A practical guide to a holding structure CIS

A family-owned group operating across the CIS (the Commonwealth of Independent States, the post-Soviet regional grouping that includes Russia, Kazakhstan, Ukraine, Uzbekistan, Azerbaijan and several other states) faces a structural question that most advisers underestimate. The chart on paper – a BVI holding entity on top, an operating company below – is not the answer. The answer is whether the structure actually works: whether it delivers treaty access, protects the family from forced-heirship exposure in home jurisdictions, and can be enforced across borders if the relationship between shareholders breaks down.

A holding structure for a family-owned group in the CIS requires a sequenced build across at least two legal systems – typically Hong Kong or an offshore centre as the holding layer, and the CIS operating jurisdiction at the base – with substance, beneficial-ownership disclosure and treaty access built in from the outset, not retrofitted. The governing instruments are the corporate statutes of the chosen holding jurisdiction, the applicable bilateral tax treaties, and the anti-money laundering regimes of both layers. The sequence matters: getting the order wrong creates beneficial-ownership gaps that regulators in multiple systems now actively pursue.

This guide sets out the decision the family faces, the structural options, the steps in order, the gate at each step, and the single most common mistake we see. It is written for the in-house counsel or family adviser who needs to brief a board or a principal before a decision is taken.

What decision does the family actually face?

The starting question is not which holding jurisdiction to use. It is what the structure must do. In our cross-border practice, we find that CIS family groups typically need a holding structure to achieve at least three of the following: tax efficiency on dividends moving from the operating layer to the family; asset protection against political or commercial risk in the operating jurisdiction; a clean, bankable ownership chain for lenders or future investors; a succession mechanism that does not trigger forced-heirship claims under CIS domestic law; and a platform for enforcement if a dispute arises between family members or with a third party.

Each objective points to a different structural choice. A group focused purely on tax efficiency may reach for a treaty jurisdiction. A group focused on succession may prioritise a trust layer. A group concerned about enforcement needs a holding entity that can register a judgment or an arbitral award in Hong Kong, where the courts are independent, the common-law system is well-tested, and the New York Convention (the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards) applies.

The family must also decide who appears on the register. Beneficial-ownership transparency – the obligation to maintain and, in some jurisdictions, to file records of the ultimate natural person who controls or benefits from the entity – is now a baseline requirement in most holding centres, including Hong Kong, the BVI and the Cayman Islands. The days of an opaque nominee structure are over. The structure must therefore accommodate the family's comfort with disclosure from the start.

What are the main structural options for a CIS family group?

Three configurations appear most commonly in our desk's work on CIS-connected groups.

The first is a Hong Kong holding company sitting directly above the CIS operating entity. Hong Kong offers a territorial tax system, no withholding tax on dividends paid by a Hong Kong company, no capital gains tax, and a common-law court system with well-tested enforcement routes. Hong Kong also has a network of bilateral tax treaties and, importantly, an Investment Promotion and Protection Agreement (sometimes referred to as an IPPA, a bilateral treaty providing certain protections for cross-border investors) with several CIS states. The Companies Ordinance (Cap. 622) governs the Hong Kong entity, and the Significant Controllers Register – the statutory register of ultimate beneficial owners, in force since 1 March 2018 – applies to all Hong Kong-incorporated companies.

The second is an offshore holding entity – most commonly a BVI or Cayman Islands company – with a Hong Kong sub-holding or operating entity below it. This adds a layer of flexibility on share classes and governance, and the BVI and Cayman Islands entities are widely recognised by international lenders. Both jurisdictions have economic-substance regimes that apply to certain categories of entity, however. A holding company that derives passive income must meet the relevant substance test in the chosen jurisdiction, or risk being treated as non-compliant.

The third is a trust-plus-holding structure: a discretionary trust (settled under Hong Kong law or the law of a jurisdiction with a well-developed trust statute) holding shares in the operating or intermediate holding entity, with the family members as beneficiaries. This configuration is most relevant where succession is the dominant objective. Hong Kong trust law, as amended with effect from 1 December 2013, abolished the rule against perpetuities for Hong Kong-law trusts and strengthened protection against foreign forced-heirship claims – both points that matter directly for CIS-origin families where domestic law may impose mandatory inheritance rights.

What is the sequence of steps – and what is the gate at each?

