Where a holding structure ahead of the CIS listing or exit stands now

The commercial pressure comes first. A founder or principal with operating assets across the Commonwealth of Independent States — Russia, Kazakhstan, Ukraine, Azerbaijan and the wider post-Soviet space — who is preparing a public listing or a structured exit faces a question that no single adviser in a single jurisdiction can answer cleanly: which holding jurisdiction, which treaty access, and how does beneficial-ownership disclosure interact with the target exchange or acquirer's requirements? The stakes are not theoretical. A structure that works on paper but fails on substance, treaty access or disclosure compliance can stall a transaction, trigger a tax reassessment in the operating jurisdictions, or collapse an exchange's approval process.

A holding structure ahead of a CIS (Commonwealth of Independent States — the loose alliance of former Soviet republics, the principal members of which include Russia, Kazakhstan, Ukraine, Azerbaijan, Uzbekistan and Belarus) listing or exit must satisfy three distinct tests simultaneously: substance in the holding jurisdiction, treaty access from that jurisdiction into the operating territory, and beneficial-ownership transparency adequate for the target market or acquirer. Hong Kong's territorial tax system, common-law courts and established double taxation agreement (DTA — a bilateral treaty allocating taxing rights between two states) network make it a credible intermediate holding layer for groups with CIS operations, but the structure must be built around real economic presence, not merely a registered address.

This analysis covers the commercial stakes, the governing instruments and cross-border interface, a comparative read between the principal CIS-connected holding options, and our current view on where the risk sits. Counsel on our desk works this corridor regularly; the observations below reflect the live position as at the date of publication.

What is actually at stake when a CIS group prepares for listing or exit?

The first thing to understand is that a listing or exit process is not a single event. It is a sequence of gating steps, each of which looks at the structure from a different angle.

An exchange's listing committee or a private-equity acquirer conducting due diligence will ask: where is the group actually managed and controlled? Where does the cash generated in Kazakhstan or Azerbaijan actually go, and through what entities? Who are the ultimate beneficial owners, and how is that disclosed? The answers to those questions determine whether the holding structure assists the transaction or obstructs it.

For CIS-origin groups specifically, the pressure is compounded. Several CIS jurisdictions have introduced or strengthened controlled foreign corporation (CFC — a rule that taxes a resident's share of a foreign entity's undistributed profits as if those profits had been distributed) regimes in recent years. Russia's CFC rules are the most developed in the region; Kazakhstan and Ukraine have followed with their own variants. A holding structure that does not pass the substance test in its home jurisdiction — and that does not demonstrate genuine management and control located outside the CIS operating territory — faces the risk of being treated as a resident entity by the CIS tax authority, stripping away the treaty or exemption benefit entirely.

At the same time, the principal purpose test (PPT — the OECD-derived standard under which a treaty benefit is denied if obtaining that benefit was one of the principal purposes of the arrangement) now applies across most modern DTAs, including those Russia and Kazakhstan have concluded with major holding jurisdictions. The structure's economic rationale must be capable of being articulated and evidenced, not merely asserted.

In our cross-border practice, we see the same pattern repeatedly. A group was assembled over a decade. The holding layer was put in place for tax reasons, with minimal genuine activity at the top. The listing or exit process then exposes the gap between the chart on paper and the commercial substance underneath it. Remediation at that stage is costly and time-consuming — sometimes transaction-threatening.

What governs the structure? The instruments that matter across this corridor

No single instrument governs the whole picture. The applicable rules span the holding jurisdiction's domestic law, the bilateral DTA between the holding jurisdiction and the CIS operating territory, the OECD's Base Erosion and Profit Shifting (BEPS — the OECD/G20 project addressing tax planning strategies that shift profits to low-tax jurisdictions) framework as incorporated into those treaties, and the listing rules or acquisition documentation of the target transaction.

For a Hong Kong holding layer, the governing domestic instrument is the Inland Revenue Ordinance, which establishes the territorial basis: profits tax applies only to profits arising in or derived from Hong Kong. That territorial basis is the starting point for treaty analysis. Hong Kong's DTA network includes agreements with the People's Republic of China, Belgium, France, Luxembourg, the Netherlands, the United Kingdom and a number of other jurisdictions. The PRC-HK agreement is the most significant for groups routing through Hong Kong toward Mainland operations, but for CIS groups, the relevant treaties are those between Hong Kong and the capital-export or holding jurisdiction, not the CIS state itself — because in most cases the CIS operating entities are held through a combination of a BVI or Cayman parent above a Hong Kong intermediate entity above the operating layer.

