The problem of excessive use of offshore havens was first brought up by the Russian government in 2011. Transfer of money abroad via shell companies and absence of information about the final beneficiaries were singled out as the biggest threats of using offshore companies to the economy of the Russian Federation.

What is deoffshorization?

The notion of "deoffshorization" appeared owing to the tax law experts. In 2013, they applied this term to a range of informational, legal and legislative measures aimed at eliminating or reducing the use of foreign legal schemes in unscrupulous and unlawful purposes. Such purposes include:

• tax evasion;
• receiving tax-free incomes from outside the country of permanent residence;
• registering an offshore company for the purpose of implementing illegal activities.

However, offshore companies can be also be used legally:

• to create joint ventures with foreign partners;
• to conduct charitable activities;
• to create a tool for property inheritance and protection;
• to optimize the ownership of foreign capital.

Process of implementation of deoffshorization

In the beginning of 2014, the first draft law on deoffshorization was published on the official website of the Ministry of Finance of the Russian Federation. It spells out new rules regarding tax residence of companies. Here are its key points:

• Offshore companies cannot count on any type of government support, including state treaties;
• Double tax agreements do not apply to offshore companies;
• The identity of the offshore company’s owner must be disclosed for the purpose of ensuring payment of taxes;
• Taxes on the offshore transactions are charged mandatorily in favour of the Russian state budget;
• Tax authorities have access to the list of beneficiaries.

Considering all the aforesaid, it becomes apparent that you had better register your business in full compliance with the applicable legislation if you want to gain profits without any difficulties.

According to experts, the deoffshorization law may lead to many negative consequences.

The introduction of the law will induce many companies apply more complex and stable solutions, for example, via opening a real office abroad with the purpose of managing foreign assets.

• Checked / Updated: 07.25.2022
• Published on: 04.20.2017
• Author: Elvira Savir