1. Russian Succession Law Practical Aspects

2. General Overview of Russian Succession Rules 1.Rules on succession are regulated by the RF Civil Code (part III) and the RF Notarial Framework Legislation N 4462-1 dated 11.02.1993; 2.Succession takes place under will or, if the deceased left no will, under statutory intestacy rules; 3.Heirs by law are called to succession in the order of priority established by Art. 1142-1145 and 1148 of the RF Civil Code; Unless Russian assets are packed into trust or foundation, they are inherited under will or applicable law;

3. Trends of Russian Succession Law Establishment of the Unified Informational Notarial System (UINS) See: Federal Law No. 166-FZ as of October 2, 2012 On amendments in the RF Notarial Legislation (will come into force in July 1, 2014) From July 1, 2014 UINS will contain registers: -on certified wills and notifications on will revocations; -on opened inheritance cases. Beneficiaries would be able to track wills and revocations.

4. Russian Taxation at Succession (part 1) No Special Taxation Upon Inheritance and Donation No Inheritance Tax (previous tax repealed in 2006) No Gift Tax (no special regulations, though personal income tax can apply) No Special Property Transfer Taxes No Special Stamp Duties or Transfer Fees No Net Wealth Tax or Endowment Tax BUT: State Duties and Notary fees can apply Conclusion: Inheriting on the Russian level can be effective tool of succession planning (save for practical issues)

5. Russian Taxation at Succession (part 2) Personal Income Tax Legislation: Proceeds (both monetary and in-kind) received from individuals by way of an inheritance are generally exempt from taxation in Russia (art. 217 para 18 of RF Tax Code) Exceptions: Royalties paid to the heirs (successors) of authors of works of science, literature and art and of discoveries, inventions and industrial samples are subject to RF personal income tax at the rate of 13%

6. Forced Heirship: Russian Perspective

7. Case study Beneficiary CY companyRussian company Will under CY legislation Wife RF Legislation: Existence of heirs entitled to inheritance notwithstanding the will content (compulsory share) (art. 1149 of the RF Civil Code): Disabled spouses, parents, dependents Disabled or minor children

8. Rules of Compulsory Share The right to a compulsory share is satisfied out of the residual non-bequested part of the estate. Consequences: risk of diminishing the rights of other legal heirs to that portion of estate If non-bequested part of assets is insufficient to satisfy the right to a compulsory share, it is satisfied out of bequeasted assets. Compulsory share: not less than half of the share which the heir is entitled to in case of succession by operation of law. Property inherited by will 72% Property inherited by law 28%

9. Inheritance Taxation in the RF: Common Rules January 1, 2006 Law of the RF N 2020-1 dated December 12, 1991 On taxation of inherited or gifted property (cancelled by Federal Law N 78-FZ dated July 1, 2005) Exception: 13% tax rate applies to fees paid to heirs of authors of works of science, literature, art, discoveries, inventions, industrial designs. No tax applies as a general rule Tax on inherited property Key factor – Date of Inheritance Certificate Issuance Before After

10. Typical Case of Inheritance without Will Head of Family (Deceased) Heirs NO WILL Wife Child 1 (Minor) Child 2 (Minor) Child 3 (Minor) Child 4 (Minor) Mother Father (PEP) Wife Child 1 (Minor) Child 2 (Minor) Child 3 (Minor) Child 4 (Minor) Mother Father (PEP)

11. Types of Inherited Assets Land (agricultural); Dividends and Interests; Funds on bank accounts; Shares of public companies (main business) Shares of private companies; Receivables and rights under loan agreements; Land plot Real Estate (apartments, house, commercial property);

12. Types of Assets: Dividends and Interests Death date Key factor for taxation – death date of the deceased. Dividends (declared and not paid) Interests under loan agreements (payable before date death) NO TAX Dividends Interests under loan agreements (payable after death date) INCOME TAX

