In recent years, Russia has made an incredible breakthrough from the point of view of personal wealth development. Nowadays, the main goals of wealthy Russians are good management of the family property, safe transferring of wealth through generations, asset protection and confidentiality.

The current political situation with sanctions being imposed on particular individuals and companies, and developments in Russian tax and civil legislation have led to the increase in localisation tendencies since more wealthy Russians have expressed an interest in moving their businesses to the Russian jurisdiction. At the same time Russian people continue to use foreign instruments, such as trusts and foundations, in their estate planning rather than domestic instruments. The trends in Russia are in keeping with the worldwide trend of strengthening the framework for combating tax evasion and global transparency. It is clear that the tax planning landscape is changing and that wealthy individuals with close ties to Russia are under pressure from the changes to Russian legislation and international trends and should determine what they might need to revise in their current operations and in planning future activity.

The above conditions gave rise to the development of wealth management services in Russia. Historically, wealthy Russians preferred a high level of self-involvement in asset management and worked a lot with foreign banks, family offices and investment agencies abroad. But we see today that in Russia such services have also started to be rendered by private and state Russian banks, and by emerging private wealth management offices.


Russian legislation sets forth three levels of taxation: federal, regional and local. Currently, the following taxes are applicable to individuals: personal income tax (PIT) is among the federal taxes; regional taxes include transport tax; while local taxes include land tax and individual property tax.

Russia taxes the worldwide income of its tax residents (individuals who stayed in Russia for more than 183 calendar days within 12 consecutive months) and Russian-sourced income of non-residents for tax purposes.

i Personal taxation
Personal income tax

Incomes of individuals are subject to PIT.

Individual tax residents should pay a rate of 13 per cent (general rate) on all income received worldwide (salaries, other remunerations, dividends, sale of property, etc.).

Non-residents pay PIT at a 30 per cent rate (except for certain types of employment remunerations taxable at a 13 per cent) and at a 15 per cent rate for dividends.

The 35 per cent rate applies to the certain types of income received by residents, such as interest on bank deposits exceeding certain limits; prizes and winnings received within promotional campaigns for goods, works or services where the relevant income exceeds 4,000 roubles; and certain others.

The PIT is levied on the total income of the taxpayer, but in some cases relevant deductions, allowances and exemptions may be enjoyed.

Capital gains

Capital gains are subject to PIT as general income, taxable at the 13 per cent rate.

Income from the sale of real estate, which has been held for more than five years, is also exempted from PIT. The five-year property holding period is not applicable if the real estate was acquired before 2015, was received as a gift, inheritance and in some other cases (the holding period required for the exemption will still be three years). If the holding period is less than three or five years, the resident may decrease the income derived from the sale of the property by the relevant expenses (allowances).

Sale of securities is subject to special rules. Generally, the taxable base is the proceeds from sale less documented costs. Income from the sale of certain securities may be tax exempted.

Taxation of donations and inheritance

There are no special taxes for donations and inheritance, so PIT is applicable in some cases with the following exemptions:

    • a gifts (in cash and in kind) from other individuals are not taxable except for gifted real estate, vehicles and shares;
    • b any gifts between close family members (spouses, parents and children, grandparents and grandchildren) are tax exempt; and
    • c inheritance is generally exempted from PIT except for royalties, which are taxed as ordinary income at the 13 per cent rate for Russian tax residents.
Taxation of individual property

Individuals (residents and non-residents) are subject to transport tax pertaining to owned vehicles registered in Russia. Moreover, individuals are also obliged to pay land tax on land plots in possession.

Before 2015 individuals were obliged to pay individual property tax on the inventory value of real estate registered in Russia, which was lower than the market price of the real estate.

With effect from 1 January 2015, the property tax for individuals is calculated on the cadastral value of real estate, which is almost equivalent to market value.

