries, and agreed the terms on which the assets would be transferred into it.
The result. The client’s capital has been brought under single management with a transparent succession mechanism, without breaching the requirements of any of the jurisdictions concerned.
The legal basis for structuring capital across several jurisdictions
CFC rules. Chapter 3.4 of the Russian Tax Code (Articles 25.13-25.14) requires controlling persons, as a rule those holding more than 25% in a foreign structure, or more than 10% where Russian residents together hold over 50%, to notify the tax authority of their holdings in foreign organisations and structures and of the status of controlled foreign companies, whether or not their profits are distributed to Russia.
Currency legislation. Federal Law No. 173-FZ on Currency Regulation and Control determines which operations on residents’ foreign accounts are permitted without restriction and which require notifying the tax authority of the account opening, followed by reporting on the movement of funds for each jurisdiction where an account is held.
Double taxation treaties. The network of treaties in force determines where, and at what rate, income from the assets in the structure is taxed, and how far a reduced withholding tax rate applies to dividends, interest and royalties paid between the jurisdictions touched by the structure.
How capital structuring across several jurisdictions usually runs
The general sequence for a typical ownership-structuring project. Actual timeframes depend on the number of jurisdictions, the mix of assets and the compliance requirements in each country.
Audit of assets and ownership goals
We draw up a full map of assets and jurisdictions and set priorities: protection against fragmented succession, consolidation of management or confidentiality. Timeframe: 2-4 weeks.
Choosing jurisdictions and the holding instrument
A holding company, a private foundation, a trust or a combination of these: the choice depends on the tax, currency and succession consequences of each option in the countries concerned. Timeframe: 3-5 weeks.
Designing the structure and documents
Constitutional documents, agreements between participants, rules for distributing income and for passing assets to the next generation. Timeframe: 4-6 weeks.
Transfer of assets and registration
Legal transfer of title to the assets into the structure, in compliance with currency control and the corporate procedures of each jurisdiction concerned. Timeframe: 4-10 weeks, depending on the number of countries.
Compliance and annual reporting
CFC notifications and notifications of holdings in foreign structures, bank compliance and, where necessary, CRS information exchange. Ongoing once the structure is in place.
Instruments for ownership structuring
The choice of instrument depends on the mix of assets, the number of jurisdictions and what matters more to the family: flexibility of management or predictability of succession.
Common mistakes when structuring capital abroad
The structure is built around tax savings alone. A scheme that is optimal only in terms of the tax rate, but ignores succession rules and currency control, often has to be rebuilt in practice as soon as a beneficiary changes residence or the legislation of one of the countries changes.
Assets are transferred into the structure without regard to their form. Real estate, interests in companies and bank accounts are transferred into a structure under different rules and with different tax consequences. There is no universal transfer template for every type of asset.
Ignoring the duty to notify of CFCs and holdings. Creating a structure abroad does not remove the Russian controlling person’s duty to file notifications. This is a separate process, independent of whether tax is later paid on the structure’s profits.
Relying on a one-off set-up with no further support. A structure that is effective when created needs to be reviewed when the mix of assets, the beneficiaries’ place of residence or the legislation of any jurisdiction concerned changes.
What to watch for in cross-border structuring
Liability for failure to report. Failure to file a notification of a holding in a foreign organisation or a CFC notification carries a fine under Article 129.6 of the Russian Tax Code for each undisclosed structure, whether or not it generated taxable profit.
Currency control on foreign accounts. Operations on accounts linked to a structure in which a Russian resident is treated as a controlling person fall under the currency legislation. Breaching the procedure for notifying the opening of an account, or the restrictions on operations, entails separate administrative liability.
Changes in the legislation of several countries at once. The CFC rules in Russia and the regime for ownership structures in other jurisdictions change from time to time, independently of one another. The structure needs periodic review so as not to lose its effectiveness.
The requirement for real economic substance. Tax authorities in different countries are increasingly checking whether a structure has substance. Formal registration without corresponding management and presence raises the risk of a challenge to the preferential regime.
International capital structuring in numbers
General benchmarks for this practice area, not figures for any specific case.
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Frequently asked questions
Why structure capital in several jurisdictions at once?+
It reduces the concentration of risk in a single country and simplifies the management of assets that are objectively located in different places.
Is currency control taken into account when structuring capital abroad?+
Yes. It is a mandatory part of the work: the structure must comply with the currency legislation of each country concerned.
Would you like to discuss structuring your own assets?+
Leave a request and a partner from our international practice will contact you within one working day.