Foreign residency: Andrey Melnichenko is a non-resident

Forbes list member, principal owner of SUEK and EuroChem Andrey Melnichenko spends more than half of the year outside of Russia

Several two acquaintances of Melnichenko and a federal official told Forbes that Andrey Melnichenko, the main shareholder of SUEK and Eurochem, is a non-resident. His representative declined to comment on the tax status of the businessman. A former Eurochem employee and an acquaintance of Melnichenko says Melnichenko spends a significant amount of time outside Russia and is probably a non-resident (you need to spend more than 183 days a year outside the country for that). “He literally lives on his boat,” says Melnichenko’s acquaintance.

According to a federal official, Melnichenko, as an individual, does not pay taxes in Russia and has not had any such taxes (particularly personal income tax) in recent years. Most businessmen who became residents in recent years got rid of offshore companies and simplified the chain of business ownership, but this did not happen to Melnichenko. For example, according to the EuroChem website, Melnichenko’s company Linea (Bermuda) owns 100% of AIM Capital SE (Cyprus, formerly known as EuroChem Group SE), which owns 90% of EuroChem Group.

The prerequisite for these events was the introduction of the law on controlled foreign companies (CFCs) in Russia on January 1, 2015: by April 1, Russians must notify the tax authorities if they have a stake of more than 10% in such a company. If the share is more than 50% and the company’s profit is more than 50 million rubles (from January 1, 2016 – more than 25% and 30 million rubles), additional taxes will have to be paid: 20% for companies and 13% for individuals. Russian tax residents pay taxes on their worldwide income, while non-residents pay taxes only on income from sources in Russia.

Alexander Zakharov, partner of Paragon Advice Group, says that the Russian rules for determining tax residency for individuals were written at a time when there was no deoffshorization agitation and it was believed that being a resident and paying 13% tax is a privilege, because non-residents pay 30% tax from Russian sources. According to Zakharov, it is easier for wealthy Russians to formally remain, for example, residents of Monaco (or other low-tax jurisdictions) for reporting purposes in foreign banks with an automatic exchange advocated, but not possible for everyone. “Existing Russian rules allow not being resident in any state, which is however a problem for foreign banks in terms of self-certification of a client’s tax residency,” says Zakharov.

According to Dmitry Klenov, partner of UFG Wealth Management, many businessmen decided to become non-residents. “By chance they usually do not become tax non-residents – the number of days spent outside the country is counted by the secretariat. Planes of wealthy people even arrive specially at 00:01 to put a stamp on the border crossing the next day”, – says Klenov. He thinks that the law is fair in principle, but there is a reluctance to disclose unnecessary information in the mentality of many Russians, and many still think that it is better to bypass the law than obey it.

However, the law applies only to Russian tax residents. In this regard, many billionaires who wanted to get around this law, changed their tax residency. Forbes has already reported that after the change in the law, a number of billionaires ceased to be tax residents of Russia, in particular shareholders of Alfa Group Mikhail Fridman and Alexei Kuzmichev, as well as Alisher Usmanov. Roman Abramovich, on the other hand, turned out to be a resident of Russia.

However, Melnichenko’s representative said that SUEK has reorganized its corporate structure, as a result of which Russian SUEK became the holding company of the group and consolidated all its assets. Under this structure all coal assets were transferred under the direct control of Russian SUEK, while Suek Ltd, a Cypriot company of Melnichenko’s group, is engaged in international trading operations.

According to Melnichenko’s representative, the Russian companies Eurochem (Russia’s largest fertilizer producer), SUEK and Siberia’s first heat generation company SGK pay taxes in Russia and are residents of Russia (since January 1, 2016, all SGK assets are registered to LLC SGK, which is registered in Moscow and pays all taxes in Russia). “SUEK Group was restructured so that the center of consolidation and corporate governance became Russian SUEK,” says Melnichenko’s representative.

After changes in the tax law on controlled foreign companies, some of the employees of businessman Andrey Melnichenko’s companies became permanently located in Cyprus and some of them moved from Russia. For example, among them are employees of Suek ltd, a Cypriot holding company that owned SUEK Group, the country’s largest coal-mining holding (about 25% of all Russian exports).

Leave a Reply