13. Types of Assets: Real Estate and Land Plot No special tax applies to inheritance of real estate and land plots; Obligation to pay state duties and notary fees: for children, spouse, parents, brothers and sisters of the deceased - 0,3% from the value of inherited property, but not more than 100 000 rubles (circa $2800); for other heirs - 0,6% from the value of inherited property, but not more than 1 000 000 rubles (circa $28 000); Obligation to pay land tax and property tax in future; Land plot Minor heirs cannot dispose or encumber inherited property unless under consent of guardianship and trusteeship authorities; Consent is feasible only if transaction is not to minors detriment; Effectively real estate and other assets passed to minors are trapped.

14. Types of Assets: Shares (Private and Public Companies) No special tax applies to inherited shares. Obligation to pay state duties and notary fees: for children, spouse, parents, brothers and sisters - 0,3% from the value of property, but not more than 100 000 rubles (circa $2800); for other heirs - 0,6% from the value of inherited property, but not more than 1 000 000 rubles (circa $28 000); Minor heirs cannot dispose of shares unless under consent of guardianship and trusteeship authorities, save for expenses below threshold (circa $200); Voting is grey area and the safe route is to seek authorities consent; Consent is feasible only if transactions and voting are in minors benefit; Management in companies with minor shareholders can be obstructed.

15. Types of Assets: Funds on Bank Accounts No special tax applies to inherited funds on bank accounts. Obligation to pay state duties and notary fees: for children, spouse, parents, brothers and sisters - 0,3% from the cost of inherited property, but not more than 100 000 rubles (circa $2800); for other heirs - 0,6% from the cost of inherited property, but not more than 1 000 000 rubles (circa $28 000); Minor heirs cannot dispose of funds unless under consent of guardianship and trusteeship authorities, save for expenses below threshold (circa $200); Consent is feasible only if funds are spent exclusively for minors benefit; Use of funds passed to minors can be seriously limited.

16. Types of Assets: Receivables (under Loan Agreements) No special tax applies to inherited receivables. Obligation to pay state duties and notary fees: for children, spouse, parents, brothers and sisters - 0,3% from the cost of inherited property, but not more than 100 000 rubles (circa $2800); for other heirs - 0,6% from the cost of inherited property, but not more than 1 000 000 rubles (circa $28 000); Minor heirs cannot dispose of receivables unless under consent of guardianship and trusteeship authorities, save for expenses below threshold (circa $200); Consent is feasible only if funds are spent exclusively for minors benefit; Use of receivables passed to minors can be seriously limited.

17. Taxation of Inherited Dividends and Interests Change of tax residence influences applicable income tax rate on income from inherited assets (dividends and interests). Income from sources in Russia: Tax rate for The RF Residents: Tax rate for Non-residents: IndividualsLegal EntitiesIndividualsLegal Entities Dividends (payable after death date) 9%9% or 0% (in case of 50% participation in a paying company during 1 year) 15% Interest under loan agreements (payable after death date) 13%20%30%20%

18. Taxation of Inherited Dividends and Interests Re-calculation of tax from the start of the tax period Change of residence in the middle of a tax period Otherwise Liability of taxpayers and tax agents: 1)Tax liability (20% fine from outstanding tax + interests) 2)Criminal liability Tax resident is any citizen of Russia or any other country, living in Russia not less than 183 days during 12 consecutive calendar months.

19. Tax Liability of Minor Heirs Minor Heirs are obliged to pay taxes. Taxes for Minor Heirs are paid on their behalf by their parents. Parents are liable for failure to pay taxes from minor heirs income See: Resolution of Russian Constitutional Court N 5-P dated March 13, 2008, Ruling of Russian Constitutional Court N 25-O-O dated January 27, 2011). The age of tax responsibility is 16 years old. Since this age heirs bear their own tax liability. See: Letter of Russian Federal Tax Service N 3-5-04/495@ dated April 23, 2009, Letter of Russian Federal Tax Service in Moscow N 28- 10/076242@ dated August 9, 2007. Little court practice confirming parents responsibility for committing tax offences by Minor Heirs.

