1. SEARCHING FOR ADVANTAGES
USE OF FOREIGN COMPANIES
DEOFFSHORIZATION
FOREIGN ACCOUNTS FOR INDIVIDUALS
VOLUNTARY ASSET DECLARATION - 2015
PARAGON ADVICE GROUP
ALEXANDER S. ZAKHAROV
Russian & CIS Private Wealth Forum
24th of June 2015, Kongresshaus,
Zurich, Switzerland
http://swiss.fi-forum.com

2. USE OF FOREIGN COMPANIES
40 OFFSHORE JURISDICTIONS FOR RUSSIA
Ministry of Finance Order No. 108n of 13.11.2007 (as of 02.10.2014) http://www.consultant.ru/document/cons_doc_LAW_171378/
1. Anguilla 12. Gibraltar 23. Malta since 1 January 2015 34. Palau
2. Andorra 13. Grenada 24. Marshall Islands 35. Panama
3. Antigua and Barbuda 14. Dominica 25. Monaco 36. Samoa
4. Aruba 15. Cyprus since 1 January 2013 26. Montserrat 37. San Marino
5. Bahamas 16. Hong Kong (PRC)
Macau
27. Nauru 38. Saint Vincent and
Grenadines
6. Bahrain 17. Anjouan (Comoros) 28. Curaçao and Sint
Maarten (Dutch part) ⃰
since 1 January 2015
39. Saint Kitts and Nevis
7. Belize 18. Liberia 29. Niue 40. Saint Lucia
8. Bermuda 19. Liechtenstein 30. United Arab Emirates 41. The Isle Of Man
Channel Islands:
Guernsey, Jersey,
Sark, Alderney
9. Brunei Darussalam 20. Mauritius 31. Cayman Islands
10. Vanuatu 21. Labuan (Malaysia) 32. Cook Islands
11. British Virgin Islands 22. Maldives 33. Turks and Caicos 42. Seychelles
since 2 February 2009
⃰ Bonaire, Sint Eustatius and Saba became the provinces of the Kingdom of the Netherlands
(before: the Netherlands Antilles). ❶

3. AUTOMATIC EXCHANGE OF INFORMATION
Still no Russia in the current list (as of 4 June 2015) of the countries (61) signed the Multilateral
Competent Authority Agreement http://www.oecd.org/tax/exchange-of-tax-information/MCAA-Signatories.pdf
❷

4. DEOFFSHORIZATION
Key Element – Amendments to the Tax Code
• Controlled foreign company or CFC
• Beneficial owner of income
• Tax residence of legal entities
FEDERAL LAW ON THE INTRODUCTION OF AMENDMENTS TO PARTS ONE AND TWO OF THE TAX CODE OF THE
RUSSIAN FEDERATION (REGARDING TAXATION OF THE PROFITS OF CONTROLLED FOREIGN COMPANIES AND
INCOME OF FOREIGN ORGANIZATIONS) No. 376-FZ of 24 November 2014
(Original not amended English version)
https://www.kpmg.com/RU/ru/IssuesAndInsights/ArticlesPublications/tax-publications/Alerts/Documents/Federal_Law_No.376-FZ.pdf
❸

5. CFC
CFC is a foreign organisation or a structure without formation of a legal entity which is not a tax
resident of the Russian Federation but is controlled by a Russian tax resident.
Control - exercising (or having the possibility to exercise) a decisive influence on the decisions made
by an organisation (structure) in relation to distributing after-tax profits (income).
Controlling persons:
1) with a participation interest of more than 25%*
2) with a participation interest of more than 10%*, if the participation interest of all the persons
recognized as tax residents of the Russian Federation exceeds 50%*
3) if control is exercised for the shareholder’s own benefit or for the benefit of his/her spouse and
minors a participation interest disregarded.
4) settlor or founder of a structure without formation of a legal entity (appeared 8 June 2015).
5) other than settlor or founder of a structure without formation of a legal entity, controlling the
said structure, and who has (i) beneficial ownership to income of the structure, or right (ii) to
dispose the property of the structure, (iii) to receive the property in case of termination or
dissolution of the structure (appeared 8 June 2015).
6) self-declared as a controlling person.
* For individuals: jointly with spouses and minors. ❹

