What happened?

On April 8, 2022, the EU introduced its fifth package of sanctions against Russia. Under the new restrictions, citizens and legal entities of EU Member States are prohibited from acting as trustees or in any other equivalent capacity for Russian individuals and legal entities, and a number of services for such persons’ trusts are also prohibited.

In particular, it is prohibited to register, provide a registered office address or administrative address, as well as to provide management services to trusts or other similar legal arrangements, if the settlor or beneficiary of the trust is:

a) Russian citizens or persons permanently resident in Russia;

b) Legal entities established in Russia;

c) Legal entities that are directly or indirectly 50% owned by the persons listed in items a) or b);

d) Legal entities controlled by the persons listed in items a), b) or c);

e) Natural or legal persons acting on behalf of or at the direction of the natural or legal persons listed in items a), b), c) or d).

As of May 10, 2022, citizens and legal entities of EU Member States are prohibited from acting as trustee, nominee shareholder, director, secretary, or holding an equivalent position for a trust or other similar structures, if the settlor of the trust or the beneficiary is one of the persons listed above.

However, this restriction does not apply if the settlor of the trust or the beneficiary is also a citizen of one of the EU Member States or has a temporary residence permit or a residence permit in one of the EU Member States.

On April 13, 2022, a press release was published on the official website of the Swiss Federal Council (https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-88028.html) stating that Switzerland is joining the EU’s fifth package of sanctions, including the restrictions on trust services. The text of the corresponding law is still being drafted.

How will this affect Russian clients?

Due to the new restrictions, European and Swiss companies that previously provided trustee services to Russian clients will no longer be able to perform their contractual obligations as of May 10, 2022. In particular, the operation of structures such as trusts in Cyprus and Malta, private foundations in Austria, the Netherlands and other EU countries will be suspended.

Trusts and private foundations are also at risk of being suspended if the trustee is located in one of the EU countries or in Switzerland.

What steps need to be taken?

If you are the settlor or beneficiary of one of the structures mentioned above, we recommend that you urgently contact your trustee to check whether your structure will remain operational after May 10, 2022.

Each case is individual; however, one universal option for resolving the issue created by the ban introduced in the EU’s fifth package of sanctions is to replace the trustee and, if necessary, change the applicable law under the trust deed to the law of a jurisdiction friendly to Russia. 

Alpine Tax has a broad network of partners — trustee service providers in various jurisdictions — and extensive experience in establishing and administering trusts and private foundations abroad.

We are ready to begin negotiations with your current trustee and, if necessary, transfer your trust to the management of a new trustee as quickly as possible or develop other mechanisms to safeguard your assets.