How to safely structure a personal fund with a foreign founder and foreign beneficiaries in order to avoid the application of the law on strategic investments and sanctions-related risks.

The article was prepared by:
Sergey Alimirzoev, Senior Partner at the law firm Alimirzoev & Trofimov
Vlada Alekseevna Kovaleva, Lawyer at Alimirzoev & Trofimov
Alexandra Mikhailovna Guzeeva, Lawyer at Alimirzoev & Trofimov

Who This Article Is For:

• Foreign citizens who own assets in the Russian Federation and are potential founders of a personal fund;
• Families with non-resident children considering succession planning in Russia;
• Advisors working with personal funds and investment control issues.

Why Is This Topic Especially Relevant Now?

An increasing number of individuals holding foreign citizenship are seeking lawful ways to own Russian assets without risking falling under the restrictions of Federal Law No. 57-FZ “On the Procedure for Foreign Investments in Business Entities of Strategic Importance for National Defense and State Security” and sanctions — including through the establishment of a personal fund.

A personal fund under Russian law is a relatively new instrument that allows for the structuring of asset ownership, ensuring succession, and protecting capital. However, the presence of a foreign element — whether the citizenship of the founder or of the beneficiaries — creates additional legal risks.

In this article, we analyze what is genuinely permitted, where the boundary of admissibility lies, and how to minimize the risks of recharacterization of the structure.

1. Legal Capacity of Foreigners: What Is Actually Permitted

The Civil Code of the Russian Federation expressly provides that foreign citizens and stateless persons enjoy civil legal capacity in Russia on an equal basis with Russian citizens — except in cases established by law.

What this means in practice:

A foreign citizen may act as the founder of a personal fund in the Russian Federation, and foreign citizens may act as its beneficiaries — there are no formal obstacles to this, provided that specific categories of assets subject to statutory restrictions are not involved.

Examples of statutory restrictions:

• Foreign citizens may not own agricultural land (although they may lease it);
• Foreign citizens are prohibited from owning land plots within the boundaries of Russian seaports;
• Restrictions exist in strategic sectors, critical infrastructure facilities, and subsoil use for foreign citizens.

Conclusion: As a general rule, a foreign person may establish a personal fund and act as its beneficiary. In such cases, restrictions relate not to the status of the person, but to the specific types of assets contributed to the personal fund.

2. When a Personal Fund with a Foreign Founder/Beneficiary Is Safe

For assessing the structure, the key factor is not the mere presence of foreign participation, but rather the nature of the acquired assets and the degree of actual control exercised by foreign persons.

Case 1. Portfolio Investments in Public Companies

Situation: A foreign citizen establishes a personal fund in Russia and uses it to acquire securities of public strategic companies — shares of Gazprom, Sberbank, Rosneft, and other public joint-stock companies included in the strategic list.

Conditions under which the structure does not raise concerns:

• Minority stakes are acquired;
• The investments are of a portfolio nature;
• The personal fund does not obtain corporate control and does not influence management.

Why this works:

In such a configuration, the personal fund acts as an investment instrument: the foreign founder exercises their right to participate in civil commerce, and no object of investment control arises within the meaning of Federal Law No. 57-FZ.

Conclusion: Portfolio investments through a personal fund with a foreign founder are permissible and, as a rule, do not raise concerns from regulators.

3. When a Personal Fund Appears to Circumvent the Law

A fundamentally different legal assessment is given when a personal fund with a foreign founder acquires a controlling position in strategically significant assets.

Case 2. Control over an Infrastructure Asset

Situation: A personal fund established by a foreign citizen, through a subsidiary structure, acquires a controlling stake in a company that:

• Is an infrastructure facility (port, airport, transport hub);
• Holds a monopolistic position;
• Is engaged in subsoil use;
• Falls under other strategic significance criteria.

When such a structure becomes problematic:

Formally, a personal fund is a Russian legal entity without shareholders/participants. However, if the founder of the personal fund and members of their family (foreign citizens) continue to:

• Actively participate in making key decisions;
• Shape investment policy;
• De facto manage the assets of the personal fund,

— the personal fund ceases to be perceived as a “neutral” non-commercial vehicle for holding and managing assets for succession planning purposes and may be classified as an instrument of indirect foreign control.

Risk of Recharacterization

Acquiring such control through a personal fund without prior approval from the Government Commission may be regarded as using the personal fund as a formal intermediary for the purpose of circumventing the requirements of Federal Law No. 57-FZ and other mandatory approval regimes (for example, under Decrees of the President of the Russian Federation).

What regulators (the Federal Antimonopoly Service, the Government Commission, courts) assess when evaluating structures:

• The composition of the personal fund’s assets;
• The actual powers of the founder and beneficiaries;
• The ability to issue binding instructions to management bodies;
• The preservation of economic and managerial influence.

Conclusion: Control and management of strategic assets with the active participation of foreign persons create heightened regulatory risk. Regulators may deem it necessary to obtain approval from the Government Commission for such management. Failure to comply with the approval procedure may lead to the structure being recognized as violating public policy or as created to circumvent the law.

