The more the merrier, or will companies transfer en masse to SAR?

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Pepeliaev Group advises of the passing of a law[1] that amends the regulation of special administrative regions (SAR) on the islands Russky and Oktyabrsky.

According to the law, to obtain the status of an international company and move to a SAR, foreign companies and funds may be registered, apart from FATF or MONEYVAL member states, in the member states of the following organisations:
  • Eurasian Group for Combating the Legalisation of the Proceeds of Crime and Financing of Terrorism (EAG);
  • Asia/Pacific Group on Money Laundering (APG)
  • Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)
  • Grupo de Acción Financiera de Latinoamérica (GAFILAT);
  • Middle East And North Africa Financial Action Task Force (MENAFATF),
  • Caribbean Financial Action Task Force (CFATF);
  • Intergovernmental Action Group against Money Laundering in West Africa (GIABA)
  • Grupo de Acción contra el Blanqueo de Capitales en África central (GABAC).
In addition, the law repeals the requirement that a potential SAR participant must conduct business in the Russian Federation before the decision on the change of domicile is taken (article 2(3)(1) of Law No. 290-FZ “On international companies and international funds”).
The law also provides that the status of an international company may be acquired if the foreign legal entity has changed its domicile from one jurisdiction to another (the number of changes is not limited), and has later decided to move to a SAR. For instance, if a company has previously changed its domicile from BVI to Cyprus, such company still qualifies for the status of an international company and for a transfer to a SAR.

If a company seeking the status of an international company has previously moved and/or amended its articles of association, such company must, during registration, present all the previously adopted resolutions (copies of resolutions) of its executive body in relation to the above facts.
Moreover, it is proposed that one international company may consolidate with another international company on condition that the newly formed company will remain a resident of the SAR. A similar procedure applies for a merger of one international company into another. The amendments also provide for the possibility for an international company to transform from one organisational form into another. However, the status of an international company may be lost if the consolidation/merger is performed with a company that is not a resident of a SAR.
In addition to the above, the law provides for the possibility to conduct annual meetings of SAR members in 2021 in the form of an absentee vote.
comment.jpgTherefore, the law is aimed at expanding the possibilities:
  • to move into a SAR for companies that did not previously have such a right as they did not conduct business in the Russian Federation and/or as they were registered in another jurisdiction not included in the permitted list;
  • for corporate restructuring in the territory of a SAR;
  • for a simplified procedure of conducting annual meetings among the current members of a SAR in 2021.

What to think about and what to do

In the light of the coming into force of the Multilateral Convention (MLI) and the changes to several tax treaties (such as those with Cyprus, Malta and Luxembourg), a review of the cross-border structure of business is becoming ever more relevant.

New opportunities being opened for foreign companies to change their domicile to a SAR may push the owners of foreign structures to restructure their business assets not only for the reasons described above, but also for the sake of a possible expansion of tax benefits proposed by the Russian Finance Ministry.

Help from your adviser

Pepeliaev Group is ready to provide legal services in relation to a change of domicile to a SAR. We can assess the legal and tax implications of a change of domicile, give recommendations and provide all the required support in effecting such a change, taking account of the amendments currently taking place in the regulation.

[1] Federal Law No. 17-FZ dated 24 February 2021 “On amendments to the Federal Law ‘On international companies and international funds’ and on the suspension of individual provisions of the Federal Law ‘On joint stock companies’ and Federal Law ‘On limited Liability Companies’”.

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