Russia: Domestic alternative to foreign trusts and foundations

Russian law gains a new instrument for asset protection and business continuity

In brief

From 1 March 2022, Russian business owners will be able to transfer business and personal assets worth at least RUB 100 million to new private foundations established under Russian law.1

As opposed to inheritance foundations, which have not caught on in Russia, private foundations can be established and tested during the lifetime of their founders. In addition, they satisfy the need for a more flexible domestic instrument for transitioning a business to governance by professional management and for protecting the interests of heirs.
The use of new private foundations could reduce the number of inheritance disputes in Russia over business assets and provide continuity and professional management for Russian businesses. It could also prevent the misuse of funds and ensure long-term financial support for family members.


Private foundations - The key points

  • An alternative to foreign foundations and trusts. Private foundations are the Russian equivalent of the foundations established in civil law jurisdictions (including the popular Privatstiftung in Lichtenstein) and can be used in place of foreign trusts and foundations.
  • Financing. Russian and foreign assets with a value of RUB 100 million and more can be transferred to a foundation; this includes cash, investment portfolios, real estate, business assets (shares and interests in commercial organizations) and other property. When financing the foundation it is necessary to observe limitations on foreign currency operations between residents.
  • Asset protection. The property transferred to a foundation is not included in the estate of the founder; it does not constitute marital property and is not divided in case of divorce. For three years from the moment of establishment of the foundation (five years in exceptional cases, if creditors had valid excuses for not submitting their claims on time) the founder bears subsidiary liability for the financial obligations of the foundation, and the foundation for the obligations of the founder. However, the foundation is not responsible for the liabilities of the beneficiaries and they are not liable for those of the foundation.
  • Management. Maximum flexibility is envisaged for structuring the management of a foundation. The law does not establish requirements for managers, including licenses and other qualification requirements, and a foundation can be managed by a wide range of persons. The management bodies can contain trusted advisors and/or legal entities of the founder, but not the founder him/herself or the beneficiaries. The equivalent of a private trust company (PTC) may be structured in Russia or abroad for purposes of management of a private foundation.
  • Interests of the founder and control. The founder can be included in the supreme collegial body and supervisory board of the foundation, and his/her approval can be required for the transactions defined by the founder himself in the charter documents of the foundation. The founder can also change the charter, terms and internal documents of the private foundation during his or her lifetime to adjust them. For additional control it is also possible to create an oversight body, the equivalent of a protector in a trust.
  • Beneficiaries. The beneficiaries of a foundation can be members of a family or another group of persons, except for commercial organizations. Such persons may receive regular or single distributions on the occurrence of conditions set by the founder but cannot participate in the management of the business transferred into the private foundation. The beneficiaries have the right to demand information on the activity of the private foundation in the cases set out in the charter and also the right to demand an audit of the foundation. Foundations are not subject to mandatory audits. The founder can also be a beneficiary and receive regular payments during his or her lifetime from the foundation he has established.
  • Confidentiality. Information on the terms of management and other internal documents of the foundation is confidential and should not be disclosed. There is no requirement to publish reports on the use of property of a foundation. However, a private foundation will be known to the creditors of the founder and state authorities. The state authorities will also be aware of the names of the beneficiaries and payments made to them.
  • Taxation. A foundation will pay corporate profits tax and be a tax agent for individual income tax purposes. Payments to the beneficiaries are subject to individual income tax withholding, and the beneficiaries will not have to submit tax returns and pay tax on the payments from the foundation on their own.

How can we help

We will be delighted to assist persons interested in establishing domestic private foundations with analysis of the applicability of the foundation model to their specific circumstances, help prepare the founding documents of a foundation, develop the management structure, introduce control mechanisms to protect the interests of the founder, analyze the tax and currency control implications, develop a restructuring plan and assist in the restructuring, as well as conduct annual independent legal due diligence of the foundation's activity.

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1. Federal Law No. 287-FZ, dated 1 July 2021 "On the Introduction of Amendments into Parts One and Three of the Civil Code of the Russian Federation".

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Antonio Russo
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