Update: a holding structure for a family-owned group in the CIS

For family-owned groups with operating assets across the CIS (Commonwealth of Independent States, the post-Soviet economic area), the question of where to hold those assets has become more pressing. Substance requirements, beneficial-ownership transparency rules and the narrowing of treaty access have changed the calculus. A Hong Kong intermediate holding structure addresses each pressure point – but only if the structure is built around the right instruments and the right sequence.

What has changed and why it matters now

The pressure on paper-only holding entities has intensified across multiple CIS jurisdictions. Tax authorities in Russia, Kazakhstan, Uzbekistan and several other member states have sharpened their application of controlled foreign corporation (CFC) rules – provisions that tax a resident's share of a foreign entity's undistributed income as if it had been paid directly. Where a holding entity has no real economic presence – no local staff, no decision-making, no operational function – local authorities increasingly treat the holding layer as transparent for tax purposes.

At the same time, beneficial-ownership registers have expanded. Most CIS jurisdictions now require disclosure of ultimate beneficial owners at the operating-company level. That information, once filed, is visible to tax authorities and in some cases to the public. A holding chain that was designed in a different era may no longer serve its intended function.

Treaty access is the third pressure point. Double-tax agreements between CIS jurisdictions and offshore or intermediate holding centres have been renegotiated or placed under anti-avoidance scrutiny. The principal-purpose test, now embedded in most treaties that follow the OECD's multilateral instrument, means that a dividend or interest flow to a holding entity with no genuine activity can be denied treaty-rate treatment.

The window for correcting an existing structure before a tax-authority challenge or a beneficial-ownership disclosure obligation arrives is real. Acting after the challenge is significantly more expensive and carries procedural risk.

Who is affected across the Hong Kong–CIS corridor

The typical client profile we see is a founder or founding family that built operating assets – in manufacturing, distribution, natural resources or real property – in one or more CIS states during the 1990s or 2000s. The original holding structure was established in an offshore centre, often without a substance layer. Dividends flowed upward; the family received income in a European or offshore jurisdiction.

That structure is now under pressure from three directions simultaneously. First, the operating jurisdiction may apply CFC rules or deny treaty-rate treatment on upstream payments. Second, the offshore holding jurisdiction may itself now apply an economic-substance regime, requiring genuine activity or risking classification as a non-compliant entity. Third, the family's personal-tax jurisdiction – often European, but increasingly UAE or Asian – may query the source, ownership and treaty position of the income.

Hong Kong sits as a realistic intermediate hub for groups in this position. It has a territorial tax system – profits tax applies only to Hong Kong-sourced profits – no withholding tax on dividends, no capital gains tax, and a network of double-tax agreements that includes, among others, a treaty with Russia and cooperation arrangements across the region. Critically, a Hong Kong holding entity can carry genuine substance: directors meeting in Hong Kong, management decisions made in Hong Kong, and a board record that reflects real governance.

The substance question is not cosmetic. Counsel on our desk regularly see structures where a Hong Kong company was incorporated but never activated as a real decision-making centre. That gap is precisely what CIS-side authorities target. The work of building a proper structure is the work of ensuring that the entity does what the chart says it does.

The immediate action for family-owned groups

For any family-owned group with CIS operating assets and an existing offshore or intermediate holding layer, the immediate step is a structural audit. That means mapping the existing chain – every entity, its jurisdiction, its functions, its tax position and its beneficial-ownership disclosures – against the current rules in each operating jurisdiction.

The audit should address three questions. Does each entity have the substance to support the treaty or tax position it is being used to achieve? Is the beneficial-ownership disclosure at the operating level accurate and complete? And does the overall chain reflect where decisions are actually made – or does it reflect a historical chart that no longer matches the facts?

Where the audit identifies a gap, the correction options include establishing genuine substance in an intermediate holding jurisdiction, unwinding an offshore layer that no longer serves a defensible function, or restructuring the chain to align with where the family's genuine decision-making and economic activity sits. Each option has tax, stamp duty and governance implications across the jurisdictions involved.

For further reading on the instruments and mechanics, see our holding structures practice and our related briefing on holding structures for family-owned groups with Mainland China exposure. Questions of nominee arrangements and beneficial ownership in the holding chain are addressed separately at nominee, trustee and beneficial-ownership questions in a holding chain.

To discuss a structural audit of your holding chain across the CIS and Hong Kong, write to us at info@lockhartyip.com.

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