Russian, Ukrainian or FSU Holding Companies

[Manny]

Does anyone know anything about these? My understanding is that Russia doesn't have a specific holding company structure. Does Ukraine? By "Holding Company" I mean a non trading legal entity that can be used simply to legally and privately own stuff anywhere in the world.

How do these blokes like Beresovsky and Abramovich own their yachts and properties around the world? For sure, they don't own them in any personal names. They are owned by a corporate structure; a holding company of some kind.

In the old days, it was Cayman Island, BVI and similar structures that were used. If you had a yacht, it flew the Liberian flag. The mention of all those places are red flags anywhere in the world now. I suspect some non EU, FSU legal entity is in popular use with these people now.

Does anyone know what structure is favoured by monied Russians to own stuff nowadays?

[nicknick]

A lot of it is done through Cyprus nowadays.

However, having said that, there is a new tax treaty that came into force at the start of this year, so Cyprus may no longer be so popular.  Apparently it will really hit Russian real estate holding companies that are registered in Cyprus.

I don't know what effect it will have on other non-real estate companies.

[Chris]

Manny, wifey says they are called Holdyngovaya in Russian, or Holdyngova in Ukrainian, and they are mainly set up in the larger cities, Kiev, Moscow etc for International Companies/trading,

If you wanted to do something between Russia/UK, there are ways, one possible way,  set up a Sovmesnoe Predpryatue (Russian) (joint Company) one partner Russian, one UK, then materials, goods etc can be sent to each other with reduced Customs Fees.

Don't take all this as read as she is a bit out of date with all this now,  and she would have to check on all of it as she has not dealt with Holding Companies personally, but has dealt with the joint Companies.

[Manny]

However, having said that, there is a new tax treaty that came into force at the start of this year, so Cyprus may no longer be so popular.  Apparently it will really hit Russian real estate holding companies that are registered in Cyprus.

Can you be more specific about this Nick?

@ Chris - it wasn't for re-invoicing or import/export purposes I was asking. But thanks for the name of the structure; that's a good lead to Google. 

[nicknick]

Apparently the bit involving property companies won't be phased in until 2015.

There's a couple of links here.  This one just gives some general background:-

http://www.russianlawonline.com/content/russia-cyprus-double-tax-treaty

and this one gives a lot more details about what has changed:-

http://www.taxand.com/news/newsletters/Amendments_to_the_Cyprus_Russia_Double_Tax_Treaty_Promises_to_Benefit_Investors

[mendeleyev]

I'm familiar with only the very basics of corporate structure.

A Russian Joint Stock company is called Акционерное общество. These are designed with the symbol AO. But I dont' think they are what you're looking for as they were designed to transition companies from state ownership to private ownership with some of the benefits of an LLC in the USA. Aeroflot is a "Joint Stock" company, for example.

Some companies with offices both inside and outside of Russia are also organized as Joint Stock. But I don't know why.

However a closer equilivalent to an LLC would be a Russian Limited Stock Company, (OOO).

A privately held corporation is Russia is called a "Close Corporation" (ZAO).

Any type of corporate structure, just like in the USA, must have a Tax ID (called a Tax registration in Russia) and local bank account for payment of taxes. When a tax inspector pops in unexpectedly and ask for documents, he/she is looking for the tax registration certificate to make sure you're registered and paying. Obtaining a tax registration certificate is inexpensive--somewhere in the neighborhood of $100 USD.

[el_guero]

Manny,

If I read what you wrote correctly, that sounds like the holding company would get around the laws prohibiting expats (foreigners) from holding title to land?  Am I correct?

wayne

[Manny]

One would think so, as a company is a legal entity in itself. But I am not certain.

[nicknick]

Manny,

If I read what you wrote correctly, that sounds like the holding company would get around the laws prohibiting expats (foreigners) from holding title to land?  Am I correct?

wayne

el_guero,

There's a bit more to it than that.

There is generally nothing to stop foreigners owning land or property in Russia.  There are only two prohibitions:-

Foreigners cannot own

1. agricultural land
2. land in certain specified border regions

This also applies to Russian companies with greater than 50% foreign ownership.

This is from Article 3 of the relevant Russian law:-

Foreign citizens, foreign legal entities, stateless persons, as well as legal entities whose authorized (shareholder) capital includes more than 50 percent in shares owned by foreign citizens, foreign legal entities, stateless persons have a right to hold agricultural land parcels on lease right only.

