How to safely structure a private foundation 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 Kovaleva, Lawyer at Alimirzoev & Trofimov

Alexandra Guzeeva, Lawyer at Alimirzoev & Trofimov

Who Is This Article For:

• Foreign citizens who own assets in the Russian Federation and are potential founders of a private foundation;
• Families with non-resident children considering succession planning in Russia;
• Advisors working with personal foundations 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 private foundation.

A private foundation 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.

A Russian version of this articles has been published at Pravo.ru portal and can be read here: https://pravo.ru/news/263147/

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 does this mean:

A foreign citizen may act as the founder of a private foundation 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.

Summary:

As a general rule, a foreign person may establish a private foundation 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 private foundation.

2. When a Private Foundation 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 private foundation in Russia and uses it to acquire securities of public strategic companies, for example, 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;
• A private foundation does not obtain corporate control and does not influence management.

Why does this work:

In such a configuration, a private foundation 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.

Summary: Portfolio investments through a private foundation with a foreign founder are permissible and, as a rule, do not raise concerns from regulators.

1. 3.When a Private Foundation Is Seen as Circumventing the Law

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

Case 2. Control over an Infrastructure Asset

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

• operates infrastructure (a seaport, airport, transport hub);
• holds a monopolistic position;
• is engaged in subsoil use;
• otherwise meets the criteria of strategic significance.

When such a structure becomes problematic:

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

• actively participate in key decision-making;
• shape the investment policy;
• De facto manages the assets of a private foundation,

– the private foundation ceases to be perceived as a “neutral” non-commercial vehicle for holding and and managing assets for succession planning purposes and may instead be qualified as an instrument of indirect foreign control.

Risk of Reclassification

Acquiring such control through a private foundation without prior approval from the Government Commission may be regarded as using a private foundation 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 such structures:

• the composition of the private foundation’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.

Summary:

 Control and management of strategic assets with the active involvement of foreign persons creates 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 having been created to circumvent the law.

At the same time, these risks may be mitigated if the private foundation is structured in such a way that, under its charter and governance arrangements, the founder does not retain control over decision-making by the foundation’s governing bodies, and if those bodies are composed of Russian citizens without dual citizenship or residence permits in foreign states.

1. 4. Change of the Founder’s Citizenship: A Fine Line

A situation that deserves particular attention – and is increasingly common in practice – is when high-net-worth individuals change or acquire a new citizenship while renouncing their Russian one

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

Legal Consequences

What does not change:

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

What changes:

• From the moment Russian citizenship is lost, the founder is treated as a foreign person for the purposes of Russian law;
• The private foundation begins to be assessed through the lens of potential foreign control.

The key question for regulators

: whether the former Russian citizen has retained actual influence over the private foundation after changing citizenship?

• Do they participate in making key decisions?
• Do they determine the 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 private foundation, 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 Mitigate 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.

Summary:

A change of the founder’s citizenship is not prohibited in itself, but it fundamentally alters the legal assessment of the structure. The key issue is not the history of ownership or the origin of the assets, but who actually controls the private foundation today and who derives the economic benefit.

1. 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 holding such assets through a private foundation with foreign beneficiaries.

However, additional issues arise that require attention:

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

Situations are particularly sensitive where distributions are made on a regular basis, are economically similar to dividends, and there is no independent Director or manager in place.

Sanctions Risks

In the context of international sanctions regimes, foreign founders and beneficiaries may become subject to restrictions:

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

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

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 treaties;
• Assessment of the need to withhold tax at source.

Practical Checklist: Before Establishing a Private Foundation with a Foreign Founder

• Verify whether the assets have a strategic status or are connected to infrastructure facilities or subsoil use
• Assess the intended level of influence of the founder and beneficiaries: whether de facto control will remain with foreign persons
• Establish a governance model demonstrating that the private foundation’s bodies act independently and not as an “extended arm” of the founder
• Analyze the foreign exchange and tax implications of distributions to foreign beneficiaries, including regular payments
• In borderline cases, assess in advance whether approval from the Government Commission is required
• Build banking compliance taking into account sanctions risks and AML requirements

How A&T Lawyers Can Assist in Structuring a Private Foundation

In practice, A&T Lawyers regularly support the establishment of private foundations 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 private foundation 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 Management Terms of the private foundations with a focus on demonstrating the genuine autonomy of its governing bodies;
• Providing management company services and ensuring independent management of the private foundations 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 private foundation 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.

© A&T Lawyers, 2026