The transition period lasts from 2015–19. During this period the tax amount will be calculated using special coefficients, which should ensure a gradual increase of the tax amount for the holders of property.

ii ‘De-offshorisation’ of the Russian economy

The Russian government, in its Key Guidelines on Russian tax policy for 2014–16, announced the need for the implementation of rules that create an effective mechanism to prevent Russian businesses from misusing low-tax jurisdictions and receiving unjustified tax benefits. Following this tax initiative, the Russian tax law was subject to significant changes during 2014–16.

One of the key developments is the adoption of the De-offshorisation Law,2 the key aspects of which are outlined below.

It has also been noted that in the development of these initiatives, to ensure a smooth transition period to new regulatory requirements, opportunities such as voluntary declaration of assets and bank accounts or deposits have been provided to businesses. This ‘amnesty campaign’ was held from 1 July 2015 to 30 June 2016, and during it declarants had the right to disclose certain types of assets belonging to them as of the end of 2014 that were still in their possession at the date of submission of the special declaration, and receive release of criminal, administrative and tax offences liabilities under certain type of violations.

Moreover, the Russian tax legislation was amended by the regulations offering opportunities for the tax residents, who receive income upon liquidation of foreign companies and structures without incorporation of a legal entity, including trusts. Such income (except for cash distributions) is tax exempt in case the company or structure is liquidated prior to 1 January 2018 and the tax resident filed the necessary supporting documentation specified in the legislation.

‘Beneficial ownership’ concept

For the purposes of the application of double tax treaties (DTT) the beneficial owner of income is defined as a person (or entity) who by virtue of the direct or indirect participation in the foreign entity, or control over the entity, or by virtue of other circumstances has the right to independently use or dispose of the received income. Moreover, the beneficial owner of income is a person (or entity) who authorised the other person to dispose of the received income on behalf of the entity.

Current Russian tax practice provides for the following criteria under which an entity cannot be regarded as a beneficial owner of income:

  • a the entity has narrow powers to use and enjoy the received income;
  • b the entity exercises intermediary functions with respect to the income for the benefit of another entity or person and does not undertake any other business functions or risks; and
  • c the entity directly or indirectly transfers received income (fully or partially) to another entity (or person), which would not enjoy a tax benefit under a DTT if it received the income directly.

The above provisions of the Russian tax law are largely based on the guidance provided for in the official Commentary to the Articles of the OECD Model Tax Convention, which applies the ‘substance over form’ approach to the beneficial owner of income concept.

In respect of the above-mentioned changes, the Russian tax authorities started actively to apply the ‘beneficial ownership’ concept to challenge the application of DTT benefits for cross-border payments.

Taxation of capital gains from the indirect transfer of Russian real estate

The De-offshorisation Law stipulates that income derived from sale of shares in foreign organisations whose assets consist of more than 50 per cent of immoveable property located in the territory of Russia should be taxed in Russia (currently at a rate of 20 per cent).

Moreover, the De-offshorisation Law requires foreign organisations (structures established in any form other than a legal entity) that own immoveable property in Russia to provide annually, along with property tax returns, information regarding their stakeholders (shareholders, founders, beneficiaries, trustees, etc), provided their share in a foreign organisation exceeds 5 per cent.

‘Tax residency’ concept

The De-offshorisation Law introduced into Russian legislation the concept of tax residency for companies. The foreign company may be recognised as a Russian tax resident if it is managed from Russia.

Recognition of a foreign organisation as a Russian tax resident will result in taxation of its worldwide income in Russia and an obligation to comply with other requirements and rules provided by the Russian tax law.

Controlled foreign company (CFC) rules

A CFC is defined as a foreign organisation (or foreign structure established in any form other than a legal entity) that is not a Russian tax resident, but controlled by a Russian tax resident (controlling person).

In this connection, Russian tax residents are required to notify the Russian tax authorities of the following:

  • a direct or indirect participation in foreign companies if the share exceeds 10 per cent;
  • b the establishment of foreign structures in any form other than a legal entity; and
  • c CFCs in respect of which Russian tax residents exercise control.

