A growing number of foreign companies and Russian firms registered overseas are relocating their operations to special administrative regions (SARs) in Russia. In the first half of 2023, a total of 87 companies moved to SARs on the Russky and Oktyabrsky islands, according to data from the Ministry of Economic Development. This is a significant increase from the 34 companies that moved in the same period last year and more than the total for the whole of 2022. Currently, 62 international companies are registered in the Russky Island SAR alone, with assets totaling approximately 5 trillion rubles ($51 billion).
The trend of companies redomiciling to Russian SARs is also on the rise. In the first eight months of this year, 45 companies completed their redomiciling procedures, which is nearly three times the number recorded in the past four years. The majority of these companies (80%) moved their operations back to Russia from Cyprus, while 13% moved from the British Virgin Islands. Notably, Russian tech giant VK, previously registered in the British Virgin Islands, recently announced its intention to move to one of the Russian offshore regions.
The appeal of Russian offshore havens can be attributed to several reasons. In some cases, companies are choosing to redomicile to SARs because their Russian owners face difficulties doing business in foreign jurisdictions due to Ukraine-related Western sanctions. There is a risk of their assets and property being seized abroad. On the other hand, foreign companies operating in Russia are moving to SARs to avoid the restrictions imposed by Moscow on foreign investors. These restrictions include the need to obtain permits for real estate sales, stakes, and shares, as well as limitations on foreign shareholders receiving dividends in foreign currency. Additionally, foreign companies with Russian beneficiaries are facing challenges in accessing accounting, legal consulting, and banking services, which makes it increasingly difficult for them to operate effectively.
Russian SARs provide companies with significant benefits and protections. Established in 2018, SARs offer a reduced corporate income tax of 10% compared to the traditional rate of 20%. In addition, SARs do not impose transportation or property taxes, and they do not have currency controls. One of the main advantages of registering in SARs is that companies can operate under foreign corporate law or the rules adopted in their original country of registration.
Recent regulatory changes have further enhanced the appeal of SARs. Organizations can now be registered in SARs as international holding companies, thanks to new regulations that came into force last month. These changes also cover the process of redomiciling and allow foreign participants from “unfriendly” states to be excluded from the ownership structure of companies through court intervention. This provision was introduced to overcome situations where redomiciling was blocked by foreign shareholders.
Currently, there are a total of 268 organizations registered in Russian SARs, according to official data. As more companies seek protection from the sanctions war between Moscow and the West, the popularity of SARs as offshore havens continues to grow. Analysts suggest that the advantages offered by SARs are highly attractive to companies looking for a safe and favorable business environment.