Offshore Company Restrictions, Analysis, Advice

The tightening-up of restrictions on offshore companies and oversight over policies of classic tax havens continues. The OECD, FATF, and other initiative international groups are forcing offshore jurisdictions to change their legislation and low-tax approaches. 

Such a trend is prompted by concerns of the EU and other onshore states about the low and zero tax zones’ accumulation of profits not generated through local economic activity (or even presence in the relevant jurisdiction). Because of the tax exemption incentives practiced for decades by offshore jurisdictions striving to attract foreign investment, onshore countries have faced an unnervingly significant reduction of their inbound foreign direct investment and as a result – a drop in GDP. They qualified it as harmful tax competition, coordinated joint efforts with international regulators against non-cooperative tax jurisdictions, and set out to fight for leveling the playing field for foreign businesses, tax compliance, and curtailing of offshores’ policies and preferential tax regimes. 

Законы по иностранным компаниям

What awaits owners of offshore companies? What constraints and obstacles for running business registered in offshore zones will become more disturbing in the forthcoming years? 

To understand the trends, let us look at some particular cases of the legal framework, fiscal regulation, banking, and discuss risks and other aspects that one has to consider when planning to set up some business in offshore jurisdictions.   

This article considers examples borrowed mostly from the study of the Russian business environment. Should you need details of other countries’ approaches, you are welcome to contact our international experts at the e-address given at the top of this page.  

Legal Framework for Running Offshore Companies (the case of Russia)

Contrary to media claims (and despite the negative publicity and reputation costs of some companies registered in offshore jurisdictions), offshore activities are not illegal, shameful, or punishable. 

It can be argued that the trend of de-offshorization supported by the state policy launched by Russia several years ago makes offshore companies founded by Russian residents more vulnerable and sensitive to amendments in the legislation and treaties on double taxation. Let us study the Russian case and make noteworthy observations.

The legislation of the Russian Federation stipulates Russian residents’ right to register companies, conduct business, and trade in offshore jurisdictions. 

The 6 laws mentioned below make just a part of the Russian legal framework confirming the legal status of foreign (including offshore) investments and business:

1. Law No. 160-FZ “On Foreign Investments” allows capital to be invested in and generated by foreign enterprises for the sake of the Russian economy.

2. Law No. 173-FZ “On Currency Control” regulates financial transactions involving non-resident companies and individuals.

3. Law No. 164-FZ “On Regulation of Foreign Trade Activities”.

4. Law No. 395-1 “On Banking Activities” stipulates control over foreign investment in the financial sector, including a special procedure for banking transactions with offshore banking institutions.

5. Law No. 208-FZ “On Joint-Stock Companies” regulates the acquisition of voting shares in JSCs and other aspects of the purchase/transfer/disposal of securities.

6. Law No. 4015-1 “On the Organization of Insurance Activities” outlines conditions for the introduction of foreign capital in the insurance sector of the Russian Federation, etc. 

If you are a Russian citizen holding 10% or more votes in the management body of an offshore company, and your personal information is duly communicated to the FTS of Russia, even if the offshore jurisdiction does not ensure the disclosure of beneficiaries’ data in financial transactions. On the one hand, the Russian Tax authorities require to report information on the ultimate resident beneficiaries if you hold shares on their behalf in their interests. On the other hand, investors and business owners who are Russian residents do not face obstacles in their registration of offshore companies. 

By the current laws, Russian residents have the right to establish, sell, domicile, own, and manage foreign companies following Article 2 of the Civil Code of the Russian Federation.

Individuals and legal entities in Russia have the right to conduct transactions with securities, i.e. to alienate and own shares in foreign companies, freely acquire shares in offshore companies, as well as to open personal and/or corporate accounts in any bank in the world. 

However, it is very important to comply with the Russian currency control rules and regulations. Before 2007, a variety of regulatory measures and rules were stipulated for foreign currency transactions. Today, a resident only needs to inform the Fiscal Service about the existence of a foreign account within 30 days from its opening. If a Russian resident is going to register an offshore company with an account in a foreign bank, this person should consider the following rules:


The data on foreign accounts are submitted to the Federal Tax authority quarterly.


The information contains reports on the movement of funds on each active account.


If the account details are changed/closed, the relevant notice is sent to the FTS of Russia within 30 days.