In accordance with the CFC rules, undistributed profits of CFCs may be taxed in Russia in the hands of the controlling person, being a Russian tax resident, at a rate of 13 per cent (if the controlling person is an individual) or at a rate of 20 per cent (if the controlling person is an entity).

iii Exchange of information

Besides the De-offshorisation Law, other important initiatives allowing Russian tax authorities to use different instruments of information exchange have been launched in recent years, such as:

  • a The publication in 2014 of a Model Agreement on Exchange of Information on Tax Matters as a basis for the conclusion of bilateral agreements with offshore jurisdictions (the Russian Model of Tax Information Exchange Agreement – TIEA).
  • b The ratification of the OECD Convention on Mutual Administrative Assistance on Tax Matters, which came into force on 1 July 2015.
  • c The signing on 12 May 2016 of the OECD’s Common Reporting Standard multilateral competent authority agreement with a provision to start financial information exchange for 2017 in 2018.
iv Restrictions for public officials

Since 2013, the Russian government has adopted several federal laws that impose certain restrictions related to public officers possessing foreign assets.

The restrictions are imposed on a large group of public officers, including members of federal and regional parliaments, municipal officials, heads of regional and federal authorities, their deputies, judges, other officials and officers in state corporations (companies), funds and other organisations established by Russia and appointed by the president, government or the General Prosecutor, and certain employees of organisations established by Russia, where those employees are involved in decision-making on matters concerning the sovereignty and national security of Russia.

Public officers, their spouses and children under 18 are not entitled to:

  • a open and hold a foreign bank account (deposits);
  • b keep funds in foreign banks; or
  • c hold or use foreign financial instruments.
v Currency regulation: foreign accounts of individuals

The Law on Currency Regulation3 sets a number of limitations and obligations with respect to the use of foreign bank accounts by Russian currency residents.

Thus, a Russian citizen is not considered to be a currency resident after one year of living abroad without visiting Russia.

Residents, except for state officials, can freely open foreign accounts. However, residents must notify Russian tax authorities about opening, closing or changing details of their foreign accounts within one month, and annually submit reports on the movement of funds via their foreign bank accounts.

Residents can receive into their foreign accounts only those types of funds that are expressly allowed by law. The law contains the limited list of such transactions.

Over the last few years the list of funds that may be transferred to a resident’s foreign bank account4 was expanded. Particularly from now on resident individuals are allowed to receive into accounts opened with banks in OECD or FATF countries income from non-residents from the transferring of funds and securities into trust management conducted by the non-resident, and to receive funds obtained as the result of disposal of foreign-listed securities (the latter being effective from 1 January 2018).

Residents can freely spend funds from their foreign bank accounts, except for transactions related to the transfer of property and provision of services in Russia.

The fine for violation of these rules is up to 100 per cent of the amount of the illegal currency transaction.


Russian law applies to those inheritance relations in which the last permanent place of residence of a testator was in Russia or the testator’s real estate property is located in Russia, provided an international agreement does not state otherwise.

Russian law provides for two types of succession: by will and by operation of law.5 In cases of succession by operation of law, all legal heirs who are called upon to inherit in compliance with the succession priority shall inherit in equal shares. Heirs of the next line of the priority will succeed only if there are no heirs of the previous line. The order of succession may be changed by composing a will. In general, foreign wills are recognised as valid in Russia if they are made in accordance with the legal provisions of the country where the testator had his or her last place of residence when making the will, or its form is in compliance with the requirements of the place of execution of the will or Russian law.

Composition of a will grants the testator the freedom of disposal of his or her property at his or her own discretion and in any proportion. However, certain mandatory rules of Russian law cannot be changed in any way by a will (forced heirship rules6 or share of a spouse with regard to joint property).7

Forced heirship rules provide that the minors or disabled children of the testator, his or her disabled spouse and parents, as well as disabled dependants of the testator in some cases, irrespective of the provisions of the will, shall inherit no less than half of a share such a person would be entitled to in the event of inheritance by law (that is in the absence of a will). The above persons shall be entitled to claim the obligatory share from the part of the property subject to inheritance that is not stated in the will. If such property is not enough to satisfy the claims of the forced heirs, they are entitled to claim their obligatory share even from the property inherited by will.