The foreign-sourced income exemption (FSIE) regime, in force from 1 January 2023 as amended, is directly relevant to any Hong Kong entity receiving dividends, interest, royalties or gains from a non-Hong Kong source. Under the FSIE regime, a Hong Kong entity that is a multinational enterprise (MNE) constituent entity and receives covered income must satisfy economic-substance conditions, a participation exemption, or a subject-to-tax test to maintain the exemption. For a Hong Kong holding entity above CIS operating subsidiaries, this is not an optional consideration. It is a mandatory compliance step that must be built into the structure design before, not after, the listing or exit process begins.

For the Hong Kong minimum top-up tax — the Pillar Two implementation — groups with consolidated revenue at or above EUR 750 million should note that the regime applies to fiscal years beginning on or after 1 January 2025. For most CIS-origin groups at listing or exit stage, this threshold is material and must be modelled into the post-transaction tax position.

How does the cross-border interface bite? Hong Kong against the CIS operating layer

The cross-border interface is where theory meets the real difficulty. A Hong Kong intermediate holding company receiving dividends from a Kazakhstan operating subsidiary must satisfy two separate tests in two separate legal systems — and the tests are not always aligned.

On the Kazakhstan side, the key question is whether the dividends are eligible for a reduced withholding rate under the DTA between Kazakhstan and Hong Kong. Kazakhstan has a DTA with Hong Kong. That treaty provides a reduced withholding rate on dividends paid to a qualifying beneficial owner, subject to ownership thresholds and the absence of treaty abuse. The PPT applies. Kazakhstan's tax authority has been increasingly active in challenging the beneficial-ownership status of intermediate holding entities that lack substance. An entity with a registered address in Hong Kong, a nominee director, and no genuine management activity is, on the current enforcement trend, a significant risk.

On the Hong Kong side, the company receiving the Kazakh dividends must satisfy the FSIE substance conditions to maintain the exemption. Those conditions require adequate employees, adequate operating expenditure, and the key income-generating activities to be carried out in Hong Kong. A shell entity with a mail-forwarding service fails this test cleanly. The result is a double exposure: the withholding reduction is denied at source in Kazakhstan, and the exemption is denied on receipt in Hong Kong.

For Russia-connected structures, the position is further complicated by the sanctions environment. Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral measures of other states. That is the legal position. In practice, however, groups with Russian operating assets face a separate layer of counterparty-driven scrutiny — from banks, exchanges, and acquirers — that does not derive from Hong Kong law but nonetheless affects the viability of any structure that maintains Russian exposure. This is a compliance and risk-management question, not a Hong Kong law question, and it must be treated as such. We address it as part of any cross-border structural review for CIS-connected groups.

For groups with Ukrainian operating assets, the position is different again: the Ukrainian legal environment has changed materially since 2022, and the interaction between Ukrainian tax law, force majeure (the legal doctrine excusing a party from performance where circumstances beyond its control make performance impossible or impracticable), and the structural obligations of a listing or sale process is a fact-specific analysis that must be conducted with allied counsel in the relevant jurisdiction.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps — which is where the route is won or lost. To discuss how the cross-border interface applies to your group's specific position, write to us at info@lockhartyip.com.

Which holding centre? A comparative read across the principal options

Groups with CIS exposure preparing for a listing or exit typically evaluate four holding jurisdictions: Hong Kong, the BVI, the Cayman Islands, and Cyprus or another European intermediate layer. Each has a different profile against the three tests — substance, treaty access, and beneficial-ownership transparency.

The BVI and Cayman Islands remain dominant at the apex of the structure — the top-level parent that holds the intermediate layer. Both are common-law jurisdictions with well-tested corporate law, de facto (in practice, as opposed to in law) recognition in most trading exchanges, and a developed professional-services market. Economic-substance regimes apply in both. For entities that receive income passively — holding shares, receiving dividends — the substance requirements are less onerous than for entities conducting operating or financing activity. But substance compliance is not optional and must be documented.

The BVI and Cayman entities at the apex typically lack DTA access themselves. They do not have extensive treaty networks. Their value is structural — ring-fencing assets, facilitating share pledges, enabling a clean listing vehicle — not treaty-driven. The treaty work is done at the intermediate layer.

Cyprus was for many years the dominant intermediate jurisdiction for CIS groups — particularly Russian-connected groups — because of the Cyprus-Russia DTA and its favourable withholding treatment. The Russia-Cyprus DTA was terminated by Russia in 2023; Cyprus lost its primary advantage for that corridor. For groups with Kazakh or Ukrainian assets, Cyprus retains a DTA, and the analysis is different. But the post-2022 reconfiguration of CIS-facing holding structures has accelerated interest in alternative intermediate jurisdictions, including Hong Kong.