From my understanding, the bit about border regions is due to security issues and the bit about agricultural land was to do with fears from rural areas that big foreign companies would just come in and buy up huge tracts of farm land so that the locals couldn't farm it.

Although Russian companies with greater than 50% foreign ownership can't actually own agricultural land there is a way round this by using subsidiaries and minority Russian shareholders.

However, as long as land isn't designated as agricultural land then you're free to own it yourself.

There are various types of land designation in Russia.  If you are looking to buy land to build a house then you really need to look for land that's designated as ИЖС «для индивидуального жилищного строительства» - for Individual Housing Construction.

There are other ways, for example some agricultural land can be designated for the building of dachas but, I really would suggest, that if you're looking to buy land in Russia that you stick to ИЖС land and leave all the bothers of trying to change land registration from one type to another type to the locals.



With the border regions, the law finally came into effect this year and I was quite surprised just how widespread the regions are.  There's a link to the information here – it's in Russian:-

http://www.kremlin.ru/acts/10033

For example, as a foreigner, you can't buy land in Sochi or Anapa so don't think you're going to get rich with the Olympics going there or the Grand Prix going there – they're saving that for locals.

I was amazed to find out that there's even a part of St Petersburg where you can't buy land.  The main port of St Pete is a place called Kronstadt which is on a small island and, as a foreigner, you're not allowed to buy land there.

Most of the places are the ones that you would expect, for example places like Dagestan and Ingushetia and most of far eastern Russia as well.  However, there were some places I was perhaps surprised to see on the list, for example, the following towns are on the list:-

Kaliningrad, Belgorod, Murmansk, Pskov, parts of Volgograd

Well, I guess I can understand the reasons for places like Kaliningrad and Murmansk.  But why Pskov?  Perhaps they don't want a repeat of ancient history and have to bring back Nevsky again.

[mendeleyev]

Nicknick, I've wondered about the ag land issue because McDonald's Corp is the single largest private landowner in Russia today, most of it devoted to agriculture. Yet, I also know that what you have quoted is the law.

Bribes? Influence? How does McD get a break that most don't?

[ashbyclarke]

Nicknick, I've wondered about the ag land issue because McDonald's Corp is the single largest private landowner in Russia today, most of it devoted to agriculture. Yet, I also know that what you have quoted is the law.

Bribes? Influence? How does McD get a break that most don't?

I don't know.. but I would imagine that the land is owned by McDonalds (Russia) Ltd... which is owned in Russia and pays Russian Taxes.... maybe profits are not allowed off Russian soils either....

With McDonalds (Russia) Ltd paying royalties to McDonalds Corp...  if you have enough money and good laywers anything is possible

As for taxation and owning offshore companies... Holding Companies etc... No matter how clever you are, it boils down to what your individual tax status is, i.e resigned from the UK living as an x-pat, the you will be subject to limited number of days in the UK etc etc etc.

As a model on how to do things, look at Philip Greens tax affairs, brilliantly worked out, joys of having a spouse who is not living or working in the UK, what we call financial planning.

However, when it comes to IHT, then it is down to you Domicile which is a very grey area and hard to get alterted, if you are British born and own property within the UK, although worked & lived in say Cyprus for 40 years, it's likely that your domilce status will remain british and be subject to IHT, and that would be on worldwide assets.  It's unlikely for anyone to get thier domicile status changed until they have left the UK for at least 10 years... owning a property indicates to the tax office an intent to return!

It then gets a little further complicated when double taxation agreements are in place, or not in place.  You really need to get a little professional advice in what you're trying to achieve.

Any Holding Company based onshore or offshore, and you're a british resident for purposes of tax, you would be still liable to tax on your worldwide income.... failure to declare is tax evasion!

9/11 sorted out any tax fiddles that were available!! Even putting assets into Trust must be disclosed for income tax purposes, Swiss bank accounts now disclose any assets you hold as do BVI, IOM etc etc etc.

I used to be a taxation & trust specialist until about 10 years ago, I know things have changed since then but the fundamentals are pretty much the same, tax evasion is out, tax planning is very much in.

My apologies if i'm completely off topic or I make no sense, i'm not good at multi tasking!!!

[BelleZeBoob]

How do these blokes like Beresovsky and Abramovich own their yachts and properties around the world? For sure, they don't own them in any personal names. They are owned by a corporate structure; a holding company of some kind.
 