The only option to withdraw from succession any heirs entitled to the compulsory share is to execute inter vivos transactions, such as making donations or establishing a trust or foundation in respect of the property that overrules legal succession of the property.

One more specific aspect of Russian inheritance law is that a testator’s spouse is entitled to a spouse’s share of property held jointly with the testator (half of the joint property). This half of the joint property is not included in the inheritance and fully belongs to the surviving spouse. The other half is included in the estate and is divided between heirs (the surviving spouse can also be included in the list of heirs). This rule applies even if a will provides otherwise.

To come into possession of the estate, the heirs should submit an application to the notary at the place of the testator’s last place of residence or at the place of real estate location in the Russian Federation (depending on circumstances) no later than six months after the testator’s death.

The notary shall issue a certificate of succession right to those heirs who come into possession of the estate. It should be noted that such a certificate is usually issued by the notary upon the expiry of the six-month period after the testator’s death, except where the heirs may be clearly identified and where no disputes between the heirs are expected to arise.

Despite the fact that Russian civil legislation was undergoing large-scale reform, succession law had not faced any fundamental changes for a long time. Then, in July 2017 the Russian Parliament introduced succession funds adopting amendments to the Civil Code.

According to the amendments, succession funds may be established by a notary public in accordance with the testament of the deceased person within three business days of the death of the testator. The respective testament should include the rules for the management of succession fund, which cannot be amended after the establishment of such a fund (an exception is made for certain unexpected circumstances). The rules should include the provisions on the election of management bodies, on the transfer of succession fund’s property (in full or in part) to certain determined or determinable persons (beneficiaries), and storage and disclosure of the succession fund’s documentation.

In addition, these amendments elaborated the rules of fiduciary management of inheritance: they include mandatory assessment of inheritance prior its transfer to fiduciary management and the provisions on the control of fiduciary management by notary public as well as requirements of the fiduciary manager.

The respective amendments will come into force on 1 September 2018.

There have not been any recent major developments affecting personal property in Russia. In this regard, certain basic aspects of Russian matrimonial law are described below.

In general, the Family Code recognises joint property rights as the legal property regime of spouses. Joint property includes any property gained by the spouses during their marriage, irrespective of in whose name it was gained or by whom such monetary funds were contributed.

Where there is an intention to dispose of joint property, the relevant spouse shall receive the consent of the other spouse for such a disposal.

In Russia, only an officially registered marriage has the legal consequences mentioned above. From the point of view of Russian family law, cohabitation has no legal standing. Registration of same-sex marriage is not permitted.

Spouses are free to change the joint property regime to a separate property regime by entering into a matrimonial agreement. However, certain restrictions shall be observed: the Family Code provides that the court can find a matrimonial agreement invalid fully or in part upon the demand of one of the spouses, provided the terms of the matrimonial agreement place this spouse in a highly unfavourable situation.

The matrimonial agreement can be concluded before or after the state registration of a marriage. The formal requirements for the validity of matrimonial agreements concluded in Russia are that such agreements shall be executed in written form and certified by the notary public.

Where a separate property regime has been established under a matrimonial agreement, property is no longer the joint property of the spouses and, therefore, the consent of the other spouse for the conclusion of a transaction with the separate property of the spouse is not required. Moreover, following changes to the joint property regime under a matrimonial agreement, in cases of inheritance, a surviving spouse is not entitled to claim a half share in joint property. Nevertheless, the surviving spouse is still entitled to inherit on other grounds (if mentioned in a will or, in the absence of a will, by operation of law as an heir of the first order – provided that the spouse is not deprived of the inheritance by the testator).