Hong Kong's position in the comparative analysis is as an intermediate holding centre with genuine substance-building capacity, an established common-law system, a functional DTA with Kazakhstan and several other CIS-connected jurisdictions, and the institutional infrastructure — banking, legal, fiduciary — to support genuine management and control. The 8.25% profits tax rate on the first HK$2,000,000 of assessable profits, combined with zero withholding on dividends distributed upward, makes the after-tax economics of a Hong Kong intermediate layer competitive. But the economics only work if the FSIE substance conditions are satisfied, which requires real investment in headcount and activity.

What foreign counsel sometimes misread is the relationship between the Hong Kong position and the operating jurisdiction's view of beneficial ownership. Satisfying the FSIE conditions in Hong Kong does not automatically satisfy the Kazakhstan tax authority's beneficial-ownership test. The two analyses run in parallel. A robust structure addresses both, which means coordinating the Hong Kong substance build with the documentation of genuine control exercised at the holding level over the CIS operating subsidiaries.

Where does the risk actually sit now?

The enforcement risk has shifted upstream. A decade ago, the risk in a CIS-facing holding structure was primarily at the operating level — transfer pricing, local-law compliance, withholding treatment. Those risks remain. But the primary pressure point in the current environment is at the intermediate holding layer: specifically, the interaction between the PPT, the FSIE regime, and the CFC rules of the relevant CIS jurisdiction.

Consider a mid-market manufacturing group incorporated in Hong Kong, holding a Kazakhstan operating subsidiary through a Cayman parent. The group is preparing for a listing on a Gulf exchange. Due diligence surfaces three problems. First, the Hong Kong holding company has one director resident in Hong Kong but no employees and no genuine management activity; the FSIE conditions are not satisfied. Second, Kazakhstan's DTA withholding benefit has been claimed on dividends paid to the Hong Kong entity, but the entity does not satisfy Kazakhstan's beneficial-ownership standard under the PPT-based treaty article. Third, the listing rules of the target exchange require disclosure of the ultimate beneficial owner and a clean legal opinion on the group's tax position; neither is currently available without remediation. We have structured the remediation of comparable positions — the sequence begins with the FSIE substance build in Hong Kong, progresses to treaty-position documentation with allied counsel in Kazakhstan, and concludes with the beneficial-owner disclosure package for the exchange.

A second risk sits at the exit level specifically. Where the exit takes the form of a share sale — a buyer acquiring the Cayman or BVI parent — the question of stamp duty (ad valorem duty levied on the transfer instrument) arises for any Hong Kong-situated shares in the chain. Under Hong Kong law, the transfer of stock in a Hong Kong-incorporated company attracts ad valorem stamp duty of 0.1% per party (0.2% in total) on the higher of consideration or value. Shares of a non-Hong Kong company that holds no Hong Kong-situated assets are generally outside Hong Kong stamp duty, but the analysis depends on the facts of the specific structure. Where the chain includes a Hong Kong holding entity that is itself held by the offshore parent, the duty position must be assessed before the transaction documents are finalised.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. To discuss the remediation options for your cross-border position, write to us at info@lockhartyip.com.

How does beneficial-ownership disclosure interact with the listing or exit process?

Beneficial-ownership disclosure is no longer a compliance afterthought. It is an upfront deal-structuring question.

Most target exchanges — whether in Hong Kong, the Gulf, London or elsewhere — require the listing applicant to disclose the identity and ownership percentage of every person who, directly or indirectly, controls more than a defined threshold of the listing vehicle. For CIS-origin groups, where ownership is often layered across multiple offshore entities with nominee arrangements at various levels, building that disclosure chain retroactively is a significant exercise.

Under the Companies Ordinance (Cap. 622), every Hong Kong-incorporated company is required to maintain a Significant Controllers Register (SCR — a register of persons who have significant control over the company, required to be maintained since 1 March 2018). For an intermediate Hong Kong holding entity, the SCR must reflect the current beneficial-ownership position accurately. An SCR that does not match the structure being presented to an exchange creates an immediate due-diligence problem.

At the offshore level, the BVI and Cayman Islands have both introduced beneficial-ownership frameworks, implemented through their domestic corporate legislation. The precise disclosure obligations in each jurisdiction should be verified with allied counsel before the transaction. What is clear across all jurisdictions is the direction of travel: transparency is increasing, nominee arrangements without genuine economic purpose are under pressure, and any structure that relies on obscured beneficial ownership to function is a structural liability in a public or exit process.