6. Non-Controlling Persons
• A person is not deemed to be controlling person, if participation interest effected
directly or indirectly through one or several Russian public companies.
• A settlor (founder) of a foreign structure without formation of a legal entity is not
deemed to be a controlling person of such a structure if in respect of such a settlor
(founder) the following 3 conditions met simultaneously: (i) such a person has no right to
receivedirectly or indirectly (no right to request) profit (income) from the structure in
part or in full, (ii) such a person has no rightto dispose of the profit (income) of the
structure or its part, (iii)such a person has not reserved title or rights to property
transferred to the structure (property transferred to the structure irrevocably) ⃰ .
⃰ Condition met only if a settlor (founder) has no right to receive assets of such a
structure in part or in full in his ownership under the applicable law and (or) a
constitutive instrument of the structure during the entire period of its existence or upon
dissolution (liquidation, termination of an agreement).
❺

7. Recognition• of an organization or an individual being a managing company (a partner or
other person managing assets of a fund) of an investment fund (unit fund or any other
form of collective investments) as Russian tax resident is not a ground itself for
recognition of an investment fund (unit fund or any other form of collective investments)
as CFC, for which controlling person is the mentioned organization or individual.
Russian Law Amending the Tax Code Regarding CFC Rules, Voluntary Declaration by Individuals and Thin
Capitalization Rules No. 150-FZ of 8 June 2015 http://www.consultant.ru/document/cons_doc_LAW_180743
❻

8. RUSSIAN ULTIMATE TAX LIFEHACK FOR INDIVIDUAL
“Income in the form of money and in kind received from individual as a gift, except cases of making
a gift of real estate, means of transport, shares, share interests and stock units, unless otherwise
provided by this clause” exempted from individual income tax.
Paragraph 1, Section 18.1, Article 217 of the Russian
Tax Code “Non-Taxable (Tax-Exempted) Income”
Section 18.1 of Article 217 of the Russian Tax Code “Non-Taxable Income (Tax Exempted)” was enacted by the Federal Law No. 78-FZ of 01.07.2005
http://www.consultant.ru/popular/nalog2/3_3.html#p5350
Russian Tax Code Part 1 in English (as of 2012) http://www.ey.com/Publication/vwLUAssets/Tax-Code-Part-One-EN/$FILE/Tax-Code-Part-One-EN.pdf
Russian Tax Code Part 2 in English (as of 2012) http://www.ey.com/Publication/vwLUAssets/Tax-Code-Part-Two-EN/$FILE/Tax-Code-Part-Two-EN.pdf
❼

9. FOREIGN ACCOUNTS FOR RUSSIAN INDIVIDUALS
RUSSIAN CURRENCY CONTROL
• Obligation to notify a local tax authority on opening or closing a foreign bank account
(also any changes of details) within one month – Administrative Fine 5000 Rubles (81,50
Euro)
Federal Law on Currency Control http://www.consultant.ru/document/cons_doc_LAW_166430
• Obligation to report transactions and balance of a foreign account by 1 June 2016 for
2015 and then on a year bases (Expected to come in force in 2015) – Administrative Fine
5000 Rubles (81,50 Euro)
Draft of the Rules for Individuals http://regulation.gov.ru/project/24539.html?point=view_project&stage=2&stage_id=18760
• Illegal Currency Transactions appeared in February 2013 (Code of Administrative
Offences, Article 15.25) – Administrative Fine 75% - 100% of transaction amount
Code of Administrative Offences http://www.consultant.ru/popular/koap/13_16.html#p6501
❽