Russian legislation does not recognise the concept of the ‘trust’. However, at the time of writing, Russian legislation does not hinder its citizens and residents from transferring assets to foreign trusts whether as the settlor, beneficiary or protector, etc., of such structures. Transferring assets to such a structure breaks the ownership of the assets and they will then be considered to be owned not by the settlor of the structure but by the third parties (e.g., the trustees). In such cases, Russian succession law is not applicable.

The transfer of assets to trusts is not regarded as a taxable event. Income received from trusts as a general rule is subject to PIT at the rate of 13 per cent.

At the beginning of 2016, the tax legislation was amended by the provision allowing amounts that are not deemed to be distributed from the profit of the structure, including trusts, to be exempt from taxation. This exemption is provided for the value of the property (including cash) or property rights, which were previously contributed to the structure by the recipient of trust distribution or by his or her close relatives. However, the Russian Tax Code states that if the structure has any undistributed profit, any distributions within the amount of such profit will be treated as distribution of profit regardless of how it is documented and taxed.

When Russian citizens and residents intend to transfer their property to foreign trusts, certain precautions should be observed. Considering the absence of the concepts of trusts in Russia, Russian citizens and residents cannot transfer their Russian assets directly to a trust but only through a foreign company.

Moreover, Russian matrimonial law provides that the transfer of assets being the joint property of spouses to a trust requires the consent of the other spouse for such action; otherwise, such a transfer may be disputed through a court order as a violation of Russian family law.

Furthermore, despite the absence of the relevant court practice in Russia, to avoid possible disputes between heirs, the forced heirs should be included as beneficiaries of the relevant structure. Alternatively, a person transferring assets to a trust or foundation may otherwise ensure that the compulsory shares of the forced heirs will be satisfied from other assets directly possessed by the deceased and not transferred to the trust.

In the context of wealth structuring, it is important to note that the Russian citizen shall inform the Russian state authorities about the fact that he or she has another citizenship or residence permit or other valid document confirming the right of permanent residence in a foreign country. The notification may be submitted in person, by a representative (authorised by law as well as by the power of attorney) or via the federal postal service. Failure to perform this duty entails a administrative or criminal liability (depending on the nature of the violation). The administrative liability occurs in cases of late filing or provision of incomplete or deliberately false information and entails a fine in the amount of 500 to 1,000 roubles.8 Failure to provide notification at all entails a criminal liability with one of the following consequences: a fine of up to 200,000 roubles; a fine of the amount of the wages or other income of the convicted person for a period up to one year; or the obligation to perform compulsory works for up to 400 hours.9

Pursuant to the amendments, these changes are not applicable to persons residing outside Russia (i.e., those without registered abode in Russia and living abroad).

In addition, we would like to bring your attention to the requirements of the Law on civil registry acts, which provides for an obligation to inform Russian state bodies about civil registry acts committed with respect to the Russian citizen outside the territory of the Russian Federation, as well as for the operation of a unified state register of civil acts (the Register) and transmission of books on civil acts into electronic form.

In accordance with the provisions of the Law on civil registry acts, the citizen of the Russian Federation, with respect to whom a civil act was registered outside the territory of the Russian Federation, should submit information about such registration to the civil registry located at his or her abode in the Russian Federation or Russian consulate. Information should be submitted within one month of such registration starting from 1 January 2018. The provisions are quite recent and currently do not clarify whether it is necessary to submit information about such acts registered before 1 January 2018 and do not establish any liability for the failure to submit such information. However, we cannot exclude the possibility that such liability will be established by adoption of additional legal acts in future.

This information should be stored in the Register, which will compile all information about civil acts registered with respect to Russian citizens outside the territory of the Russian Federation, as well as all civil acts registered in the territory of the Russian Federation. The Register should be operated by the federal tax service, which, among other state authorities, would be able to request information from the Register.

In Russia, services connected with wealth management are generally provided by legal entities and banks. In accordance with the existing anti-money laundering rules, service providers are obliged to perform know-your-customer procedures, including obtaining the information on the ultimate beneficiaries where the client is a legal entity.

