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07 July, 2020

Foreign assets and tax residence of Russians: 2019 data and trends

The number of wealthy Russians who notify the tax authorities about their accounts abroad is increasing every year. Most often, funds are invested in bonds and profitable real estate. In addition, there is a tendency to change tax residency. Experts recognize Cyprus and Malta as the most popular jurisdictions.

Statistics on Informing Foreign Assets and Changes in Tax Residence by Russian Citizens
Photo: Adobe Stock

The share of wealthy Russians who claim to have accounts abroad is increasing by 14 percentage points per year. The growth in notifications of foreign business assets is 11 percentage points per year. These statistics are reflected in a joint research by E st&Young (EY) for 2019.

If the dynamics is maintained, by 2022 the Federal Tax Service will have full information about all foreign assets of wealthy Russians.

The survey was attended by 44 specialists who work in the field of banking, legal and tax consulting. Their clients are wealthy Russians.

Statistics and notification dynamics

According to respondents' estimates, in 2019 about 70% of wealthy Russians have notified the tax service about the existence of accounts abroad. Another 67% informed it about their foreign business assets.

Figures have been increasing since 2016. Russia then joined the agreement of the competent authorities on a common reporting standard (CRS). As a result, the country began promptly exchanging financial information with other states.

Wealthy Russians who notified the Federal Tax Service about assets abroad

Wealthy Russians who notified the Federal Tax Service about assets abroad​

Source: press release EY, 2019

79% of respondents noted that many wealthy Russians seek to become tax residents of other countries. The trend has not changed: in 2017 78% of respondents believed the same.

What do Russians invest in abroad

79% of respondents said that wealthy Russians most often invest in bonds. Another 62% of respondents noted the purchase of profitable real estate as a popular investment.

The least interesting assets for investors are 一 gems and metals (13%) and luxury goods (21%), including luxury real estate, yachts, works of art and antiques.

Geography of foreign accounts of Russian citizens

According to respondents' estimates, Russians most often open accounts in Switzerland, the UK and Cyprus.

Top 3 countries where Russians opened accounts in 2019

CountryPercentage of respondents who indicated a country
2Great Britain66%

The fourth and fifth places in the ranking were occupied by Luxembourg and the USA. Also mentioned were Austria, Germany, Liechtenstein, Monaco, UAE and Singapore.

Geography of tax residence of Russians

Many wealthy Russians seek to become tax residents of other countries. Cyprus, Malta and the UK were mentioned by respondents as the most popular countries in this respect.

Top 3 countries where Russians become tax residents

CountryPercentage of respondents who indicated a country
3Great Britain31%

The popularity of Cyprus as a tax residence is due to several factors.

  • To remain a tax resident you need to live on the island from 60 days per year.
  • The corporate income tax is only 12.5%.
  • Capital Gains Tax is only levied on the sale of property in Cyprus or the company that owns it.
  • There is no tax on dividends in the country

In addition, Cyprus has a popular citizenship programme for investment. More than half of the respondents mentioned the country as a jurisdiction where wealthy Russians most often get passports.

Malta's "Golden passports" and "Golden visas" are also in demand, among other things, due to the desire of wealthy people to change their tax jurisdictions. Earlier we said that the citizenship programme of this country is planned to be restarted in September 2020 with new conditions of participation.

Registration of citizenship or residence permits of Cyprus, Malta or any other country does not entail the obligation to become a tax resident.

Usually, to become a tax resident of a country you need to reside there at least 183 days a year. This is a common requirement, which is valid in most countries.

Change of tax residency is one of the possibilities offered by the "golden passport". Thus, investors with Cyprus and Malta citizenship can live and do business in any EU country. Accordingly, they can become tax residents of any EU member state.

32% of respondents said that tax residency in the UK is losing popularity. This is due to Braxit and changes in tax legislation. Since 2017 there have been fewer grounds for exemption of foreigners from tax on world income.

Trends in the strategy of wealthy taxpayers from Russia

Based on the analysis of annual reports, two key trends can be observed.

  1. With the introduction of a common reporting standard (CRS), more and more countries are exchanging financial information. The tax authorities receive information about the foreign capital of citizens.

Russia's accession to an agreement on a common reporting standard encourages wealthy citizens to notify the tax service more frequently about foreign assets. This is an obligatory requirement for those who want to remain a tax resident of the country. The alternative is to choose another jurisdiction and register the tax residence there.

  1. The survey results show that the more capital, the more people tend to change the country of tax residence. The tendency to choose a new jurisdiction was noted by 67% of respondents who work with people with a fortune of up to $1 million. The same was said by 93% of respondents who consult Russians with a fortune of $30 million or more.

Obtaining a residence permit or citizenship for an investment helps investors quickly change the country of tax residence. The passport or residence permit card of the EU countries allows permanent residence in Europe, which is a mandatory requirement for a change of jurisdiction.

Earlier we said that Cypriot citizens can retain the benefits in British universities after Braxit. And the Maltese will continue to visit the United Kingdom without visas. Investors with passports of Cyprus and Malta will continue to enjoy a number of benefits, which citizens of other EU countries will lose after Brexit.

Russia is going to terminate its Double Taxation Agreement (DTA) with Malta. If this happens, from January 1, 2021 the tax rates will increase when transferring dividends, interest and royalties from Russia to Malta. But the popularity of citizenship programs and the type of permanent residence will not be affected by changes.

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Foreign assets and tax residence of Russians: 2019 data and trends