10. WHAT IS ILLEGAL CURRENCY TRANSACTION FOR RUSSIAN RESIDENTS?
Illegal Currency Transactions under the Russian Law – the transactions “forbidden by the currency
legislation of the Russian Federation or performed with any violation of the currency legislation of
the Russian Federation, including sale and purchase of foreign currency and bank checks (travelling
cheques), which nominal prices indicated in foreign currency, bypassing the authorised banks or
performing currency transactions with payments effected bypassing accounts in the authorised
banks or accounts (deposits) in banks situated outside the territory of the Russian Federation in
cases not provided by the currency legislation of the Russian Federation, or in cases not provided
by the currency legislation of the Russian Federation performing of currency transactions with
payments from the funds credited to accounts (deposits) in banks situated outside the territory of
the Russian Federation” (Part 1, Article 15.25 of the Russian Code of Administrative Offences).
RUSSIAN CURRENCY CONTROL RESIDENT INDIVIDUAL
• Russian citizens (including, inter alia, those travelling as tourists or temporarily living abroad),
except Russian citizens permanently living abroad for at least a full year.
• Foreign nationals or stateless persons continuously living in Russia under a residency permit.
❾

11. PERMITTED TRANSACTIONS ALLOWING FUNDS TRANSFER TO
FOREIGN ACCOUNTS OF THE RUSSIAN (CURRENCY CONTROL)
RESIDENTS
• Interest on account balance„
• Minimum deposit required for opening a bank account „
• Cash
• Funds received from conversion operations of assets available in the account „
• Salary and other payments received from currency control non-residents according to an
employment agreement and related to the employment duties the currency control resident
performs outside the Russian Federation
• Funds received in accordance with foreign state court’s decisions, except for arbitration award of
an International Commercial Arbitration Court
• Pensions, scholarships, alimony and other social payments
• Insurance payments from insurers – currency control non-residents
• Funds received as refunds of previously made payments by currency control residents, including
refunds of mistakenly made transfers and refunds for return of pre-paid goods or services
received by currency control residents from currency control non-residents ❿

12. PERMITTED TRANSACTIONS ALLOWING FUNDS TRANSFER TO FOREIGN ACCOUNTS IN
OECD OR FATF MEMBER-STATES
Individuals – Russian currency control residents are allowed to receive the following
types of payments to accounts opened in OECD or FATF member-states: „
• Rental income received from currency control non-residents for real estate or other property
located outside of the Russian Federation
• Grants
• Accumulated coupon interest the payment of which is foreseen by the terms of foreign securities
issue owned by individuals – currency control residents
• Other income on foreign securities (dividends, payments on bonds and bills, payments upon
reduction of the charter capital of a foreign securities issuer)
Expected to be included in the list of permitted transaction (when?):
• Gain on shares or other securities sale remitted to foreign account
11

13. PROBLEMS AND OBSTACLES FOR EFFECTIVE ENFORCEMENT
• Russian currency control resident individual is an evaluative notion.
• No criminal punishment for currency legislation violation for individuals. Low fines for
individuals.
• Only One Year Period for the competent State Authority to charge an individual with
violation of currency legislation. Period calculated from the day of a particular violation.
• The competent State Authority has no any ability or power to get information from
foreign banks to prevent violation of the currency legislation in case an individual fails
or avoids notifying and reporting the local Tax Authority. Unless money from foreign
bank account needed in Russia. 12

14. VOLUNTARY ASSET DECLARATION - 2015
4 December, 2014
The Presidential Address to the Federal Assembly
“I propose a full amnesty for capital returning to Russia. I stress, full amnesty.
Of course, it is essential to explain to the people who will make these decisions what full amnesty
means. It means that if a person legalises his holdings and property in Russia, he will receive firm legal
guarantees that he will not be summoned to various agencies, including law enforcement agencies,
that they will not “put the squeeze” on him, that he will not be asked about the sources of his capital
and methods of its acquisition, that he will not be prosecuted or face administrative liability, and that he
will not be questioned by the tax service or law enforcement agencies. Let’s do this now, but only once.
Everyone who wants to come to Russia should be given this opportunity”.
President of Russia Vladimir Putin
Paragraphs 85, 86
Official site of the President of Russia http://en.kremlin.ru/events/president/news/47173 (English version) 13

