The Use of Overseas Companies for Shares

Dependent upon the Shareholder's aim, there are several investment schemes. The options that we provide are mostly of theoretical value as their implementation requires knowledge of client's business specifics and other aspects.

Objective 1

Share distribution without disclosing details and gaining dividend income.

There is the simpliest scheme represented by an offshore company directly owing Russian company shares. Traditional offshore jurisdictions, such as Belize, the British Virgin Islands, or Panama, are often the best choice in this regard.

All the above-mentioned jurisdictions do not disclose shareholder details, so the level of confidentiality remains high. Confidentiality may be increased using nominal Shareholders and Directors, or trust agreements. Shareholding through traditinal overseas companies do not restrict the purchase or sale of shares. As Russian company shareholding activities do not require tax representation in Russia, the purchase and sale of transactions are tax-exempt on income. Shareholding through traditional offshore companies also allows for direct investments to the Russian company using offshore Shareholders without any tax burden for the Russian party.

However this scheme is not so beneficial if the beneficial owner wants to receive dividends through the offshore shareholder. As Russia does not have double tax treaties with offshore jurisdictions any income paid to offshore companies will be taxed in Russia.

Objective 2

Investment for the purposes of dividend income with low tax rate or exemption from tax.

Including individuals from double tax treaty jurisdictons.

The scheme is implemented via inclusion into Russian company structure, the Shareholder from each jurisdiction having double tax treaty with Russia. There are a number of available options. One of the most widespread methods is to use a Shareholder from a Cyprus company. The Cyprus Shareholder's presence allows a lower tax bracket on the paid dividends to 5% or even to 0% if certain conditions are met. Cyprus is not considered to be a tax-exempt jurisdiction, so Russian companies can obtain Shareholder's from EU member states. Information on Shareholders and Directors of Cyprus companies is available to the public therefore details on investing activities can be available for the Russian relevant authorities. The confidentiality issue is solved through nominal shareholders and directors by conclusion of trust agreements for the benefit of the Beneficial Owner. Purchase and sale transactions are exempted from taxation on income, and allows for investments to Russian Companies.

Objective 3

Transactions with Russian companies' shares without transactions in Russia

It is implemented on the basis of one of the schemes described above, but instead of the nominal shareholder the other company is used. For example, the Belize company owns Cyprus company, and Cyprus company owns the Russian one. The scheme allows to carry out transactions with Cyprus company shares instaed of Russian company shares outside of the Russian Federation. In fact the operations will be carried out with assets in Russia. Using the features of the Cyprus tax law (for example, a zero tax rate on securities income and some other types of income) it is possible to legitimate tax-exempt income for the offshore company.

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