At the same time, if the personal fund is structured so that, under its charter and governance terms, the founder does not retain rights to control decision-making by the fund’s bodies, and if Russian citizens without dual citizenship or foreign residence permits are appointed to the personal fund’s governing bodies, these risks may be reduced.

4. Change of Citizenship of the Founder: A Fine Line

Particular attention should be paid to a situation that is increasingly common in practice: wealthy individuals change or acquire new citizenship and renounce Russian citizenship.

For example, a Russian citizen establishes a personal fund and contributes Russian real estate and assets held in bank and brokerage accounts to it. After establishing the personal fund, they relocate abroad for permanent residence and subsequently renounce Russian citizenship. The beneficiaries become their children — foreign citizens permanently residing outside Russia.

Legal Consequences

What does not change:

• Renunciation of Russian citizenship does not render the establishment of the personal fund unlawful;
• The very fact of establishing the personal fund and transferring assets to it remains valid and lawful.

What changes:

• From the moment Russian citizenship is lost, the founder becomes a foreign person for the purposes of Russian law;
• The personal fund begins to be viewed through the lens of potential foreign control.

The key question for regulators: has the former Russian citizen retained actual influence over the personal fund after changing citizenship?

• Do they participate in making key decisions?
• Do they determine investment policy?
• Do they control the appointment and election of the personal fund’s governing bodies?

If, after renouncing citizenship, the founder continues to de facto manage the personal fund, and the beneficiaries (their children — foreign citizens) receive income from Russian assets, the structure may be recharacterized as being under foreign control despite the “Russian origin” of the assets.

How to Minimize Risks:

• Appoint a Director who is a Russian citizen without foreign citizenship or a residence permit;
• Use a local management company (some Russian law firms, including A&T Lawyers, provide such services);
• Formalize the absence of operational control by the former founder;
• Properly structure the tax model of distributions, currency framework, and banking compliance.

Conclusion: A change of citizenship of the founder is not prohibited per se, but it radically alters the legal assessment of the structure. The key issue is not the history of asset ownership or their origin, but who actually manages the personal fund today and receives the economic benefit.

5. Additional Areas of Attention

Assets in Russia: Not Prohibited, but Subject to Increased Scrutiny

The mere fact that real estate or other assets are located in Russia, and that bank and brokerage accounts are opened with Russian institutions, does not prohibit their ownership through a personal fund with foreign beneficiaries.

However, additional issues arise that require attention:

• Currency regulation in payments to beneficiaries;
• Tax qualification of income;
• Control over sources of funds;
• Banking compliance.

Situations are particularly sensitive where distributions are regular in nature, economically resemble dividends, and no independent Director/manager is in place.

Sanctions Risks

Under international sanctions regimes, foreign founders and beneficiaries may face restrictions:

• In access to banking services;
• In currency transactions;
• In cross-border payments.

This does not deprive them of legal capacity, but creates practical obstacles to the effective and efficient functioning of the personal fund.

Currency and Tax Control

The involvement of foreign beneficiaries requires:

• Enhanced monitoring of compliance with Russian currency regulations;
• Analysis of the tax consequences of cross-border payments;
• Determination of sources of income;
• Application of double taxation avoidance agreements;
• Assessment of the need to withhold tax at source.

Practical Checklist: Before Establishing a Personal Fund with a Foreign Founder

☑ Verify whether the assets have strategic status or connections with infrastructure facilities or subsoil use
☑ Assess the planned degree of influence of the founder and beneficiaries: will de facto control remain with foreign persons
☑ Develop a governance model demonstrating that the personal fund’s bodies act autonomously rather than as the “extended arm” of the founder
☑ Analyze currency and tax consequences of payments to foreign beneficiaries, including regular distributions
☑ In borderline cases — assess in advance the need for approval by the Government Commission
☑ Establish banking compliance taking into account sanctions risks and AML requirements
How A&T Lawyers Can Assist in Structuring a Personal Fund

In practice, A&T Lawyers regularly support the establishment of personal funds with a foreign element, including ensuring compliance with Federal Law No. 57-FZ, as well as currency and sanctions restrictions.

Our services include:

• Structuring a personal fund model taking into account the citizenship of the founder and beneficiaries, the composition of assets, and the requirements of Federal Law No. 57-FZ;
• Conducting a legal audit of assets to assess their strategic status, as well as sanctions and currency restrictions;
• Drafting the charter and governance terms of the personal fund with a focus on demonstrating the genuine autonomy of its governing bodies;
• Providing management company services — ensuring independent management of the personal fund through a Russian structure;
• Advising on the tax model and liaising with banks on compliance matters.

Next Step

If you are planning to establish a personal fund with a foreign founder/beneficiary, or are already managing such a structure and have doubts about its sustainability, discuss your situation with the A&T Lawyers team.

Submit a request via the website form or arrange a meeting at the Moscow office / online.

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