Where a holding structure for a family-owned group in the CIS stands now

A family-owned group with operating assets in the Commonwealth of Independent States and ambitions that reach beyond its home market has already, in most cases, built something: a layer of entities above the operating companies, a treaty-friendly intermediate, perhaps a Cyprus or BVI vehicle accumulated during an earlier cycle of cross-border planning. The question our desk hears most often is not how to build the structure, but where exactly it stands under conditions that have changed materially since it was designed.

The cross-border holding position for a CIS family group today turns on three things: whether the beneficial-ownership and substance tests that sit at the centre of modern treaty access are actually met at each level; whether the enforcement and asset-protection logic of the structure survives the governing instruments now in force; and whether Hong Kong, as an intermediate or terminal holding seat, adds or removes risk relative to the alternatives. The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, in force since 29 January 2024, and the Hong Kong minimum top-up tax applicable to fiscal years beginning on or after 1 January 2025, are the two most recent developments that change the calculation.

This analysis moves through the commercial stakes, the governing instruments, the CIS-to-Hong Kong interface, the risk points that are most commonly misjudged, a comparative read of the principal intermediate holding locations, and where our desk sees the risk sitting now.

What is actually at stake commercially for a CIS family group?

The commercial question is not primarily a tax question, although tax is part of it. For a CIS family group, the holding structure carries at least four distinct functions simultaneously: it separates operating-company risk from family wealth; it provides an enforcement-resistant envelope around the assets; it routes dividend and capital flows through treaty positions that reduce withholding; and it creates a governed succession path that the domestic legal systems in the CIS do not reliably provide.

Each of those functions has its own pressure point in the current environment. The risk-separation function depends on whether the group can demonstrate that the intermediate entities have genuine decision-making substance – because without it, a CIS tax authority applying a look-through (beneficial-ownership disregard) doctrine can collapse the structure for local withholding purposes. The enforcement-resistance function depends on whether the chosen holding seat's asset-protection regime will be recognised or challenged by a court with jurisdiction over the founding family. The treaty-access function depends on whether the intermediate meets the principal-purpose test (a standard now embedded in most OECD-aligned treaties that denies a treaty benefit where obtaining that benefit is one of the principal purposes of an arrangement). And the succession function depends on whether the trust or foundation layer, if one exists, was constituted under a law that the family's eventual seat will respect.

A structure that was designed with only one of those functions in mind – typically the dividend-routing function – is, in our cross-border practice, the structure most likely to fail under scrutiny today. Families and their in-house advisers sometimes discover this not when they file a return, but when a dispute crystallises or a family member seeks to exit.

How does the governing framework bear on a CIS holding structure?

The governing instruments for a multi-layer CIS holding structure span several legal systems, and none of them can be read in isolation from the others.

At the CIS-source level, the relevant framework combines the domestic tax statute of the operating-company jurisdiction (which determines whether a dividend or interest payment is subject to withholding and at what rate), the applicable double-taxation treaty (which may reduce that rate, but only if the intermediate meets the treaty's beneficial-ownership and anti-abuse conditions), and the CIS jurisdiction's controlled-foreign-corporation rules (which may attribute income from the intermediate back to a resident shareholder regardless of whether it is distributed). Russia, Kazakhstan and Ukraine each have well-developed versions of these instruments; the position in the smaller CIS economies varies and should be verified for the specific jurisdiction.

At the intermediate holding level, the governing instruments include the corporate statute of the jurisdiction where the intermediate is incorporated, its economic-substance regime (where applicable), and any disclosure or beneficial-ownership register requirement. The BVI Business Companies Act and the Cayman Islands Companies Act both now operate alongside economic-substance regimes that require entities earning certain categories of income – including holding-company income, in some circumstances – to demonstrate a defined degree of local activity.

At the Hong Kong level, the Inland Revenue Ordinance governs the tax position of a Hong Kong holding entity, including the foreign-sourced income exemption (FSIE) regime that came into force on 1 January 2023 and has since been amended. Under the FSIE regime, certain categories of passive income received by a Hong Kong entity from an associated foreign entity are exempt from profits tax only if the receiving entity meets an economic-substance requirement in Hong Kong, or – in the case of dividends and disposal gains – satisfies a participation exemption test. A holding entity that does nothing in Hong Kong beyond maintaining a registered address does not satisfy the substance requirement.

The minimum top-up tax, applicable for fiscal years beginning on or after 1 January 2025 for MNE groups with consolidated revenue at or above EUR 750 million, is a separate but interacting layer for larger family groups. For groups below that threshold, it is not yet the operative concern – but the substance and disclosure logic it enforces is now the direction of travel for treaty access generally.

How does the CIS-to-Hong Kong cross-border interface actually operate?

