TOP-10 of the Russian companies controlled by offshore shareholders

ranking 08.08.2019

In July 2018, the special administrative regions (hereinafter “SAR”) were established on Russky Island in Vladivostok and Oktyabrsky Island in Kaliningrad.

Foreign companies can register in SAR if a number of conditions are fulfilled. They must be established before January 1, 2018, invest over 50 million RUB in Russia in six months, be registered in countries adhering to the rules of The Financial Action Task Force (FATF) or be a member of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL).
Foreign companies redomiciled in Russia are allowed not to disclose information on beneficiaries, not to pay tax profits from the sale of assets (shares) and tax on dividends from subsidiaries. Rate from dividends paid will be 5%.

Russia tried to create domestic offshores aimed at protection and support of companies under sanctions.

Since 2019, offshore zones, popular with the Russian business (British Virgin Islands, Islands of Bermuda, Cayman Islands and the Republic of Seychelles), started to adopt the laws requiring the companies to be engaged in real activities on their territories: companies have to open an office, move out offshore zone or provide proofs of paying taxes in transparent jurisdiction.

According to the data on August 2019, Cyprus is the most popular jurisdiction to register business of Russian origin. Formally not being an offshore, Cyprus attracts with minimum taxes, simple registration and reporting procedures. Over a half (53%) of the Russian companies with shareholders from offshores or low-tax countries are controlled through Cyprus. Seychelles rank the second: shareholders from these islands control 14% of companies (see Picture 1).

Picture 1. The most popular offshores and low-tax jurisdictions for the Russian business, % from total number of companies controlled by offshore shareholders Picture 1. The most popular offshores and low-tax jurisdictions for the Russian business, % from total number of companies controlled by offshore shareholders

On July 9, 2019, En+ (controlling JSC Rusal), the world leader in the production of aluminum, was redomiciled on Oktyabrsky Island, Kaliningras. Previously, the company was controlled by Oleg Deripaska. The articles of association that were in force when the company was registered in Jersey, were replaced by the new one, and the company was given a name on Russian language - «Международная компания «Публичное акционерное общество «Эн+ Груп».

However, offshore companies still control many large Russian enterprises, such as Novolipetsk and Magnitogorsk iron and steel works (see Table 1).

Table 1. The largest Russian companies in term of revenue under control of offshore and low-tax jurisdictions
Rank Company Revenue, billion RUB Increase/decline of revenue to the previous period, % Net profit/loss, billion RUB Shareholder, share, country/territory
1 JSC NOPOLIPETSK IRON AND STEEL WORKS 493,8
(2018)
+19,9 117,8
(2018)
FLETCHER GROUP HOLDINGS LIMITED 84,03%
Cyprus
2 JSC MAGNITOGORSK IRON AND STEEL WORKS 458,2
(2018)
+16,6 73,3
(2018)
Mintha Holding Limited 84,26%
Cyprus
3 JSC RUSSIAN ALUMINUM 253,3
(2017)
+8,3 12,9
(2017)
UNITED COMPANY RUSAL ALUMINIUM LIMITED 100%
Jersey
Since July 9, 2019, is controlled by International company "Joint-Stock Company En + Group"
4 JSC PIPE METALLURGICAL COMPANY 211,2
(2018)
+14,3 -2,6
(2018)
TMK STEEL HOLDING LIMITED 65,06%
Cyprus
5 JSC ANTIPINSKY OIL REFINING PLANT 186,0
(2017)
+26,8 0,03
(2017)
VIKAY INDUSTRIAL LIMITED 80%
Cyprus
6 LLC SNS-HOLDING 182,9
(2017)
-0,3 0,05
(2017)
GK SNS LIMITED 100%
Cyprus
7 LLC RUSENERGOSBYT 166,1
(2017)
+11,9 5,5
(2017)
RESENERGO INVESTMENTS LTD 50,5%
Cyprus
8 JSC ILIM GROUP 155,7
(2018.)
+41,0 35,6
(2018)
Ilim SA 96,37%
Switzerland
9 LLC ROLF 153,7
(2018)
+26,5 5,3
(2018)
DELANCE LIMITED 99,98%
Cyprus
10 LLC O’KEY 150,4
(2018)
-10,8 0,2
(2018)
O'KEY GROUP S.A. 99,3%
Luxembourg

The return of the Russian capital will have a beneficial effect on the domestic economy, as additional investments will follow. Enterprises with Russian roots are under constant suspicion. Foreign regulators, banks, auditors and law firms introduce new additional procedures for them to confirm reliability and good faith.

Since tax authorities of Russia and foreign jurisdictions, primarily offshore, began to exchange with information, the business had another good reason to move. If a company makes money in Russia and pays taxes in another country (controlled by a foreign company), then the Federal Tax Service may file claims for tax evasion at the place of actual activity.

Another reason to return to Russia is continued political pressure. On the one hand, companies can indirectly or directly be under American or European sanctions and lose assets if they are registered abroad. On the other hand, offshore companies themselves are becoming less and less loyal to structures that do not conduct real economic activity, but exist solely to distribute cash flows between shareholders.