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Opinion
May 24, 2019 www.intellinews.com I Page 23
There is also a danger that the company may end up subject to two jurisdictions simultaneously. Registration in a Special Administrative Area does not automatically result in de-registration in the original jurisdiction. Therefore, until the company is removed from the register in its original jurisdiction, it will exist both there and in Russia, and be subject to the laws of both jurisdictions. Unless the company takes steps to prevent
such overlap, it may well find itself in a position where complying with the law in one jurisdiction breaches the law of the other (among other legal quagmires). In fact, the very first company to redomicile is reportedly already embroiled in
a jurisdictional dispute.
There are, however, reasons to think that there will at least be a trickle of companies seeking redomiciliation.
For one thing, redomiciliation is consistent
with the russification of high-level business in Russia. As the business infrastructure in Russia becomes more sophisticated and political risks continue to mount abroad, Russian businesses are increasingly avoiding exposure to foreign jurisdictions. For example, in the three years prior to 2014, well over half of equity offerings
by Russian businesses were listed on foreign exchanges, whereas since 2014, such foreign listings have become a rarity and foreign exchanges have seen a spate of Russian businesses delist. Redomiciliation appears to fall squarely within this broader introspective trend.
In addition, redomiciled companies may achieve a number of benefits by being based in Russia. They are likely to get better access to state support
and procurement tenders, and, by relocating the company to the country where most of its assets, operations and management are based, they will surely achieve a degree of administrative and legal simplification. Importantly, redomiciled companies will not benefit from sanctions protection: most sanctions work by restricting customers, suppliers and financiers in the
sanctioning country from dealing with a target, regardless of whether that target is legally based in the sanctioning country, Russia or elsewhere.
Last but not least, companies registered in a Special Administrative Area are exempt from some of the obligations on companies based in mainland Russia. For example, Russian residents are typically required to comply with currency controls that subject non-rouble transactions to restrictions and various procedural formalities. As non-residents, redomiciled companies are
not required to apply such currency controls when they transact with other non-residents. Redomiciled companies may also be eligible
for tax relief if they are ‘international holding companies’ (broadly, companies whose major shareholders have not changed since 2017). Subject to various conditions, such companies enjoy 0% taxation on certain capital gains and dividends received and, in the case of listed international holding companies, 5% taxation on dividends paid to foreign shareholders until 2029, among other tax reliefs.
Despite the factors militating in favour of setting up shop in a Special Administrative Area, the chal- lenges are significant and likely to convince most Russian businesses based abroad that it would be best to stay put. However, for the small number of businesses willing to invest the time and resources needed to navigate the pitfalls, redomiciliation may yet prove an attractive prospect.
Polina Lyadnova and Matthew Fisher are lawyers at Cleary Gottlieb in London. Their practices focus on advising Russian and CIS clients such as Rusal on high-value financial transactions.
Polina Lyadnova may be contacted via email or LinkedIn; Matthew Fisher via email, LinkedIn or Twitter.
This article represents the views of the authors only and is not legal or financial advice.