The steps below assume a Hong Kong holding company above a CIS operating entity. The sequence applies with adaptation to the offshore variants.

Step 1: Define the structure and the treaty position. Before any entity is incorporated, the adviser must confirm whether a bilateral tax treaty between Hong Kong and the relevant CIS state is in force and whether the proposed holding entity would qualify as a resident for treaty purposes. Treaty access is not automatic. Many CIS states apply a limitation on benefits test (a treaty anti-abuse provision requiring the recipient of treaty benefits to have a genuine connection to the claiming jurisdiction) or a principal-purpose test. The gate here is a clean opinion that the Hong Kong entity will be treated as a treaty-qualifying resident by the CIS counterpart tax authority. Without that opinion, the structure is built on an assumption, not a foundation.

Step 2: Incorporate the Hong Kong holding entity. The Hong Kong company is incorporated under the Companies Ordinance (Cap. 622). A registered office address in Hong Kong is required. A director resident in Hong Kong is not legally required but is strongly advisable for substance purposes. The Significant Controllers Register must be prepared at incorporation, identifying every ultimate beneficial owner above the applicable threshold. The gate here is a complete and accurate beneficial-ownership record. Errors or omissions in the register create regulatory exposure under the Companies Ordinance and, in practice, make the entity unacceptable to international banks.

Step 3: Establish economic substance in Hong Kong. The phrase "economic substance" means that the Hong Kong entity has real commercial activity in Hong Kong: board meetings held and minuted in Hong Kong, decisions taken by directors present in the jurisdiction, banking relationships with Hong Kong-regulated institutions, and management accounts showing activity consistent with the entity's stated function. The Inland Revenue Department reviews substance in the context of the Foreign-Sourced Income Exemption (FSIE) regime, which has applied from 1 January 2023 and conditions the exemption of certain foreign-sourced passive income on an economic-substance or participation test. The gate here is a substance plan prepared before the entity is operational, not after.

Step 4: Prepare the shareholders' agreement and governance documents. For a family-owned group, the shareholders' agreement is where the structure either holds together or unravels. It must address: the mechanism for resolving deadlock between family members; the process for admitting or excluding a shareholder (for instance, on divorce or incapacity); the applicable law of the agreement; and the dispute-resolution clause. We recommend arbitration seated in Hong Kong under the HKIAC Administered Arbitration Rules (in force in their 2024 edition, effective 1 June 2024) for all inter-shareholder disputes in a structure of this kind. The Arbitration Ordinance (Cap. 609) governs Hong Kong-seated arbitration. The gate here is a signed shareholders' agreement before any transfer of assets or shares into the structure.

Step 5: Transfer the CIS operating assets or shares into the structure. This step triggers the most regulatory exposure and must be done in sequence. The transfer must comply with: the corporate law of the CIS operating jurisdiction (including any prior approval requirement for foreign ownership of certain sectors); the foreign-exchange and capital-controls rules of the CIS state; and any notarisation or registration formality at the CIS registry. In several CIS states, a transfer of shares in a company holding real property additionally triggers a local transfer tax or stamp duty. The gate here is local CIS counsel sign-off on the transfer documents before execution.

Step 6: Open banking and establish compliance files. A newly incorporated Hong Kong holding entity will be subject to know-your-client and anti-money laundering checks by any Hong Kong-regulated bank before an account is opened. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance places enhanced due diligence obligations on regulated institutions dealing with politically exposed persons – a category that applies to many CIS business families. The source-of-funds file must be complete, documented and consistent across all institutions approached. The gate here is a prepared source-of-funds narrative with supporting documentation before the first bank approach.

How does the Hong Kong holding layer interact with the CIS operating base?

The cross-border interface between Hong Kong and the CIS operates on two tracks simultaneously: tax and enforcement.

On tax: dividends flowing from the CIS operating entity to the Hong Kong holding company are subject to withholding tax in the CIS state. The rate is determined by the bilateral tax treaty in force, or by the CIS state's domestic law if no treaty applies. Hong Kong's territorial system then means that those dividends, once received, are generally not subject to Hong Kong profits tax – though the FSIE regime and its substance conditions apply if the income is treated as foreign-sourced. The two-tier profits tax rate in Hong Kong – 8.25% on the first HK$2,000,000 of assessable profits and 16.5% above – applies to any Hong Kong-sourced profits the holding entity generates in its own right.