Hong Kong is used in CIS family structures in two principal ways: as a terminal holding company over Greater China or Asia-Pacific operating assets, or as an intermediate hub sitting between an offshore vehicle (BVI, Cayman) and the operating group. The cross-border legal interface is different in each case.

Where Hong Kong is the terminal holding seat for Asia-Pacific assets, the interface bites primarily on substance and enforcement. The Hong Kong entity must have enough economic activity to satisfy the FSIE conditions; and if a judgment or award is needed against a counterparty with assets on the Mainland, the mechanism is now the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance – in force since 29 January 2024 – which replaces the earlier, narrower 2008 choice-of-court regime. Notably, the old exclusive-jurisdiction requirement has been removed; a connection-based test now governs. For arbitral awards, the 1999 Arrangement and its 2020 Supplemental Arrangement remain the operative path, with simultaneous enforcement applications permitted since the 2021 amendment. That is a materially stronger enforcement toolkit than the one available to a structure seated in an offshore centre with no enforcement treaty with the Mainland.

Where Hong Kong sits as an intermediate layer between an offshore holding vehicle and the CIS operating group, the interface involves a different problem. There is no comprehensive double-taxation treaty between Hong Kong and most CIS jurisdictions on terms that would make Hong Kong the natural treaty-planning node for CIS dividends. The treaty network from Cyprus, the Netherlands, Luxembourg and – in earlier structures – Switzerland has historically carried more of the withholding-reduction work for CIS family groups. Hong Kong's relevance in that part of the chain is more commonly as a banking and treasury hub, as a substance location for management decisions, or as the intermediate above a CIS entity that itself has a Hong Kong trading relationship.

The cross-border enforcement angle adds a layer that is sometimes underweighted. A Hong Kong common-law judgment can be enforced in most common-law jurisdictions through ordinary registration or re-litigation procedures. In the CIS, enforcement of a foreign civil judgment depends on whether the relevant bilateral treaty is in force, and the position varies by country. Arbitration, typically under the HKIAC Administered Arbitration Rules with Hong Kong as the seat, produces an award enforceable in New York Convention states – which include Russia, Kazakhstan, Ukraine and most other CIS members. For a family group whose counterparty risk and asset location spans Greater China and the CIS, that enforcement geography matters more than the structural chart.

The sequence above describes the standard position. Your matter turns on the specific treaty position of the CIS jurisdiction, the actual activities carried out at each level, and the current state of beneficial-ownership registers – which is where the structure's durability is won or lost.

If you are at the point of reviewing an existing multi-layer structure across the CIS and Hong Kong, write to us at info@lockhartyip.com to discuss the specific position.

Where do CIS family groups most commonly misjudge the risk?

In our cross-border practice, the most common misjudgement is the assumption that a structure which reduced withholding tax on dividends five or eight years ago continues to do so on the same terms. That assumption is wrong for two reasons.

First, the principal-purpose test now embedded in most OECD-aligned treaties – including treaties that CIS jurisdictions have updated through the OECD's Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) – applies a substantive anti-avoidance filter at the point of each distribution. A structure that looks fine on paper can fail that test if the intermediate has no real function beyond routing. The MLI has been signed and ratified by Russia and Kazakhstan, among others; the relevant treaties have been modified accordingly.

Second, beneficial-ownership registers in the principal offshore holding jurisdictions have moved from private to partially or conditionally accessible in ways that change the practical exposure of the structure. For a family that has reasons beyond tax – privacy, asset protection, succession – to separate operating assets from personal ownership, the current disclosure environment requires a different analysis than the one that applied when the structure was first set up.

A third misjudgement concerns the succession layer. Many CIS family groups added a trust or foundation above the offshore intermediate during the planning cycle of the early 2010s. In a number of cases, the constitutive documents were drafted to a template without close attention to which law governed the trust, which court had jurisdiction over trustee disputes, and how the reserved-powers clause interacted with the beneficial-ownership tests at the level below. Under the Trustee Ordinance as amended with effect from 1 December 2013, Hong Kong trusts benefit from statutory abolition of the rule against perpetuities and strengthened protection against foreign forced-heirship claims. A trust constituted under Hong Kong law and properly settled sits in a materially stronger position than one constituted under a jurisdiction that retains perpetuity limits or offers no statutory firewall against forced-heirship claims. That distinction matters for CIS families where one or more family members may be resident in a civil-law country with forced-heirship rules.

The fourth misjudgement is more operational. The Significant Controllers Register requirement for Hong Kong-incorporated companies – in force since 1 March 2018 – imposes ongoing maintenance obligations. Groups that incorporated a Hong Kong intermediate during the period of rapid CIS-to-Asia capital movement sometimes failed to maintain the SCR correctly, creating a latent governance gap that surfaces during a due-diligence exercise or a regulatory review.

