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. Last Updated: 07/27/2016

Going Offshore for Tax Breaks Russian System Has Businesses Seeking Shelters

A new breed of entrepreneur has begun advising Russian businessmen on where to find discreet offshore havens for their money from Cyprus to the Bahamas, an activity that not long ago would have been punishable by a stint in Siberia.


These days, they openly solicit clients through classified advertisements on the pages of Commersant, Izvestia and other newspapers.


Companies around the world set up offshore subsidiaries to shelter themselves from taxes and other liabilities.


Advisers range from the banking empire run by the Menatep Financial Group to a former travel agent located in the corridors of Moscow State University. Even the state-owned Vneshekonombank has a subsidiary in Cyprus, a favorite offshore location for Russian businessmen. All insist that their activities are "absolutely legal".


Most cite punitive Russian taxes and political instability as the factors stimulating interest in offshore business.


"If there was a normal situation in this country, most of our clients would not be interested in offshore business", says Pavel Poselenov, manager of Akademservice, which specializes in two offshore centers, Cyprus and Liechtenstein.


"It's my job to win the trust of my clients", says Poselenov who claims that there have been cases of other advisers incorrectly registering company documents.


Unlike most Russian advisers who work as agents for large international firms, Akademservice works directly with Russian-speaking lawyers located in the offshore centers. Its service is pricey -- it charges $4, 000 for a Cyprus company and $13, 000 for a Liechtenstein company. But it says that the fees are worth it.


"We are very familiar with all the legislation", says Poselenov, . pointing to a long row of legal files. He estimates that his client's funds under management will reach around $20 million this year.


Cyprus is a well-established offshore location for Russian businessmen. Cyprus and Russia have a double-taxation agreement, which means that profits can not be taxed in both jurisdictions. Profit tax in Cyprus is a mere 4. 25 percent per annum, making it a clear choice as a corporate "residence".


But Cyprus has other attractions for Russian businessmen. The Cyprus Embassy in Moscow processes visas in just one day. and company owners with minimum share capital of $24, 000 can buy property on the island. Companies can be registered through nominee shareholders, and only the Bank of Cyprus knows the owner's identity.


Liechtenstein is considered a more upmarket location, and is convenient for owning a Swiss bank account.


Another adviser, NPK Vesta, is aptly situated a stone's throw away from the Moscow Tax Inspectorate. Vesta, which has been five months in the offshore business, recommends the Bahamas as the ideal location for most of its 80 clients because of its lax requirements.


"The Bahamas have no taxes, no accounting, no shareholder's register -- no nothing", says Vesta's director, Sergei Logachev.


It costs a mere $100 to register a company in the Bahamas. On top of that. Vesta charges "a modest percentage" for advisory, secretarial and other services. Vesta works closely with a British company, Anglo Offshore, which specializes in opening offshore companies. Banking services are located in Germany, which Logachev says is further proof of the Vesta's legality.