The interaction with Hong Kong's Anti-Money Laundering and Counter-Terrorist Financing Ordinance is also relevant for groups that use Hong Kong-incorporated entities to receive and deploy capital. The source-of-funds and beneficial-ownership documentation that a Hong Kong bank will require of a CIS-origin group operating through a Hong Kong holding entity is material to the practical functioning of the structure. A structure that is legally compliant but operationally non-bankable solves nothing.

Where is this heading? Our current read

Three developments define the direction of the current environment for CIS-facing holding structures.

First, the FSIE regime and Pillar Two together mean that passive holding structures at the Hong Kong level are no longer viable for MNE groups above the revenue threshold. The substance requirement is real, and the Hong Kong Inland Revenue Department is actively developing its approach to FSIE compliance. Groups that have not yet built genuine substance into their Hong Kong entity need to do so before a listing or exit process exposes the gap.

Second, the PPT-based treaty challenge is accelerating across the CIS. Kazakhstan's tax authority has been one of the more active in the region on treaty-abuse challenges, and the enforcement trend is upward. Azerbaijan and Uzbekistan are at earlier stages of the same trajectory. Groups with operating assets in those jurisdictions should treat the treaty position as a live risk, not a background assumption.

Third, the re-domiciliation option is now on the table for Hong Kong. A Hong Kong inward company re-domiciliation regime commenced in 2025, allowing an eligible non-Hong Kong company to re-domicile to Hong Kong while preserving its legal identity — verify the current commencement date and eligibility before acting. For a CIS-origin group currently holding assets through a Cyprus or other European intermediate entity that has lost its primary treaty advantage, re-domiciling that entity to Hong Kong is a route worth analysing against the alternative of incorporating a new Hong Kong entity and restructuring below it.

In our cross-border practice, the clearest observation is this: the groups that manage listing or exit processes most effectively are those that addressed the structural question two to three years before the transaction — not six months before. The substance build takes time. The treaty-position documentation takes time. The beneficial-ownership disclosure chain takes time to construct cleanly. Starting early is the primary risk-management tool.

For a structured assessment of your holding structure's position ahead of a CIS listing or exit across the relevant jurisdictions, write to us at info@lockhartyip.com.

What foreign counsel and in-house teams often get wrong

The most persistent error we observe is the assumption that a structure which worked — or was never challenged — during the operating phase will survive scrutiny in a transaction context. It will not, for two reasons.

A listing or exit process applies a different standard of review. A CIS tax authority conducting a periodic audit asks whether the current year's filing is correct. A listing committee or private-equity acquirer conducting due diligence asks whether the entire historical structure was correct, is defensible under current law, and will remain defensible post-transaction. The historical and prospective analysis is comprehensive in a way that routine compliance never is.

The second error is treating the holding jurisdiction's compliance as the whole answer. Satisfying the FSIE conditions in Hong Kong is necessary. It is not sufficient. The Kazakhstan or Azerbaijani tax authority's view of the same entity — its beneficial-ownership status, its substance, its treaty entitlement — is a separate legal question, governed by a separate legal system, and must be addressed separately. Groups whose advisers have optimised for one jurisdiction without a coordinated analysis of the operating jurisdictions arrive at the transaction with a half-answered question.

A third recurring issue is the timing of the Significant Controllers Register update. An SCR that was completed at incorporation and never revisited — despite changes in ownership, the introduction of new investors, or restructuring of the beneficial-ownership chain — is a disclosure liability. The obligation to maintain an accurate SCR is ongoing, and the register must reflect the current position at the time of any transaction disclosure.

See our analysis of holding structures practice for the broader context of our cross-border holding-structure work, including the interaction with Mainland China. For a comparable cross-border matter involving a family-owned group with Mainland China operations, see our discussion of that matter. For groups considering a listing or exit with Mainland China exposure, the comparative analysis is at holding structure ahead of Mainland China listing or exit.

Related practices

• Tax Positions – FSIE, Pillar Two and treaty analysis for cross-border holding structures
• Private Wealth – beneficial-ownership structuring, succession and family-office planning across CIS and Asia
• Sanctions & AML – source-of-funds compliance and counterparty review for CIS-connected groups

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Related

• Holding Structures
• Holding Structure Family Owned Group Mainland China Mainland 4
• Holding Structure Ahead Mainland China Listing Or Exit 3

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.