WHO WE ARE. OUR VALUES

We, Malkov and Partners, are the law firm exclusively specialized in advisory on asset protection, tax planning and succession planning.
We came into existence as a law firm 20 years ago in Saint-Petersburg, Russia. Throughout our history we have gone through various segments of the legal profession and finally decided to be who we are today. In 2007 we moved to Zug, Switzerland. Since 2013 we have been located in Zürich.

Our values and principles
We as a firm are 20 years old. As one can imagine, throughout this long period of time (for the young Russian business history that began in 1991 we could even say “very long” instead of “long”) we have had a chance to learn what is desired by our clients – moreover, we have set a goal to ourselves to consider whether what is desired by them is really useful for them or not and, finally, we have worked out our principles which are LEGITIMACY and EFFICIENCY.

OUR MISSION

We see our mission as providing solutions for professional, personalized and legitimate asset protection, tax optimization and succession planning to our clients.

We see our “antimission” as providing convincing, theory-based and practice-proven evidences of the fact that the vast majority of the existing simple and cheap solutions are legally questionable, inefficient and will not last long.

ERA OF COMPLIANCE. THE TIME OF RESTRUCTURING

For a professional it is clear that the time of non-tax-compliant money is either over or will be over soon.

On March 13 2009 (it was by the way Friday the 13th) the Swiss Finance Minister (and then-President of the Confederation) Mr. Hans Rudolf Merz, standing in front of the most recognizable door in the world at Downing street 10, SW1A 2AA, London, UK has announced the decision of Switzerland to comply with OECD standards. His statement signaled the beginning of the end of what was known as the “Swiss banking secrecy” and symbolized the new future of the Swiss financial sector, the tax-compliant future. In a way the statement announced the new era, the era of tax compliance.

Unprecedented - in the number and in the importance - events have happened since the announcement of Mr. Merz’s statement: Switzerland changed its Double Taxation Treaties with a number of countries (including Russia) allowing the tax information exchange; Switzerland signed a SDF with the UK and a similar agreement with Austria, the Swiss banks witnessed an unbelievable pressure from the US, and so on. And even more things are expected to happen: criminalization of tax evasion, equating tax evasion to money laundering, accession to the OECD Treaty on Administrative Assistance in Tax Matters, and so on.

How all that has already happened and is expected to happen has influenced or may in the future affect the so called Russian money kept in Switzerland, which might amount to quite a sizable figure?

There’s no doubt that Russia is much less active in comparison to its Western partners in the field of tax control, especially when it comes to the funds kept outside of Russia and all sorts of anti-abuse and anti-avoidance rules (CFC, substance test, arm’s length control, etc.). There are almost no known precedents of Russian tax authorities attacking Russian off-shore non-taxed money stored abroad.

One may consider such a state of affairs as a signal to relax and enjoy the simplicity of the moment – keep money in an off-shore account, transfer it using e-banking while seating in Moscow, use companies registered in exotic islands that cannot even be pinpointed on the World map, use nominees (whom one has never seen) and sign off-shore company’s documents as an attorney.

The other may consider the situation as a signal to change, to rethink the way of keeping and working with the “foreign” money and getting compliant, because compliance is a new worldwide global standard.
Tax compliance, in our belief, doesn’t close the door to asset protection, tax optimization and succession planning; it just makes these tasks more difficult and more demanding, but not impossible. The widely used (or abused), so called “retail” schemes will not survive, whereas thoroughly thought through, individualized, legitimate, and properly adopted solutions will always work.

Let’s not forget this: “tax compliance” doesn’t mean that an entrepreneur must pay the highest possible taxes in the world, comply with the strictest tax laws in the world and follow all circulars of all tax authorities in the world!

Tax compliance means that every entrepreneur must obey the tax laws of that country where he conducts his business and that that country has its sovereign right to establish tax rates, exemptions and other tax rules that it considers appropriate. And as long as there is no global universal tax rate in the world, as long as there is no world’s single list of tax exemptions, there will always be opportunities for a legitimate presence in the on-shore world with law or zero taxes.

TIME OF RESTRUCTURING

As of today, Russia doesn’t apply strong control to foreign assets of its taxpayers (see “RUSSIA vs OFF-SHORE/RUSSIA, THE TAX PARADISE”). Even the recently introduced measures as well as those that have already been announced but not yet enforced (see “RUSSIA vs OFF-SHORE/CHANGING ENVIRONMENT”) don’t at all put an end to the opportunities for legitimate operations with foreign assets. That is why we are convinced that the ERA OF COMPLIANCE requires everyone to realize that now is the TIME FOR RESTRUCTURING, that anyone who contemplates placing his money abroad and working with that money abroad must take into consideration these new realities. And anyone who already has a structure for keeping money abroad must carefully analyze/audit it and most likely change it.