To my knowledge, they use corporate strictures throughout the world. When I looked for a job in Moscow, I came across an ad that was looking for a corporate lawyer with foreign experience. I was told that the employing company was created with the purpose to take care about Abramovich's assets. Therefore they wanted a lawyer who could liaise with foreign offices in order to advise what to do with all his property and interests.

If you wanted to do something between Russia/UK, there are ways, one possible way,  set up a Sovmestnoe Predpryatye (Russian) (joint Company) one partner Russian, one UK, then materials, goods etc can be sent to each other with reduced Customs Fees.
 

This is not a legal term but rather a colloquial one. As far as I remember, this term was created in the Perestroika times, when foreigners started to come to do business but no legal framework was established yet. Perhaps it was even some rules that actually used that term. Later however, when the corporate law was intoduced in Russia, this term ceased to exist. It basically meant that the entity was created both with foreign and domestic participation.

Nicknick, I've wondered about the ag land issue because McDonald's Corp is the single largest private landowner in Russia today, most of it devoted to agriculture. Yet, I also know that what you have quoted is the law.

Bribes? Influence? How does McD get a break that most don't?

First of all, McDonald is a brand name. Names should be different from companies. What we see on the streets, and what we mean by mentioning McDonalds is the name. A brand name is likely to be owned by some entity.

I don't know the structure under which the McD operates in Russia. To answer Mendy's question, I'd probably go two ways. Either the land in question is not owned but is under their control in some other way, or the company that holds the name 'McD' is from the legal point of view not foreign but domestic.

For your inquiring minds on the Russian legal issues, you may want to go to www.lawfirm.ru forum. There used to be a number of English speaking Russian lawyers there, who seem to be quite well informed. They for example discussed the famous Yukos case, how come that it could be given a legal way and why did they decide it this way, etc.

[ashbyclarke]

Does anyone know anything about these? My understanding is that Russia doesn't have a specific holding company structure. Does Ukraine? By "Holding Company" I mean a non trading legal entity that can be used simply to legally and privately own stuff anywhere in the world.

How do these blokes like Beresovsky and Abramovich own their yachts and properties around the world? For sure, they don't own them in any personal names. They are owned by a corporate structure; a holding company of some kind.

In the old days, it was Cayman Island, BVI and similar structures that were used. If you had a yacht, it flew the Liberian flag. The mention of all those places are red flags anywhere in the world now. I suspect some non EU, FSU legal entity is in popular use with these people now.

Does anyone know what structure is favoured by monied Russians to own stuff nowadays?

Manny - boats is quite an easy one, it's an asset which doesn't appreciate in value, you're going to buy it anyway, many with a down payment and X amount and the remainder on finance. 

Create a Ltd company in say Jersey, use your already legally tax paid money to fund the new company which will then purchase the boat, the registration will then be jersey which is not subject to VAT and doesn't have any VAT.  Also any import duty (assuming boat is purchased from foriegn soils) is also not payable in Jersey.

Additionally if you put petrol or Diesel in the boat in foriegn waters, you would normally, again i'm no expert on this, be able to reclaim any VAT charged. I know as a Jersey resident any purchases from the UK are exempt of VAT and can be easily reclaimed upon returning.

Have a look here

http://www.jym.co.je/Ownership.htm

[Chris]

I know as a Jersey resident any purchases from the UK are exempt of VAT and can be easily reclaimed upon returning.

Have a look here

http://www.jym.co.je/Ownership.htm

Also true of Guernsey, I have was over there not long ago doing business.

[ashbyclarke]

Yes Chris, think all the Channel Islands are not subject to VAT and do not have any form of VAT.

Additionally as way of explanation, if the Jersey Company then Charters the boat out and after expenses etc makes a profit of say £50,000, then this will need to be declared on your tax return.

Unless you're an x-pat of course!

[Chris]

Yes Chris, think all the Channel Islands are not subject to VAT and do not have any form of VAT.

That's correct ashbyclarke, the Channel Islands which comprise of, Jersey, Guernsey, Alderney, Sark and Herm (small island off the Guernsey coast) are NOT part of the UK or the EC for VAT purposes, so in effect their treatment is the same as for the rest of the world, outside the EC of course.

However, some services (performed in the islands) do attract VAT, but this is a complex area that needs to be looked at individually.

[ashbyclarke]

Yes Chris, think all the Channel Islands are not subject to VAT and do not have any form of VAT.

That's correct ashbyclarke, the Channel Islands which comprise of, Jersey, Guernsey, Alderney, Sark and Herm (small island off the Guernsey coast) are NOT part of the UK or the EC for VAT purposes, so in effect their

 treatment is the same as for the rest of the world, outside the EC of course.