On enforcement: if a dispute arises between shareholders or with a third party in the CIS, the ability to enforce a judgment or arbitral award across borders is a practical priority. Hong Kong's common-law courts are well-placed to assist. An arbitral award made in a New York Convention state can, in principle, be enforced in Hong Kong. Conversely, an award made in Hong Kong-seated arbitration can be enforced in CIS states that are parties to the New York Convention – which includes most of the principal CIS states. This makes the choice of dispute-resolution clause in the shareholders' agreement a direct enforcement planning decision, not a formality.

Our desk regularly advises on cross-border matters involving both the Hong Kong holding layer and the enforcement route into CIS jurisdictions. The combination of a well-drafted arbitration clause, a Hong Kong-seated award, and a New York Convention enforcement route in the relevant CIS state is the most tested path we see for inter-shareholder disputes in structures of this kind.

For a fuller treatment of the holding structure options and how Hong Kong sits within them, see our holding structures practice page.

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. For a structured assessment of your holding structure across Hong Kong and the relevant CIS jurisdiction, write to us at info@lockhartyip.com.

What is the most common mistake – and how does the sequence avoid it?

The single most common mistake we see in CIS family group structures is this: the holding entity is incorporated, the chart is drawn, and the beneficial-ownership register is either left incomplete or populated with a nominee that conceals the actual family members. The family adviser assumes the nominee layer provides protection. It does not.

CIS-state tax authorities, international banks and the regulators of most offshore holding centres now require disclosure of the ultimate beneficial owner – the natural person who ultimately controls or benefits from the entity. Where the register shows a nominee company rather than a natural person, every bank relationship, every tax treaty claim and every regulatory licence becomes vulnerable to challenge. In practice, this means the structure fails at the moment it is most needed: when the family is trying to move money, close a transaction, or enforce a right.

The sequence above avoids this mistake by placing beneficial-ownership preparation at Step 2, before any other action is taken. A complete and accurate Significant Controllers Register is a gate condition for the Hong Kong entity. It is not an afterthought. And the source-of-funds file at Step 6 is its complement: it demonstrates to regulated institutions that the assets entering the structure have a documented, legitimate origin.

A second common error is the reversal of Steps 4 and 5. We have seen structures where assets are transferred into the holding entity before the shareholders' agreement is signed. When a dispute then arises between family members, the governance documents are either absent or inconsistent with the actual ownership position. The result is expensive litigation rather than a clean arbitration. The sequence in this guide is designed to prevent that outcome.

A European industrial family with operating businesses in two CIS states came to our desk after an earlier structure – incorporating a BVI holding entity without a substance plan or a signed shareholders' agreement – produced a challenge from a CIS-state tax authority disputing treaty residence (autumn 2025). We restructured the holding layer into Hong Kong, prepared the substance and beneficial-ownership documentation, and supported the family's local counsel in responding to the tax authority. The matter was resolved within one cycle without litigation.

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. Write to us at info@lockhartyip.com to discuss your position.

Does the structure need a trust layer – and when?

Not every CIS family group needs a trust. The trust layer adds cost, administrative obligations and a settlor-trustee-beneficiary relationship that requires ongoing management. It is worth the addition when at least one of the following applies.

First: the family has members in a CIS jurisdiction that applies a forced-heirship regime – a rule of domestic law that reserves a mandatory share of an estate for certain heirs regardless of the deceased's wishes. Most CIS states inherit a civil-law tradition and apply some form of mandatory heirship. A discretionary trust settled under Hong Kong law, with the 1 December 2013 reform in place, can hold the shares in the Hong Kong holding entity outside the estate of the settlor for Hong Kong-law purposes. The strengthened firewall against foreign forced-heirship claims means the trust assets are protected against a CIS-state court order seeking to apply mandatory inheritance rules to Hong Kong-situated assets.

Second: the family wants to separate beneficial enjoyment from control. A discretionary trust appoints an independent trustee who holds legal title. The family members are beneficiaries; their interest is a right to be considered for distributions, not a property right in the underlying assets. This separation is useful where the family wants to restrict a member's ability to encumber or assign their interest.