RUSSIA VS OFF-SHORE

RUSSIA, THE TAX PARADISE

As of today Russia is the real tax paradise. We can sign this statement – moreover, we are convinced that the statement is not only theoretically correct but has also been proven in practice. The reasons for such a brave conclusion (among others) are:

13% flat income tax on individuals
9% flat income tax on dividends received by individuals
the lightest in the world “test” on tax residency – any individual who spends in Russia less than 183 out of consecutive 365 days is regarded as a non-resident for tax purposes, regardless of whether or not he has a so called center of vital interests in Russia (residential property, family, business, close ties)
no universal obligation to submit tax declaration for individuals – only for those who meet certain criteria
legal ban on questioning a Russian individual taxpayer whether his expenditures are paid with the taxed money or not, i.e. an individual with a luxury lifestyle but very law or no taxable income doesn’t receive any questions from the tax authorities urging him to explain how has he financed his costs (in the recent past, monitoring of correspondence of the income to purchases existed, but it was later erased from the tax law)
no wealth tax and no obligation to declare the composition and the value of personal wealth, i.e. if an individual has 100 million in assets that have not generated any income during the reporting year, he is completely exempt from the obligation to submit a tax declaration
no obligation to declare liabilities
no inheritance tax
no gift tax between relatives
3 and 5 years of holding (for properties and shares accordingly) tax-exempt capital gains
no CFC rules (for the time being)
a good network of double tax treaties, including low-taxed and comfortable countries as Cyprus, Luxembourg, Malta practically; no anti-abuse rules, inter alia, no real “substance” requirements for implementation of the double tax treaties (tax residency certificate does suffice).

It is true indeed that Russia has quite annoying regulations when it comes to various formalities, such as original copies, rubber stamps, notarization, Apostiles and other senseless formal “attributes” required here and there – moreover, the capital control law is formally strict (but very rarely respected). Nevertheless, Russia is still much better positioned (in comparison to the US, EU member states and other “developed” countries) in the sense of opportunities for legitimate tax optimization, asset protection and succession planning.

CHANGING ENVIRONMENT

Although Russia is not the most active fighter against tax evasion, it doesn’t stay completely away from the world trend in that field. Quite a few legislative measures aiming at enhancing tax control have been introduced during the last 2 years:

Russia has introduced the arm’s length principle into the national tax law
Russia has signed the OECD Convention on tax administration assistance (but hasn’t yet ratified it, i.e. it is not enforced)
Russia has changed its double taxation treaties with the most commonly used (in tax optimization scenarios) countries - Cyprus, Luxembourg and Switzerland, and the renewed treaties allow, inter alia, tax information exchange, put an end to the sale of properties via a tax-free sale of shares, and introduce a concept of “limitation of benefits” in case of unfaithful use of the treaty privileges
since July 2013 Russia has been including tax evasion into the scope of money laundering crimes
Russia has (finally) introduced the concept of beneficial owners and started to require their compulsory disclosure to financial intermediaries.

And there is no doubt that the most intriguing issue discussed now and expected to become a law in 2014 is the introduction of the CFC regime.

WHAT WE DO

We do nothing that is out of the scope of our MISSION and we do everything that is within.

What we don’t do:

we don’t assist with registration and administration of widely (and improperly) used off-shore companies: companies that have no substance but that have nominees (shouldn’t we rather honestly call them “fake directors”?); companies that are distantly managed by their beneficiaries from Russia via instructions given to the nominees and series of proxies; that do not grand the directors a signature right to the bank account and the directors in generally have no clue what is happening in “their” company; that are never “visited” by their beneficiaries because they don’t know where those islands are located in the first place, because it takes 3 months for a Russian citizen to get a visa to those islands and so on, and so forth
we don’t provide any type of asset protection, tax planning or succession planning advise in relation to such companies.

What we do:

we design and implement holding structures for Russian-related assets, structures that are tax efficient, legitimate and secure for the assets placed therein
we design and implement private and family structures for keeping family wealth and passing it over to the future generations
we assist with corporate remodeling of businesses which aim at IPO or plan to otherwise approach capital markets and we do it so, that the renewed structure is absolutely understandable for investors and lenders, but at the same time it remains tax efficient.

Besides that, we see ourselves as specialists in wide range of problems related to the legitimate and efficient use of various “foreign tools” so popular among Russian entrepreneurs and wealthy individuals, and for that reason we might be useful when it concerns:

low-tax and tax-exempt companies
holding companies
investment funds
securitization companies
trusts, including trusts without beneficiaries (purpose trusts) and other vehicles without individual beneficiary (“orphan structures”)
family foundations
insurance wrappers
residence permits, second citizenship, factual change of the country of residence and (most importantly) wealth and income tax planning thereupon.

DISCLAIMER

The information contained in this print/electronic publication (“Publication”) is for general information only. Under no circumstance and by no means it may be treated or seen as legal, tax or any other sort of advice. The content of this Publication represents our own opinion about the items discussed or matters concerned which may be different from the official one. Malkov and Partners, its employees and/or associates expressly decline any responsibility or liability for any possible damage arising out or otherwise relating to a decision, action, opinion made on the basis of the information or statements contained in this Publication, and by reading, downloading or printing or otherwise using this Publication, you expressly waive any and all rights and remedies which you could have against Malkov and Partners This publications is protected by applicable copyrights laws and its reproduction, distribution or other use needs the prior written consent of Malkov and Partners.