20. Case Study. Consequences of Inheritance of Russian Assets by Minors under Intestate Rules No Will Bequeathing of Property to All Heirs Special rules for Minor Heirs: 1.Obligation of Minor Heirs to pay income tax for assets, providing income in future (shares, receivables, etc.); 2.Consent of guardianship and trusteeship authorities for all transactions with Minor Heirs inherited property; Joint Ownership of Inherited Property Wife Child 1 (15 y.o.) Child 2 (12 y.o.) Child 3 (5 y.o.) Child 4 (1 y.o.) Mother Father (PEP) Wife Child 1 (15 y.o.) Child 2 (12 y.o.) Child 3 (5 y.o.) Child 4 (1 y.o.) Mother Father (PEP) Heirs Land plot Assets

21. Solutions for Change of Asset Distribution No Will Inheritance Sharing Agreement Special rules for Minor Heirs: 1.Entering into Inheritance Sharing Agreement requires consent of state guardianship and trusteeship authorities; 2.Inheritance Sharing Agreement is concluded in notarial form by Guardianship and trusteeship authorities on behalf of Minor Heirs 3.General prohibition to decrease Minor Heirs property; Wife Shares of public companies (main business) Bank accounts Car Parents Real estate (flat) Land plot Shares in private companies Car Children Real estate (flat, house) Land plot Receivables

22. What are the Limits to the Use of International Succession Planning Structures? No Will

23. Limits to the Use of International Succession Planning Structures No Will Inheritance Sharing Agreement Main principle: the testator is free in choosing heirs by will. Prohibition for parties with foreign element to own agricultural land; Legal entities may inherit: need to be in good standing and not liquidated; Existence of heirs entitled to inheritance notwithstanding the will content Obligation to sell such land within 1 year; Otherwise a lawsuit can be filed against such owner for selling land on auctions; Legal successors of a reorganized company may inherit; Possibility of inheriting by several legal entities created during reorganization; Disabled spouses, parents, dependents Disabled or minor children

24. Cross-Border Inheritance Cases Affecting Succession Planning

25. Case Study Russia Switzerland Head of Family (Deceased) Real Estate (apartments, house, commercial office); Place of Inheritance opening According to International Agreement If there is no International agreement, according to: last place of residence OR location of property

26. Applicable Law and Conflicting Norms Notary officers powers to deal with inheritance case are defined by: The RF Civil Code and International agreements; National conflict-of-laws rules (in case there are no applicable international agreements);

27. Applicable Law and Conflicting Norms 2 approaches according to the RF international agreements: Approach 1Approach 2 Immovable property – registration of rights in the country of property location; Movable property – registration of rights in the country of the deceaseds last residence; Movable property – registration of rights in the country of the deceaseds citizenship OR property location; Confirmed by: Minsk Convention; Kishinev Convention; Bilateral agreements on legal assistance between the RF and Latvia, Lithuania, Estonia, Azerbaijan, Czech Republic, Slovakia, etc. Confirmed by: International agreements on legal assistance between the RF and Bulgaria, Hungaria, Viet Nam, Poland, DPRK, Romania, Slovenia, Macedonia and Montenegro.

28. Applicable Law and Conflicting Norms National conflict-of-laws rules stipulate the following procedure: registration of rights in the country of property location; Immovable property registration of succession rights under Russian legislation; Immovable property, registered in the RF (sea and river vessels, aircrafts, space assets) registration of rights in the country of the deceaseds last residence; Movable property

29. Applicable Law and Conflicting Norms Russian notary may have difficulties in obtaining information on foreign legislation and its application to conflicting Russian legislation: On defining heirs under intestacy On capacity of heirs to accept, refuse from or divide inheritance. On validity of wills made abroad and not complying with the RF legislation;

30. Thank You For Attention!