Trust relationships, their goals and key benefits. Why trust is the best solution for KIK
Entrepreneurs conducting activities not only in the national but also in the global business field have been forced in the past few years to adapt to the requirements of the updated legislation of the Russian Federation. First of all, we are talking about standards stipulating the work of controlled foreign companies. The adopted law expanded the range of tax residents of the Russian Federation and obliged all firms managed by Russians to pay taxes to the state budget. In this regard, the question arose of finding alternative tools for financial optimization and asset protection.
Entrepreneurs are forced to notify the tax authorities of the Russian Federation about their participation in companies established abroad. Sanctions for neglecting the requirements of the Law – 50 thousand rubles for each of the external companies (according to the Tax Code of the Russian Federation, article 129.6). However, if a Russian resident participates in a structure that does not form a legal entity, he may not submit information to the tax authorities about this. To take advantage of the disclaimer of norms, the following condition must be observed: participants must not belong to the founders and / or persons who control the structure and distribution of its profit.
Trust as an optimal solution in the context of the legislation on CFC
If the Russian resident acts as the beneficiary, indirectly owns the assets in another way, he does not need to report to the tax authorities. Trusts provide such opportunities – but you should carefully study their types and features of work in order not to violate the law on CFCs. In particular, beneficiaries of discretionary trusts do not have the right to control profits. It is convenient to open such structures in Cyprus, where flexible legislation has been formed to regulate their activities.
Jurisdictions of both English and Continental Law offer many types of trusts. They are most common in New Zealand, already mentioned Cyprus, in classical offshore (Panama, Belize, BVI). In the continental system, to which the Russian Federation belongs, the “pure” concept of trust is not used. However, most states recognize trusts in the common law system (including those for which state registration is not needed) and their “derivatives” – funds. Therefore, as a tool that allows you to work effectively in the current conditions, they practically have no equal.
Advantages and main goals of foreign trusts
In general, the essence of trusts boils down to a person transferring property to trust. Assets are secured from the ownership of the creator of the structure. The transaction is concluded by the trustee or trustee – “trustful owner”. The beneficiary, in whose interests the activity is carried out, as well as the founder of the trust, get the opportunity:
protect property from third parties – this may be a creditor, heir, government agencies;
to distribute assets between the selected beneficiaries, heirs – the transfer mechanism is simple and fast, not associated with high costs;
keep confidential information about the business, its owners;
build an effective multicomponent business structure using a flexible and universal tool and so on.
Depending on the jurisdiction in which the trust is created, it may have different tasks – as well as additional benefits. Choosing an offshore as a place of registration, the founders part are aimed at ensuring the confidentiality of business, ownership of real estate, tangible / intangible assets. Tax-free jurisdictions open up opportunities for effective fiscal planning; in many European countries (especially Malta and Cyprus) the level of anonymity and tax convenience is also high.
There are special trusts to protect assets. International structures effectively “connect” participants with different residency. However, when choosing a trust, you need to pay attention not only to the appointment, but also to the form in which it is registered.
What types of trusts are best for work
One of the most common and simply manageable forms is a revocable trust. Founders may return their property, but there is a risk that domestic regulatory authorities recognize the structure as fictitious, and it is not suitable for tax planning, unlike discretionary. The beneficiaries are not defined by name, but in the form of a class of persons. Trusts selects specific people from it, based on the instructions of the real owner. Such a trust differs from a fixed one in that it allows you to withdraw assets from the scope of the legislation on CFC
Discretionary structures are very convenient to create in Cyprus. The legislation of the island is optimized for their effective use, and also opens up opportunities for working with international trusts. Cypriot structures are not recognized as legal entities, but can be completely legally used as part of holding, corporate structures that do not violate CFC requirements.
Trusts are also beneficial in that they can be free of taxation on the island and you can get a deferral of them during automated data exchange. The trust does not apply to tax residents of the Russian Federation; the legislation does not consider it a person controlling the company.