Protecting assets

Since May 2022, under its fifth sanctions package, the EU has banned the creation of new trusts for Russians. Many countries, including Cyprus, Switzerland and Liechtenstein, have banned the provision of services for managing family trusts whose settlors or beneficiaries are Russian citizens.

Many Russian businesspeople are trying to solve the same problem: what to do with assets held in the West? They are forced to act within their current opportunities and constraints, while the unpredictability of the situation has grown exponentially.

So, to avoid sanctions and protect their funds, some businesspeople are parting with foreign assets and bringing capital back to Russia, while others choose friendly countries such as the UAE. There are also those who keep a significant part of their wealth in cash in undisclosed locations.

Succession problems

Meanwhile, the combined wealth of Russians in the Bloomberg Billionaires Index is about $350 billion, and their average age is 63. This means that in the coming decades they will need to make decisions about passing on their assets, and already now they need to think about managing them effectively.

Some have already started this process — for example, Vladimir Yevtushenkov, who has already transferred assets to his son — while others are still looking for solutions.

Personal funds

Against this background, Russia is creating conditions for bringing assets back into the country. Among other things, amendments to the Civil Code (introduced by Federal Law No. 287-FZ of 01.07.2021) allow personal funds to be created. The possibility of establishing personal funds in Russia appeared on 1 March 2022, when these amendments came into force. Any property can be held in such funds: businesses, real estate, shares and so on.

Personal funds are meant to become an alternative to foreign private foundations and trusts and to help manage entrepreneurs' assets effectively during their lifetime and after their death.

Personal funds currently have the status of non-profit organisations, but the Ministry of Economic Development is actively reforming how they are regulated, RBC reports. They will be removed from the supervision of the Ministry of Justice and released from annual reports and inspections.

In addition, the Ministry of Economic Development proposes giving personal funds qualified investor status. This would allow them to invest in a wider range of securities, including high-yield securities, subject to anti-money laundering and counter-terrorist financing requirements.

One of the aims of the amendments is to simplify the state registration of personal funds. The decision to register a fund will be taken not by the Ministry of Justice (which as a rule registers non-profits) but by the Federal Tax Service, as with commercial organisations. Personal funds will be created and reorganised, and changes made to their constitutional documents, only on the basis of an application certified by a notary, who will also have to check that the personal property transferred to the fund is worth more than RUB 100 million (the minimum contribution to a personal fund).

The changes are expected to take effect on 1 September 2024.

The first person to create a personal fund in Russia was one of the pioneers of the Russian internet, businessman Khachatur Arushanov, who was also involved in launching Russia's first business TV channel, RBC-TV, in 2003.

The only billionaire on the Forbes list to have moved assets into a personal fund in Russia is Igor Kesaev, co-owner of the Krasnoe & Beloe and Bristol stores, who was sanctioned in 2022.

The family of Timur Akhmerov, founder and CEO of the IT company Bars Group (part of Rostec), also has a personal fund, as does Foat Komarov, a former United Russia State Duma deputy and founder of the SMP group, which owns oil companies in Tatarstan.

As of 15 June 2024, only 36 funds were registered in Russia according to the Unified State Register of Legal Entities.

The alternative

Despite the Ministry of Economic Development's initiatives, Russian businesspeople still prefer to set up foundations in countries that have not supported the sanctions, such as the UAE, Forbes reports. The number of such structures is many times greater than the number of Russian funds.

Billionaire Vladimir Lisin moved his stakes in NLMK and the First Freight Company from Cyprus to Abu Dhabi.

The UAE has created favourable conditions for setting up trusts and foundations. Despite the introduction of corporate income tax, personal foundations can obtain the status of an unincorporated partnership, shifting the tax obligation to individuals — and in the UAE, individuals' income from investments and from the sale and rental of real estate is exempt from income tax.

Besides the UAE, Russians set up trust and foundation structures in jurisdictions such as Bahrain, Mauritius, the Seychelles, Curaçao and Hong Kong.

Sources

1. https://www.bloomberg.com/news/articles/2024-05-08/russian-billionaires-find-war-in-ukraine-has-created-new-succession-challenges
2. https://www.forbes.ru/finansy/507622-eto-licnoe-minek-povysit-konfidencial-nost-fondov-sostoatel-nyh-rossian
3. https://www.rbc.ru/economics/07/03/2024/65e829cf9a7947b91323df44?from=copy
4. https://regulation.gov.ru/Regulation/Npa/PublicView?npaID=146185