The definition of a beneficial owner was introduced in Russian legislation in 2013 for the first time ever. The law defines the beneficial owner as an individual who directly or indirectly (with assistance of third parties) holds more than 25 per cent of assets of a client or has the option to control its actions.

According to new changes in the federal Law on Countering Money Laundering and Terrorism Financing, legal entities (with some minor exceptions) have to take all possible measures to identify their beneficiary owners. To do so, a legal entity has a right to request information from its founders, participants and controlling entities or persons, and such entities or persons are obliged to provide all available information. In addition, the legal entity should appoint an officer, who will be responsible for the storage and annual update of such information (usually a general director or chief accountant). Non-compliance with this requirement leads to the risk of administrative liability of a legal entity in the form of a fine of up to 500,000 roubles.

In addition, financial organisations10 have to take all possible and reasonable measures to identify the beneficial owner of a client.

Where the beneficial owner is not identified, the client’s chief executive officer may be recognised as the beneficial owner.

Also, banks, law firms and some other organisations are obliged to report to the Russian Federal Financial Monitoring Service on certain transactions or finance operations concluded or made by the client if such transactions or operations fall under thresholds established by law.


In summary, it is necessary to say that wealth is always accompanied by many responsibilities, such as the obligations to manage complicated local and international assets, invest wisely and protect one’s family. The area of Russian private wealth is one of the fastest growing in the world.

Despite the established practice of using foreign instruments, Russians show a tendency to use Russian instruments in their cross-border estate planning. However, the practice of using the Russian instruments is not completely formed and only the future will show how recent legislative changes are of effectiveness and attractiveness for the private clients.

Also, it shall be noted that the general tendency in the latest legislative amendments is towards increasing state control. An integral part of this process is the tightening of tax regulations.

Russia is not trying to reinvent the wheel; on the contrary, where prospective measures are successfully implemented in other jurisdictions around the world, the foreign experience of these rules is analysed by Russian governmental experts drafting new laws. Hence, foreign investors will mostly see rules that they are already familiar with from their experience of sophisticated jurisdictions, such as the EU countries or the United States.

However, the latest changes to Russian tax law will inevitably affect artificial structures whereby ‘letter box’ companies located in jurisdictions with favourable tax regimes are used, without a sound business purpose, only to obtain tax benefits. At the same time, robust structures are unlikely to be affected if they are used by foreign companies that have proper substance, genuine business purpose and are managed from the jurisdiction of their residence.

In light of these changes, new structures should be developed carefully. Moreover, existing structures should be reviewed as soon as possible to determine whether reorganisation is necessary to minimise the possible negative effects of the anticipated measures on information exchange.

Thus, Russian law and practice is changing and is moving in a direction with global trends – restraining the aggressive use or abuse of tax benefits stated in DTTs and increasing global transparency and tax control – and as a result, it is expected that Russia will accede to the OECD Base Erosion and Profit Shifting plan.

1 Maxim Alekseyev is a senior partner, Kira Egorova is of counsel, Elena Novikova is of counsel and Ekaterina Vasina is an associate at ALRUD Law Firm.

2 Federal Law No. 376-FZ on amendments to Part I and Part II of Russian Tax Code (regarding taxation of profits of the controlled foreign companies and incomes of foreign organisations) of 24 November 2014.

3 Federal Law No. 173-FZ on Currency Regulation and Currency Control of 10 December 2003.

4 Opened in banks of states that are members of OECD or FATF.

5 Article 1111 of the RF Civil Code.

6 Article 1149 of the RF Civil Code.

7 Article 1150 of the RF Civil Code.

8 Article 19.8 (3) of the Russian Code of Administrative Offences.

9 Article 330 (2) of the Russian Criminal Code.

10 Credit institutions, professional participants in the securities market; insurance and leasing companies; the federal mail organisation; management companies of investment funds and private pension funds; operators of payment collection; companies providing intermediary services in buy or sell deals of real property.