Redomiciliation: What It Is, How It Is Used, and Examples from the Russian Market

Redomiciliation: What It Is, How It Is Used, and Examples from the Russian Market

In recent years, the term "redomiciliation" has gained particular popularity in Russia, especially among investors, traders, and companies operating in international markets. This procedure has become relevant against the backdrop of changes in the geopolitical landscape, sanctions policies, and the desire of businesses to adapt to new conditions. In this article, we will explore what redomiciliation is, its purposes, how it is carried out, and what examples can be drawn from the Russian market.

What Is Redomiciliation?

Redomiciliation is the process of transferring a company's legal address from one jurisdiction to another while maintaining its status as a legal entity. The primary goal of redomiciliation is to adapt the company to changes in legislation, tax regulation, or the political situation.

It is important to note that during redomiciliation:

1. The company retains its assets, liabilities, and structure.
2. The transfer occurs without the need to liquidate the old company and create a new one.
3. The legal connection with the previous jurisdiction is severed, and the company is subject to the legislation of the new jurisdiction.

What Is Redomiciliation Used For?

Redomiciliation is applied in various situations related to changes in business conditions. Here are the key purposes and reasons:

1. Tax optimization:
   Many companies choose jurisdictions with more favorable tax regimes to reduce costs and enhance efficiency.

2. Reducing legal risks:
   Companies may relocate their headquarters to countries with more stable legislation that protects business rights.

3. Maintaining access to international markets:
   Redomiciliation helps businesses preserve or expand access to key partners, clients, and suppliers amid sanctions or changes in the geopolitical landscape.

4. Compliance with local requirements:
   Sometimes companies are forced to change jurisdiction due to new rules or restrictions in their old jurisdiction.

How Is Redomiciliation Carried Out?

The process of redomiciliation involves several stages that may vary depending on the old and new jurisdictions:

1. Decision-making:
   Company management conducts an analysis of risks, benefits, and costs associated with redomiciliation and makes a decision accordingly.

2. Legal formalities:
   The company submits an application for redomiciliation in the old jurisdiction and registers in the new one.

3. Transfer of legal address:
   Upon approval, the company's legal address is transferred to the new jurisdiction.

4. Notifying counterparties:
   The company must notify its clients, partners, and suppliers about the change in legal affiliation.

5. Adaptation:
   After completing redomiciliation, the company starts operating in accordance with the laws of the new jurisdiction.

Redomiciliation in Russian Practice

In Russia, redomiciliation has become relevant in the context of sanctions pressure and changes in legislation. Many companies with foreign registration have begun returning their legal addresses to Russia or relocating them to friendly countries.

Popular directions for redomiciliation in Russia include:

1. Return to Russia:
   Companies registered in offshore zones (Cyprus, British Virgin Islands, Seychelles) have started relocating their jurisdictions to Russia, utilizing special administrative zones (SAZs) created in Kaliningrad and Vladivostok.

2. Transfer to friendly countries:
   Some companies opt for jurisdictions in countries such as Kazakhstan, Armenia, and the UAE, which offer favorable business conditions and are not subject to sanctions pressure.

Examples of Redomiciliation in the Russian Market

1. Lukoil:
   The large Russian oil company redomiciled its foreign subsidiaries in 2022, bringing them under Russian jurisdiction to mitigate sanctions risks and maintain access to assets.

2. Finam Investment Company:
   One of the leading investment companies transferred part of its business to friendly countries to ensure uninterrupted access to international markets.

3. Rosneft:
   The company redomiciled several of its subsidiaries that were previously registered in Europe to Russia to minimize the impact of sanctions.

Advantages and Risks of Redomiciliation

Advantages:

• Reduction of tax burden.
• Strengthening legal and financial security.
• Maintaining access to international markets.

Risks:

• Costs associated with the redomiciliation process.
• Possible integration challenges in the new jurisdiction.
• Need to restructure business processes.

Redomiciliation is an effective tool for companies to adapt to changing business conditions. Amid the unstable geopolitical situation and increasing sanctions pressure, Russian companies are increasingly utilizing this mechanism to protect their interests and maintain competitiveness.

As the CEO of Open Oil Market, I see that redomiciliation is becoming an integral part of the strategy for many companies. This process not only helps to reduce legal and financial risks but also opens new opportunities for business development. It is essential to approach redomiciliation thoughtfully, evaluating all aspects and choosing jurisdictions that best align with the company’s strategic goals.