Any resident is exempt from the obligation to report to the Federal Tax authority about his/her foreign account unless the balance is bigger than a certain amount.

The current currency control is carried out by the Central Bank of the Russian Federation, the Government of Russia, and Rosfinnadzor (Department of Financial and Budgetary Control). 

To carry out financial transactions involving funds in a foreign account, residents of the Russian Federation must take into account restrictions of the following nature:

  • limitations on currency transactions between residents;
  • restrictions on repatriation of proceeds regardless of the residency of the foreign partner (for example, for the performance of work, delivery of goods, etc.);
  • penalties for the failure to produce a transaction certificate/report (according to the instruction of the Central Bank of Russia dated 15.06.2004 on the procedure for providing documents confirming currency transactions). 

Please note that the Central Bank of Russia divides offshore banks into three main groups: Group I does not need to create special reserves for possible losses, Group II must reserve 25%, and Group III needs to reserve more than 50%. 

As the above-given example shows, the legal framework for foreign and offshore operations can be rather developed and detailed. To discuss your specific situation and questions about some particular country, the likely limitations, the associated degree of responsibility, as well as the possibility to legally perform transactions involving foreign accounts, you should contact our experts. 

Fiscal Regulation of Offshore Companies (the case of Russia)

All controlled foreign companies (CFC) run by residents of the Russian Federation are subject to provisions of Chapters 3,4 of the Tax Code of the Russian Federation. The specified legislative act covers not only the business operations in offshore zones but also any other company established outside Russia.

Let’s be fair – the law itself does not provide rigid and specific restrictions on the activities of such organizations, but imposes specific obligations on owners:

  • to notify the tax authorities of participation in offshore and any other foreign companies;
  • to submit information about the existence of such enterprises outside the jurisdiction of the Russian Federation;
  • to take the income derived from CFC activities into account when estimating the amount of taxable income of an individual resident of the Russian Federation (when calculating one’s personal income tax) or an organization (when calculating a company’s income tax);
  • to submit tax returns to the Tax authority together with the financial statements of the foreign company;
  • to pay taxes in the Russian Federation on CFC profits. 

There are no restrictions for registering an offshore company. But the owner needs to report the entire income to the Russian Federal Tax authority. 

Because of the tax regulations, Russian investors and businessmen often have to liquidate/redomicile a company or change their tax residency.

Our international experience shows that a lot of clients seek adequate solutions to many other constraints faced by offshore, onshore, and midshore companies. For example, solutions for the following challenges:

  • the special taxation of transactions between interdependent persons;
  • the special control of transactions with independent offshore companies when such transactions are worth more than 60 million Russian rubles per year;
  • the requirements to provide full documentation on specific transactions with controlled foreign companies. 

According to Section V.I of the Tax Code, all offshore companies and individuals involved in transactions with Russian residents, including those residing, registered, or having tax residency in the countries included in the list of offshore countries (non-cooperative jurisdictions), are also considered interdependent persons. 

Offshore companies are very likely to face some constraints associated with the taxation of dividends, income in the form of property, and profits of CFCs. Is it possible to avoid them? Here are some possible solutions:

  • you can be entitled to the 0% tax on dividends if the company receiving the payment for at least 1 year (365 days) owns at least 50% of the authorized capital of the offshore firm; 
  • you can get entitled to the 0% rate on dividend-based profit if your foreign company is not incorporated or permanently located in a jurisdiction that is on the blacklist of the Federal Tax authority of Russia;
  • in the case of gratuitous receipt of property by a Russian company on behalf of a subsidiary or representative office, the 0% tax can be applied provided that the RF organization owns at least 50% of such a company;
  • if the property is transferred for free to a Russian company on behalf of an offshore company, the exemption does not apply;
  • profits of CFCs in the form of active holdings are exempt from taxation if the foreign company is registered in a jurisdiction not included in the list of offshore jurisdictions of the Russian Federal Tax authority. 

Please note that each business entity needs to design individual offshore policies with the awareness of the taxation nuances, constraints, and possible incentives inherent to the particular home and offshore jurisdictions. For assistance, please refer to our experts’ services. You can request them by writing to the e-address given at the top of this page.

Learn more about setting up Nevis companies.