A micro-scenario: restructuring the intermediate layer

Consider a mid-sized family group from a Central Asian CIS jurisdiction, with manufacturing operations at home, a Cyprus intermediate holding company, and a BVI vehicle above it carrying the family's personal stake. The group had used the Cyprus intermediate primarily to access the Cyprus–CIS treaty, reducing withholding on dividends to a rate well below the domestic rate. By mid-2025, two things had changed: the relevant treaty had been modified through the MLI, inserting a principal-purpose test; and the group's Central Asian operating company had begun supplying goods into Greater China, making a Hong Kong banking and treasury presence commercially useful rather than merely structural.

Our desk reviewed the structure from the substance perspective first. The Cyprus intermediate had one director – a professional corporate-services provider – and no employees. Management decisions about the operating group were made at the family level, which sat in the BVI vehicle. The intermediate failed the substance test for the modified treaty. It also held assets in a way that did not engage the Cyprus participation-exemption regime in the manner assumed.

The restructuring work involved establishing genuine substance at the intermediate level, not necessarily in Cyprus, and mapping the treaty access that remained available. The Hong Kong option was assessed for the Greater China leg: a Hong Kong holding entity with real management presence, satisfying the FSIE substance condition, sitting above the Greater China trading relationship and funded from the Central Asian operating group through a proper dividend chain. The BVI vehicle above was retained for the succession and asset-protection function, with the trust constituted under Hong Kong law to access the Trustee Ordinance protections. The Cyprus layer was retained but reconfigured, with a genuine board presence and documented management decisions, to meet the principal-purpose test on the remaining CIS treaty position.

The outcome, qualitatively: the group's treaty access was placed on a defensible footing, the substance gap at the intermediate level was closed, and the succession layer was constituted under a law that gives it statutory protection against the civil-law forced-heirship claims that one family member's European residence would otherwise have created.

How does the comparative read across intermediate holding locations change the analysis?

For a CIS family group choosing or reviewing an intermediate holding location, the comparison typically runs across Cyprus, the Netherlands, Luxembourg, Singapore, the BVI, the Cayman Islands, and Hong Kong. Each carries a different profile on the four dimensions that matter: treaty access, substance requirements, enforcement geography, and succession compatibility.

Cyprus has, for many years, been the dominant CIS intermediate – primarily because of its treaty network with Russia, Ukraine, Kazakhstan and other CIS states, its EU membership (relevant for structures with a European operating or holding layer), and its relatively accessible substance requirements. Following the MLI modifications, the effective treaty access has narrowed. The principal-purpose test now applies to the principal CIS treaties. Substance requirements have increased. And the practical utility of the Cyprus route depends more than it once did on whether the intermediate genuinely has management and decision-making activity in Cyprus.

Singapore offers a strong substance environment, good treaty access for South and South-East Asian positions, and a mature trust law. Its treaty network with the CIS is thinner than Cyprus's. It is a natural intermediate for groups whose operating assets are in ASEAN rather than Greater China or the CIS itself.

Hong Kong's treaty network does not, for most CIS jurisdictions, provide the direct dividend-withholding reduction that Cyprus once offered reliably. Its strength for CIS family groups lies elsewhere: in its enforcement position for Greater China assets, its FSIE regime for Asia-Pacific income, its banking and treasury depth, and – when a trust layer is used – the Trustee Ordinance protections described above. For a family group that is simultaneously managing a CIS operating base and a Greater China commercial relationship, Hong Kong as a sub-holding or treasury hub, combined with a treaty-access intermediate elsewhere in the chain, is a credible architecture.

The BVI and Cayman remain the dominant vehicles for the top-of-chain holding and family asset-protection function. Their economic-substance regimes require attention when the entity earns holding-company income, but the core use case – a family trust or foundation sitting above a diversified operating group – is not fundamentally disrupted by those regimes if they are managed correctly.

The decision matrix in prose form runs approximately as follows. A group whose primary treaty need is CIS dividend relief should assess whether the Cyprus intermediate meets the principal-purpose test at each distribution; if not, the risk is withholding at the domestic rate rather than the treaty rate, and the intermediate needs to be rebuilt with substance before the next dividend cycle. A group whose primary need is enforcement coverage for Greater China assets should assess whether Hong Kong or Singapore provides the stronger recognition and enforcement position for the types of dispute most likely to arise. A group with a succession concern spanning civil-law and common-law family members should assess whether the trust layer is constituted under a law with statutory forced-heirship protection, and whether the reserved-powers clause in the trust deed creates a beneficial-ownership problem at the intermediate level below.

What does the enforcement and exit angle look like for a CIS family group?

The enforcement angle is where the holding structure's design choices have the most concrete downstream consequence. A structure that looks efficient on a tax basis can be deeply inefficient on an enforcement basis – and for a family group, enforcement risk is not hypothetical. Disputes between family members, between the family and a minority partner, or between the group and a commercial counterparty all require a forum, a governing law, and an enforcement route.

