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About this brave new world!

Over the past few years, the Russian businessmen have learned many new concepts of CFC (controlled foreign company), automatic exchange of information… They are made for us, Russians, the global wave of changes aimed at combating tax evasion and money laundering. Innovations, alas, include those who owns a yacht abroad through offshore structures.

What changes I have in mind?

We are talking about almost complete rejection of the institution of Bank secrecy and the creation of an international system of automatic exchange of tax information, which implies an annual flow of information about the balance in all foreign accounts of natural persons to the tax body at the place of their residence. In addition, banks are required to collect and send to the tax authorities information on the status of the served companies, their beneficiaries (the hidden owners) and, in certain cases, about the balance in the accounts of such companies. The exchange of banking information in automatic mode gradually attached more and more countries; Russia’s first exchange is happening this year.

Another major change is the stricter requirements for banks in terms of customer due diligence and transactions pursued by them. Given the fact that for any lapses regulators threaten banks in the best case, with severe penalties, was to the absurd it is difficult to open an account in a European Bank with a good reputation. In customer service, banks are much more likely to use their right to request additional documents for transactions, to suspend enrollment for incoming clients money in their accounts to determine the circumstances of the operation and to return the money to the sender if the recipient has failed to submit a satisfactory explanation.

At the level of national law, the life of the Russian business became complicated in connection with the introduction in 2015 of the concept of controlled foreign company (CFC), the profits of which for tax purposes is equal to the personal income of its owner (shareholder and beneficiary). And if you pay the tax on profits of a company should be only in excess of a certain threshold, to report to the Russian tax authorities will have the possession of all such companies, regardless of their status and profitability.

What consequences are expected?

No need to be a genius to understand that Russia’s accession to the automatic exchange of information will give tax authorities a rich (in all senses) food for thought (and action) regarding the collection of taxes. And in the aspect of sufficiently rigid currency regulation, place limitations on enrollment in a foreign account the funds of Russian residents — more opportunities for the imposition of penalties for its violation.

The implications of these changes touched not only the professional participants of the yachting market. Probably all Russians, owning a yacht abroad, in varying degrees, felt that the world around has changed. First, it is no longer possible, as before, for a few days to buy offshore company “turn-key” to register it to your boat. Now registration a company takes a few weeks, the client should be prepared to provide full information about myself and about the source of their income. Secondly, open an account for your new offshore company has become almost impossible, unless you cooperate with the Bank for many years.

The payment for the acquired or newly built yachts by third parties very difficult, and therefore familiar to the Russian business “complex” payment schemes also needs to be revised, because everything looks strange and impossible to explain to the average European Bank clerk (for example, providing unsecured loan) will be blocked by the Bank. In certain situations, difficult and translations from third parties on the maintenance of the yacht (paying for fuel, Parking at the Marina and insurance).

These difficulties can become a stumbling block and when you receive the money from the sale of the yacht. In addition, created by the Russians for the possession of a yacht offshore structures fall under the CFC status with the ensuing consequences in the form of required reporting to the Russian tax authorities and, in certain cases, to pay Russian tax on their profits.

Life examples

For greater clarity, we will simulate a few situations that illustrate problems that need to be mentally prepared happy citizen who owns a motor or sailing yacht anywhere on the Cote d’azur.

SITUATION 1. Mr A. decided to sell the yacht for easy operation in European waters was on an offshore company with nominee Directors and shareholders. After conclusion of the contract of purchase and sale between the European purchaser and the company, is the registered owner of the yacht, A. faced with the failure of a foreign Bank, in which he opened an account, to Deposit money from transactions for the sale of the yacht, as technically the yacht is not his, and offshore companies. While most of the offshore company Bank account there, and open it under the one transaction — a very lengthy process without a guaranteed result.

SITUATION 2. Citizen B. entered into a contract for the construction of new yachts with European shipyard. Owning a yacht was assumed through an offshore structure. Waiting for the opening of accounts for the company and not wanting to deviate from the payment schedule under the construction contract, BA made another payment by sending the funds from another company he owned. The Bank shipyard blocked the payment and returned the funds to the sender, explaining behind the scenes that is ready to enroll tranche, if the money will first be transferred to the personal account of B. (that is distributed as dividends, with the subsequent obligation to pay the income tax in the country of tax residence B.).

SITUATION 3. Citizen V. sold the yacht in 2017, having enlisted the money from the sale for the personal account in foreign Bank (e.g. in Bulgarian). However, crediting in Bulgarian, not Russian Bank, is for Russian currency resident’s violation carrying a fine in the amount up to 100% of the credited amount. About the crediting of an amount to a foreign Bank account of the Russian tax is likely to recognize in the framework of automatic exchange of information. If this income was subject to taxation, and V. the tax is not paid, he can be prosecuted for tax evasion.

Anastasia Sazanova, associate yachting Agency Jonacor Marine:
The days when you had no tax losses to own the yacht through an offshore company, paying its cost and current expenses payments from other companies are over.

What should I do?

At first glance it may seem that the output of the described above situations no. However, work in the new legal space, and the first stage of this work should be to accustom ourselves to the idea that the same opportunities of information, in the tax burden to zero anymore. The days when you had no tax losses to own the yacht through an offshore company, paying its cost and operating expenses payments of other offshore companies were. And to shrug off the problem with the words “the tax authorities don’t know” will not work. Learn and definitely will work: it is only a matter of time. Therefore, it is necessary to review the existing structure of owning a yacht and competently to build the algorithms of actions to meet the changed rules of the game. However, ideally, make it all you had yesterday.

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