Banking and Other Constraints Posed for Offshore Companies

Since 2017, the ongoing changes in the legislation of classical offshore jurisdictions have prompted the need for businesses to prove the economic presence in the jurisdiction of their incorporation. This means that such companies are required and have to conduct actual business activities in their jurisdictions, be recognized as the local tax residents, and pay taxes according to the local laws. 

At the moment it is not quite clear what the authorities of BVI, Seychelles, Nevis, and other classic offshores should do to retain their appeal as international financial hubs in the future. If the set-up of your offshore firm is a necessary element of your business expansion and capital growth, you should ask our experts for help and possible solutions. 

Examples: Microsoft, a global corporation, prefers to conduct all financial operations in Dublin, Ireland. CNN, a no less famous corporation, performs its financial transactions in Cyprus. This allows them to optimize their recurring payment costs and, accordingly, reduce their overall operating costs. 

As for the CFCs owned by Russians, they may encounter rather serious restrictions in banking. These may occur because of the following circumstances:

  • The Central Bank of Russia strictly controls direct transfers between residents and non-residents of the Russian Federation in favor of the latter;
  • Special attention is paid to credit institutions that receive funds from non-residents registered in classical offshore areas;
  • Restrictions may be imposed on payments from a CFC with a foreign account in a bank of a state that is different from the country of incorporation of the CFC;
  • Participants in the procurement of goods, works, or services for state needs cannot have the status of an offshore company;
  • Organizations from offshore jurisdictions are refused participation in electronic tenders yet at the state of accreditation;
  • Offshore entities are prohibited from carrying out transactions leading to the establishment of control over strategically important facilities in the Russian Federation;
  • A CFC registered in an offshore jurisdiction has no right to buy land in the border areas of the Russian Federation;
  • It is prohibited to establish a clearing organization within the Russian Federation if the founder is an offshore company. 

Russian banks refuse to serve clients with accounts in a jurisdiction that is on the Federal Tax authority’s blacklist of offshore jurisdictions. 

Likewise, banks in the EU utterly refuse to cooperate with such clients. Besides, restrictions on offshore companies will lead to an ultimate refusal of European banks to provide them with corporate accounts. Does it mean a disaster? Nothing of the kind. 

We recommend the best solutions for legal entities with registration in classic offshore jurisdictions plus an account in banks of some particular jurisdictions. 

Our experts can also open corporate accounts for classic offshore companies in VIP payment systems and non-banks. 


Offshore Financial Centers can pose both advantages and disadvantages, depending on the structure of your business. 

Many international law experts acknowledge that it is quite often that the beneficiary has to move to another jurisdiction along with the assets. First, this approach provides additional opportunities for re-engineering of the business structure and the legal avoidance of all constraints hindering the offshore company’s operations. Second, many wealthy people consider the possibility of obtaining citizenship in other countries as plan B (for example, in case of aggressive policies or severe economic turmoil in their home country). 

To protect yourself and your business from all possible challenges and constraints in the future, you should seek professional help or advice when choosing the jurisdiction and the structure type for your new business. This will help you avoid a large number of rather expensive mistakes, as well as reduce risks and get stronger in the current highly competitive environment. You can learn more details from our experts if you send requests for a consultation to the e-address given at the top of this page.    

What major restrictions are Russian companies likely to face when starting or expanding their companies in offshore zones?

Companies registered in a jurisdiction that is on the blacklist of the Russian Federal Tax authority cannot freely move capital, participate in state tenders, or have ownership of land near the national borders. A lot of such restrictions refer to taxation and banking services (for example, limitations for the free movement of capital, including participation in the authorized capital of credit and financial institutions of the Russian Federation).

What obstacles does Russian legislation maintain for offshore business owners?

Non-resident companies with an offshore status cannot freely transfer funds to Russian residents, as the transactions are controlled by the Central Bank of Russia, Rosfinnadzor, and the government. As for taxation, such a business can hardly get any advantages in terms of taxation. The 0% rate on dividends can be obtained if the non-resident company that transfers the profit is registered in a country not mentioned on the blacklist of offshore jurisdictions.

How can I avoid banking constraints posed for offshore companies?

We recommend opening a corporate account with a payment system or with a non-bank, which is a much more feasible option than a bank account. While just recently it was difficult for an offshore company to set up an account, now we can help you obtain the best service terms in some VIP payment systems and e-banks, and your company will be entitled to the best terms and minimum fees.

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