15. FATF PRINCIPLES FOR VTC PROGRAMMES
Best Practices Paper “Managing the Anti-Money Laundering and Counter-Terrorist Financing Policy Implications of Voluntary Tax Compliance Programmes”
http://www.fatf-gafi.org/media/fatf/documents/reports/BPP%20VTC.pdf
Principle 1: The effective application of AML/CFT preventative measures is a prerequisite for addressing and
mitigating the money laundering and terrorist financing risks associated with implementing any type of
voluntary tax compliance programme.
Principle 2: The FATF Recommendations do not allow for full or partial exemptions from AML/CFT requirements
in the context of implementing a voluntary tax compliance programme. Therefore, when implementing a
voluntary tax compliance programme, national authorities should ensure that its terms do not allow, in law or
in practice, for full or partial exemptions from AML/CFT requirements as set out in the FATF Recommendations.
Voluntary tax compliance programmes which do so are in breach of the FATF Recommendations.
Principle 3: When implementing a voluntary tax compliance programme, it should be ensured that all relevant
domestic competent authorities be able to co-ordinate and co-operate, and exchange information, as
appropriate, with a view to detecting, investigating and prosecuting any ML/FT abuse of the programme.
Principle 4: The widest possible range of mutual legal assistance and exchange of information in ML/FT
investigations, prosecutions and related proceedings relating to the abuse of voluntary tax compliance
programmes, including asset recovery investigations and proceedings, should be provided. 14

16. Main points of the Russian VTC Program - 2015
• Citizens of Russia, foreign nationals and person without a citizenship can take part
in the Program
• Objects existing and Offences committed up to 31 December, 2015 can be declared
• Effective Period of Program: 1 July, 2015 – 31 December, 2015
• Participation in the Program is allowed only once per person
• Transfer of assets from nominee to beneficial owner is tax-exempted
• Participants will be exempted from Criminal, Administrative and Tax Liability under
6 kinds of Criminal Offences and corresponding Administrative and Tax Offences
• No requirements to return money from foreign accounts, if banks are not in
countries from FATF blacklist or from Russian offshore blacklist
• No need to compensate losses of the State Budget! (Special Amendment to the Criminal Code)
Russian Law on Voluntary Declaration by Individuals Assets and Accounts (Deposits) in Banks and Amending the
Corresponding Acts of the Russian Federation No. 140-FZ of 8 June 2015
http://www.consultant.ru/document/cons_doc_LAW_180745
Russian Law Amending the Tax Code Regarding CFC Rules, Voluntary Declaration by Individuals and Thin
Capitalization Rules No. 150-FZ of 8 June 2015 http://www.consultant.ru/document/cons_doc_LAW_180743 15

17. Objects proposed to be declared
• Property (land plots, other real estate, means of transport, securities, including shares,
also share interest and stock units in capital of Russian and/or foreign organizations)
belonging to a Declarant (at the moment of filing the special declaration) as a legal owner
of title or as a beneficial owner.
• CFC controlled by a Declarant indirectly (e.g. a Declarant is not a shareholder).
• Non-declared foreign bank accounts (deposits).
• Foreign bank accounts opened not in the name of a Declarant (e.g. for a foreign
corporation), but in respect of which (s)he is considered a beneficiary.
16

18. Amnesty of currency control violations
1. Non-declaration of foreign bank account amnesty
2. The money debited by and on 1 January 2015 to the reported in the special declaration foreign
accounts (deposits) opened in banks outside the territory of the Russian Federation is deemed to
be debited to such foreign accounts (deposits) in full compliance with the Law on Currency Control
(Foreign Exchange Control) No. 173-FZ of 10 December, 2003.
3. Currency transactions (including debiting money) proceeded before 1 January 2015 on foreign
bank accounts (deposits) identified in the special declaration are deemed to have been performed
without violations of the Law on Currency Control (Foreign Exchange Control) No. 173-FZ of 10
December, 2003.
Interesting when money appeared on reported or non-reported foreign bank account as a result of
illegal currency transaction and an Individual needs to get it into Russia without 100% fine.
17

19. Main FEARS and DANGERS of the Russian VTC Program
1. All information from the special declaration will be misused by the state officials and
can even be disclosed to criminals.
2. The criminal offence declared in the special declaration under the Program can be re-
qualified as a fraud or a money-laundering, which are not covered by the Program.
18

20. THANK YOU FOR YOUR ATTENTION!
PARAGON ADVICE GROUP
DR. ALEXANDER S. ZAKHAROV
+74957419177
+79163066600
paragonadvice@gmail.com
http://www.forbes.ru/person/80593-zaharov-aleksandr