For intra-group disputes with a Greater China dimension, a Hong Kong seat with HKIAC arbitration produces an award enforceable via the Mainland Arrangements – both the arbitral-award Arrangement and the interim-measures Arrangement in force since 1 October 2019. For counterparty disputes with a CIS dimension, the New York Convention enforcement path runs through the domestic courts of the relevant CIS state, whose approach to enforcement varies and should be assessed case by case.

The exit angle matters too. A family group that eventually sells or lists the operating business needs to be able to transfer shares in the intermediate holding company cleanly. The stamp duty position in Hong Kong is relevant: a transfer of shares in a Hong Kong-incorporated company attracts ad valorem stamp duty at 0.1% per party (0.2% in total) on the higher of consideration or market value, while shares in a non-Hong Kong company holding no Hong Kong-situated assets are generally outside that charge. Where the group has a choice of where to incorporate the intermediate, that distinction can be a material factor in the exit economics.

If an earlier structuring attempt produced an adverse tax assessment or a stalled enforcement position, a second read of the structure – focused on what the governing instruments actually require rather than what the original planning assumed – can identify the steps still open and the routes that are foreclosed.

To discuss the specific position for your group's structure across the CIS and Hong Kong, reach us at info@lockhartyip.com.

Where does the risk sit now, and where is it heading?

In our read of the current position, the risk for CIS family groups with multi-layer holding structures has shifted from the structural layer to the substance and disclosure layer. The structural tools – BVI, Cayman, Cyprus, Hong Kong, Singapore – are all still available and all still function. What has changed is the cost of using them without genuine substance and decision-making activity at each level.

The direction of travel on beneficial-ownership transparency is clearly towards greater disclosure. The OECD's Common Reporting Standard has been adopted by all major holding jurisdictions; automatic exchange of financial-account information between CIS jurisdictions and the offshore centres is now operational, not aspirational. A structure that was designed in a period when disclosure was limited to formal legal proceedings now exists in an environment where the information is, in principle, available to the tax authority in the operating-company jurisdiction.

That does not make multi-layer structures obsolete. It makes the substance, purpose and governance of each layer more important. A holding intermediate that has real management activity, documented board decisions, and a demonstrable commercial purpose beyond dividend routing can withstand a principal-purpose or look-through challenge. One that cannot demonstrate those things is a liability, not an asset.

The Hong Kong element of a CIS family group's structure is, in our view, best justified today on commercial grounds rather than primarily on tax grounds: the access it provides to Greater China assets and enforcement, the banking and treasury depth, the trust-law protections for succession, and the common-law court system as a fallback forum. Those are durable advantages that do not depend on treaty positions that may be modified by a future MLI round.

For further reading on specific aspects of cross-border holding architecture, see our analysis of Holding Structures, our note on a Cyprus holding company over a Hong Kong operating entity, and our briefing on a United Kingdom holding company over a Hong Kong operating entity.

A second micro-scenario: the succession trigger

A family office based in a Western CIS jurisdiction had, over the previous decade, accumulated a diversified portfolio: a manufacturing group at home, a Cyprus intermediate, a BVI holding vehicle, and a trust constituted under the law of a small offshore jurisdiction without a statutory forced-heirship protection clause. The family patriarch became ill in late 2024. The family's European legal adviser identified that one family member, resident in France, would have a réserve héréditaire (forced-heirship entitlement under French succession law) claim against the estate that could pierce the trust if the governing law did not provide an effective firewall.

Our desk was engaged to assess the trust layer and the intermediate structure simultaneously. The analysis identified three compounding issues: the trust's governing law offered no statutory forced-heirship protection; the CIS treaty position at the Cyprus intermediate had been eroded by the MLI; and the BVI holding vehicle's economic-substance filing had not been maintained for the most recent year. None of these were individually fatal, but together they made the structure vulnerable to a challenge on multiple fronts.

The work involved reconstituting the trust layer under Hong Kong law, using the Trustee Ordinance's statutory firewall against foreign forced-heirship claims and its abolition of the rule against perpetuities. The substance position at the BVI level was corrected. The Cyprus intermediate's principal-purpose position was shored up with documented management activity. The outcome was a structure with a defensible succession path, a corrected substance position, and a treaty-access analysis that could be presented to the CIS tax authority if required.

Related practices

• Private Wealth – trust, succession and asset-protection structuring for international family groups
• Tax Positions – FSIE, treaty access and Pillar Two analysis for cross-border holding structures

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Related

• Holding Structures
• Cyprus Holding Company Over Hong Kong Operating Entity
• United Kingdom Holding Company Over Hong Kong Operating 6

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