Asset protection

‍

Since May 2022, under the fifth package of sanctions, 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 trustees or beneficiaries are Russian citizens.

‍

Many Russian businessmen are trying to solve the same problem for themselves: what to do with assets located in the West? Businessmen are forced to act based on their current capabilities and limitations, and the degree of unpredictability of the situation has increased exponentially.

‍

Therefore, in order not to fall under sanctions and protect their funds, some businessmen part with foreign assets and return capital to Russia, while others choose friendly countries, such as the UAE. There are also those that keep a large part of their wealth in cash in unknown places.

‍

Inheritance issues

‍

Meanwhile, the combined wealth of Russians included in the Bloomberg Billionaire Index is about $350 billion, and the average age of these people is 63 years. This means that in the coming decades, they will need to make decisions on the transfer of assets by inheritance, and now they will need to take care of their effective management.

‍

Some people have already begun to engage in this process, for example, Vladimir Yevtushenkov, who has already transferred assets to his son, while others are only looking for ways to solve the problem.

‍

Personal fund

‍

Against this background, Russia is creating conditions for the return of assets to the country. In particular, amendments to the Civil Code of the Russian Federation (introduced by Federal Law No. 287-FZ of July 1, 2021), allowing the creation of personal funds. The opportunity to establish personal funds in Russia appeared on March 1, 2022, when these changes came into force. Any property can be kept in such funds: business, real estate, shares, etc.

‍

Personal funds should become an alternative to foreign private funds and trusts. Such funds should help entrepreneurs effectively manage their assets during their lifetime and after death.

‍

Currently, personal funds have the status of non-profit organizations, but the Ministry of Economic Development is actively reforming their regulation, writes RBC. They will be removed from the supervision of the Ministry of Justice and exempted from annual reports and inspections.

‍

In addition, Minek proposes to give personal funds the status of a qualified investor. This will allow them to invest in a wider range of securities, including high-yielding securities, but while complying with anti-money laundering and terrorist financing requirements.

‍

One of the goals of the amendments is to simplify the state registration of personal funds. The decision on state registration of a fund will be made not by the Ministry of Justice (as a general rule, it registers NGOs), but by the Federal Tax Service, by analogy with commercial organizations. It will be possible to create and reorganize personal funds and amend constituent documents only upon application certified by a notary. He will also have to check that personal property transferred to the fund is more than 100 million rubles (this is the minimum amount of a contribution to personal funds).

‍

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

‍

Khachatur Arushanov, one of the pioneers of the Russian Internet, was a pioneer in creating a personal foundation in Russia. He also participated in the launch of Russia's first business channel RBC-TV in 2003.

‍

Igor Kesaev, co-owner of Krasnoye & Beloe and Bristol stores, who fell under sanctions in 2022, was the only billionaire on the Forbes list who transferred assets to a personal fund in Russia.

‍

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

‍

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

‍

An alternative

‍

Despite the initiatives of the Ministry of Economic Development, Russian businessmen still prefer to create funds in countries that did not support sanctions, for example, in the UAE, Forbes writes. The number of such structures is several times greater than the number of Russian funds.

Billionaire Vladimir Lisin transferred his shares in NLMK and First Cargo Company from Cyprus to Abu Dhabi.

‍

The UAE has created favorable conditions for establishing trusts and funds. Despite the introduction of an income tax, personal funds can become an unincorporated partnership, and the obligation to pay taxes is transferred to individuals, and in the UAE, individuals' income from investing, selling and renting real estate is exempt from income tax.

‍

In addition to the UAE, Russians are creating trust/fund structures in jurisdictions such as Bahrain, Mauritius, Seychelles, Curacao, and Hong Kong.

‍

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