No chris you're wrong, there is no vat in any of the islands.... None, nothing, only for exports to the uk over £11

However, some services (performed in the islands) do attract VAT, but this is a complex area that needs to be looked at individually.

[ashbyclarke]

Yes Chris, think all the Channel Islands are not subject to VAT and do not have any form of VAT.

That's correct ashbyclarke, the Channel Islands which comprise of, Jersey, Guernsey, Alderney, Sark and Herm (small island off the Guernsey coast) are NOT part of the UK or the EC for VAT purposes, so in effect their treatment is the same as for the rest of the world, outside the EC of course.

However, some services (performed in the islands) do attract VAT, but this is a complex area that needs to be looked at individually.

Sorry, couldn't see my last post

But no Chris you're wrong, nothing is subject to VAT in the Channel Islands

I lived there for many years..... and will never be subjected to, it's written in history that they wont

[nicknick]

Nicknick, I've wondered about the ag land issue because McDonald's Corp is the single largest private landowner in Russia today, most of it devoted to agriculture. Yet, I also know that what you have quoted is the law.

Bribes? Influence? How does McD get a break that most don't?

Mendy,

I was briefly involved with a project looking into Russian agriculture for a company that we were working with a couple of years ago, so just a quick disclaimer that anything I say in this post is 2 or 3 years out of date.

To take McD first of all.  All of this stuff about them being the largest landowner dates back to a single article in the New York Times in 2005.  There's a link to it here:-

http://www.nytimes.com/2005/03/17/business/worldbusiness/17mcdonalds.html

They are by no way the largest landowner – in terms of hectares – in Russia, in fact they are nowhere really.  What this article was referring to was the real estate that McD had purchased.  They own the freeholds of all their restaurants and have invested in a few office blocks in central Moscow and other real estate as well.  I guess you could almost say that McD in Russia is almost as much a real estate investment company as a fast food company.

However, since back then in 2005, I am sure that there are lots of Cyprus registered, Russian real estate companies that have outstripped them in terms of size.

If they purchased agricultural land in the 1990s then I would suggest that they could not have ''bought'' it in the sense that we would understand buying land as companies weren't allowed to do that then, they had the right of ''permanent usage'' I think it was called.  However, a small article in the NY Times is not going to have the space to go into those sort of details.



WARNING    The rest of my post goes into quite a lot of detail, so if you're not interested in Russian agriculture then please stop reading here.


When the law changed and companies could buy agricultural land then, from what I have been told, this is how it was done:-

You would first set up a company, let's call it the holding co, with 90% foreign ownership and 10% Russian ownership.  You then set up a subsidiary of this company which will actually own the land.  This subsidiary company will be owned 51% by the holding company and 49% by a Russian investor.

So what this means is that of the 51% of the subsidiary co. shares held by the holding company, 10% of them – ie 5% - is held by the Russian investor in the holding company as he owns 10% of the holding company.

So, the total Russian share ownership of the the subsidiary is 49 + 5 = 54% and so it's all legal while the foreign investor still has effective control of the subsidiary which owns the land.


The very biggest landowners in Russia are the likes of Ivolga Holdings, Prodimex, Razgulay and Cherkizovo.  They each control upwards of half a million hectares of land.  That's getting on for 2,000 square miles each.

However, when you talk about the ownership of agricultural land in Russia things do get very complicated.  Actually a lot of the land that these large companies control isn't actually owned by them but is on long term lease – anything from 20 to 49 years.  The maximum term you can lease land for in Russia is 49 years by law.

Most of these large landowners actually lease large amounts of their land but, although I believe that Cherkizovo does actually own a large amount of it's own land.

There are several reasons for this.  Some regions were still forbidding sale of land up until a couple of years ago, this included Stavropol and Krasnodar in the black earth region.

But perhaps one of the main reasons is that a lot of land is паевая land, where people have a share of the whole collective land rather than their own specific plot of land.  Various bureaucratic things mean that it is incredibly expensive to get these shares converted into actual plots of land and registered so that they can be sold.  As a result it's not worth doing as it's often more expensive to register than the plot of land is worth.

As a result there is an active rental market for agricultural land in many areas.  Although, sometimes rents can be very low.  A few years ago annual rents of as little as 300 roubles per hectare were not uncommon and it was also not uncommon for this to be paid in kind as a share of the crop rather than in cash.


Sorry if this was going way off topic but I just wanted to give some background as to why McD is not the biggest landowner in Russia.