Third: succession is genuinely uncertain. Where the principal shareholder is elderly or unwell, a trust settled during lifetime avoids the need for a grant of probate in multiple jurisdictions. Probate in a CIS state can be a slow and contested process. A properly constituted Hong Kong-law trust, with clear beneficiary designations, can pass the economic interest in the structure to the next generation without going through that process.

For those weighing a Cayman Islands variant of this structure, our related guide on a holding structure for a family-owned group in the Cayman Islands sets out the comparable sequence and the points of difference. For groups with a connection to the United Kingdom, the relevant considerations are addressed in our briefing on a holding structure for a family-owned group in the United Kingdom.

Decision checklist: five questions before you proceed

Before instructing counsel to begin the build, the family and its in-house adviser should be able to answer the following five questions. If any answer is unclear, the build should not begin until it is resolved.

One: Is there a bilateral tax treaty in force between Hong Kong and the relevant CIS state, and will the proposed Hong Kong entity qualify as a treaty resident? If no treaty is in force, the withholding tax position must be modelled on domestic CIS law. If a treaty is in force, the limitation-on-benefits or principal-purpose provisions must be reviewed before the entity is incorporated.

Two: Who are the ultimate beneficial owners, and are they willing to appear on the Significant Controllers Register? If a family member is unwilling to be disclosed, the Hong Kong holding structure will not survive regulatory scrutiny. An alternative structure that accommodates the family's disclosure constraints must be modelled first.

Three: What is the source of the assets entering the structure, and is it documentable? The Anti-Money Laundering and Counter-Terrorist Financing Ordinance, and the equivalent AML regimes in every offshore holding centre, require a complete and documented source-of-funds chain. If the chain has gaps, those gaps must be resolved before the structure is funded.

Four: Is a trust layer required, and if so, under which law? The decision to include a trust layer affects the governance, the cost and the ongoing administration of the structure. It should be made before incorporation, not after.

Five: What is the dispute-resolution strategy for inter-shareholder disputes? The shareholders' agreement must be signed before assets are transferred. The arbitration clause must name a seat, a set of rules and an institution. For a Hong Kong-centred structure, the HKIAC and the Arbitration Ordinance (Cap. 609) are the natural choice.

Related practices

Holding Structures – structuring and maintaining cross-border holding arrangements through Hong Kong and offshore centres
Private Wealth – succession planning, trusts and asset protection for family principals across jurisdictions
Tax Positions – treaty access, FSIE analysis and Pillar Two compliance for cross-border groups

Frequently asked questions

What are the main risks in a holding structure for a family-owned group in the CIS?

The principal risks are beneficial-ownership exposure, treaty denial and enforcement failure. A structure that conceals the ultimate family members behind a nominee will not survive regulatory scrutiny in Hong Kong, the BVI, the Cayman Islands or most CIS states. A holding entity that does not meet the substance or residency test in its jurisdiction will be denied treaty benefits by the relevant CIS-state tax authority. And a dispute-resolution clause that is not enforceable in the CIS state where the operating assets sit will produce a judgment that cannot be executed where it matters most. All three risks are addressed in sequence before the structure is built.

Which jurisdiction's law applies to a holding structure for a family-owned group in the CIS?

Multiple legal systems apply simultaneously to a structure of this kind. The internal governance of the Hong Kong holding entity is governed by the Companies Ordinance (Cap. 622) and the shareholders' agreement, which will typically choose Hong Kong law. The CIS operating entity is governed by its domestic corporate law. The tax treatment of dividends and capital gains depends on the bilateral tax treaty in force between Hong Kong and the relevant CIS state, or on domestic law where no treaty applies. Any trust layer is governed by the law of the trust's situs – most commonly Hong Kong law or the law of the relevant offshore jurisdiction.

How does the cross-border element affect a holding structure for a family-owned group in the CIS?

The cross-border element affects the structure in three practical ways. First, treaty access requires the holding entity to be a genuine resident of its jurisdiction – not a shell. Second, asset transfers from the CIS operating layer to the Hong Kong holding layer must comply with CIS-state foreign-exchange controls and, in some states, sector-specific foreign-ownership restrictions. Third, dispute resolution must be designed with enforcement in mind: an arbitral award made in Hong Kong-seated arbitration can be enforced in New York Convention states, which includes most principal CIS states. The cross-border element is therefore a design constraint at every step, not a downstream consideration.

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

A practical guide to a holding structure for a family-owned group in the CIS