How would you picture an offshore tax haven? A Caribbean island with sandy beaches and palm trees or snow, ice and sub-zero temperatures? While you would probably imagine the former, two new offshore zones in Russia now offer certain companies the same favourable taxes and conditions of confidentiality as other offshore zones, if not the tropical temperatures.

These “Special Administrative Regions” (SARs) were established in Russia in August 2018. They are located in Oktyabrsky Island in Kaliningrad, the westernmost region of Russia, and Russky Island, near Vladivostok in Russia’s far east. If you are a football fan, you might have heard of Oktyabrsky Island, which was the venue for several matches in the 2018 World Cup, including England versus Belgium.

Around two dozen companies have already re-registered in the SARs and several more intend to re-register later this year.

This represents a notable shift in the direction of Russian capital which, since the 90s, has flowed mainly out of Russia and into offshore jurisdictions like the British Virgin Islands and the Seychelles, where ownership structures are traditionally opaque and taxes low.

The onset of sanctions has seen this trend partially reversed, with some Russian capital moving back in the other direction. While Russian companies are not protected from sanctions in a SAR, they are less vulnerable to their accounts being frozen by fiduciaries in other offshore jurisdictions, who might fear repercussions for contravening sanctions.

A company registered in a SAR is called a “Mezhdunarodnaya Kompaniya” (International Company, or ‘MK’), a new company type in Russia exclusive to the SARs.

They are “international” because companies already incorporated in Russia are not permitted to re-register in SARs. However, to register in a SAR the “international” company must hold Russian assets and agree to invest RUB50 million in Russia within six months.

International companies registered in SARs can have one of three legal forms: joint stock (MKAO), public joint stock (MKPAO) and limited liability (MKOOO).

For any MK registered in a SAR, disclosing the identities of directors and legal shareholders to EGRUL, the Russian database for legal entities, is optional. Conditions of confidentiality are therefore similar to those of other offshore zones around the world.

So far, the majority of companies registered in the SARs have opted to not publicly disclose information about directors and shareholders. Despite this, some of the companies are so well-known that the identity of the beneficial owners is widely acknowledged.

For several MKs previously registered in Cyprus, where shareholders and directors are publicly disclosed, re-registering in a SAR means they are now able to operate more secretly than before.

Chillier weather aside, it remains to be seen if this move back to Russia will prove beneficial for the MKs in the long run.

This article was written for and published by the Russo-British Chamber of Commerce. The original article may be found here. If you have any questions, please contact enquiries@raedas.com.