[el_guero]

still nice to know.

[mendeleyev]

Thanks Nicknick, I appreciate your answer. I've done previous studies on potato production but other than our homes and dacha, my ownership of Russian property experience is very limited.

It looks indeed as McDonald's is fast getting out of the farming business. http://www.nytimes.com/2010/02/02/business/global/02mcdonalds.html?_r=1

I've been to McComplex a few years back and it is being sold according to the article above.

[AvHdB]

Manny - boats is quite an easy one, it's an asset which doesn't appreciate in value, you're going to buy it anyway, many with a down payment and X amount and the remainder on finance. 

Create a Ltd company in say Jersey, use your already legally tax paid money to fund the new company which will then purchase the boat, the registration will then be jersey which is not subject to VAT and doesn't have any VAT.  Also any import duty (assuming boat is purchased from foriegn soils) is also not payable in Jersey.

Additionally if you put petrol or Diesel in the boat in foriegn waters, you would normally, again i'm no expert on this, be able to reclaim any VAT charged. I know as a Jersey resident any purchases from the UK are exempt of VAT and can be easily reclaimed upon returning.

Have a look here

Yachts + 25 meters as opposed to boats (I am in a dinghy) are usually owned by a corporate entity registered often in Panama or Cyprus. The taxes for the corporation are paid to the country and this includes operating expenses. The trick USUALLY is not keeping the vessel in one countries waters for too long a period.

If one goes to BootDüssedorf in Januari one can find a number of companies that can facilitate this structure.

It is like any other business and is run as such. An ogliarch/miniarch "charters" his 70 + meter Fedship to a friend for two weeks and generates some income which he can offset against the expenses. This "game" is played around the world.

As for land and I am referring to farm land this is an area in Ukraine that is subject to serious contention and mega money. How it will end is almost any ones guess but the laws are not black and white and there has been on going efforts to reform this area of the economy. All seem to have failed so far.

The big problem and reducing everything to simple terms is Ukraine does not want to go from Communist collective farm to Corporate collective farms.

[cufflinks]

FWIW- I was told in Moscow a favorite structure for any RU-Intl trade is a Gibraltar Company with Swiss accounts - appears Gibraltar has some fairly beneficial privacy laws not easily pierced by courts and that this combined with the Banks in Switzerland add a bit more privacy than has been devolved via OECD action especially against EU and USA persons and companies...  OECD has essentially morphed into the Global Tax police...

Antigua also came up in similar conversations - since Allen Stanford was prosecuted for money laundering $8B+ Drugs Cartels money there - not sure if that is still true...  Basically a legal entity is created in a location with real privacy that then banks in the most trusted place on the planet with the Swiss being where all the funds move in and out of and are held for LTI as a rainy day fund.

[JayH]

Nicknick, I've wondered about the ag land issue because McDonald's Corp is the single largest private landowner in Russia today, most of it devoted to agriculture. Yet, I also know that what you have quoted is the law.

Bribes? Influence? How does McD get a break that most don't?

Mendy,
They are by no way the largest landowner – in terms of hectares – in Russia, in fact they are nowhere really.  What this article was referring to was the real estate that McD had purchased.  They own the freeholds of all their restaurants and have invested in a few office blocks in central Moscow and other real estate as well.  I guess you could almost say that McD in Russia is almost as much a real estate investment company as a fast food company.

Sorry if this was going way off topic but I just wanted to give some background as to why McD is not the biggest landowner in Russia.

Interesting thread that needs an update!
McDonalds is interesting for a lot of reasons.It basically is a real estate company. It is the ownership of the stores and the rental income paid by franchisee's that makes it bullet proof. Of course--they also derive income from royalties paid.What is relevent here is that they do pay very good lawyers and accountants !!.Of course,I am referring to minimising tax issues and constructing affairs in the most favourable way.
I am interested in the equivalent of a Holding Company /Trading Company relationship  in Ukraine.

[nicknick]

I am interested in the equivalent of a Holding Company /Trading Company relationship  in Ukraine.

I can't speak of Ukraine, however in Russia there would be no need to have a holding company unless you were looking to purchase agricultural land or land in certain specified border regions.  Foreigners are free to buy any other sort of land or real estate. 

There's also no problem with outright foreign ownership of businesses unless it's involved with strategic resources or things like airlines.

Both Ukraine and Russia are cracking down on transfer pricing abuses at the moment, just something to be aware of if you're going to be importing/exporting.