Why are Russian "hinetes" leaving the country?

General information about the migration of wealthy Russians

According to data provided by the British consulting company New World Wealth, Russia ranks sixth in the global ranking of countries by the number of citizens whose wealth exceeds one million dollars and who have decided to move abroad. In 2015, the number of Russian millionaires decreased by 2%, totaling 127,000 individuals. Over the past 14 years, from 2000 to 2014, about 20,000 wealthy investors left the country. To study the factors and trends of migration among wealthy Russians, Spear’s Russia magazine conducted a survey among around fifty experts in private banking services.

Who are the high-net-worth Russians?

A study conducted by the Wealth and Philanthropy Center at the Moscow School of Management "Skolkovo" showed that the average Russian millionaire is a married entrepreneur, approximately 48 years old, who started his career in the early 1990s. He usually has between two and six children, and after five to seven years, he begins to consider passing his business on to his heirs. Most survey participants (48%) plan to keep their wealth within the family.

Areas of activity of wealthy Russians

Approximately 43% of wealthy Russians are professionally involved in finance, investments, or insurance, while 27% are engaged in development and real estate management. More than half of the respondents (58%) run businesses in European countries, of which 71% additionally invest in real estate properties.

Problems faced by wealthy Russians

According to the research report The Wealth Report, prepared by Knight Frank in 2016, the main challenges for wealthy individuals from Russia and other CIS countries are issues related to inheritance and legislation — this viewpoint was expressed by 80% of those surveyed. Experts believe that such problems will remain relevant for Russian millionaires for at least the next ten years.

Reasons for the emigration of wealthy Russians

The most significant reason for the emigration of wealthy Russians is the unstable political and economic situation in the country, which is pointed out by 58% of survey participants. It was during this period, especially in 2014-2015, when events in Ukraine escalated, international sanctions were imposed, and the ruble weakened, that there was a significant outflow of rich Russians. Among other important reasons for emigration, respondents mentioned a higher standard of living outside of Russia — 24%. Additionally, the growing tax burden in the country is also becoming a serious factor for wealthy citizens to move abroad.

Legislation on controlled foreign companies

According to Russian laws related to controlled foreign companies (CFCs), since January 1, 2015, the owners of such organizations are required to provide information about their assets abroad and pay taxes on profits earned outside the country.

Since 2018, a law on the taxation of foreign accounts has been in effect in Russia, which implies automatic information exchange between the tax authorities of Russia and the countries of the European Union.

As a result, many wealthy Russians classified as HNWIs (high-net-worth individuals) are deciding to change their tax residency in order to conceal information about their foreign assets. This is due to a lack of trust in Russian regulators and institutions.

Reasons for the migration of affluent citizens

Moreover, the high level of investment risk is also one of the reasons for the migration of wealthy citizens. Following the events of 2014-2015 related to the conflict in Ukraine, economic sanctions were imposed against Russia.

This affected the devaluation of the ruble and significantly reduced the purchasing power of the population, which, in turn, impacted the profitability of businesses. As a result, a paradoxical situation arose:

• The risks have increased.
• On the contrary, the yield has decreased.

Many wealthy Russians are starting to think about why they should risk their assets in Russia when there are safer conditions for doing business in Europe.

Comparison of returns in development

For example, the average return in the development sector is about 15-25% per year, both in Russia and in Europe. However, European countries have more developed institutional support.

• The risks here are much lower.
• Returns are usually presented in more stable currencies.

Similar trends can be observed in other business sectors.

Political instability

Political instability also adds concerns to the plans of wealthy Russians.

Popular destinations for emigration

The leading destinations for emigration include countries such as Austria, Germany, and Cyprus, which account for over 20% of responses from respondents. The director of the analytical department, Daria Berezina, emphasizes that the results of our research have shown that the choice of a new place of residence is most often determined by the specific goals of migrants.

Reasons for choosing countries

For example, individuals seeking political and economic stability prefer countries like Austria, the United Kingdom, Germany, Switzerland, and Cyprus. Cyprus, in particular, should be noted for its relatively easy process of obtaining temporary residency and citizenship. At the same time, high quality of life is a key aspect for others, which explains the popularity of Austria, the United Kingdom, and Germany.

Education and medicine

Some affluent Russians choose the UK to provide their children with the opportunity to receive a high-quality education. Spain, on the other hand, attracts not only with its warm climate but also with its quality medical services.

Emigration forecasts

Forecasts for the next ten years indicate that the main preferences of countries will remain stable; however, interest in obtaining citizenship and permanent residency in the United States will significantly increase due to a more attractive economy and security compared to European Union countries.

The popularity of the United States

The United States continues to maintain its popularity among those seeking a comfortable life and among those looking for stability in economic and political matters. Looking to the future, it can be observed that the United Kingdom is likely to remain at the top of the list of countries for emigration, although its appeal will gradually decline.

Decline in interest in the United Kingdom

This decline in interest will primarily affect those who are leaving due to fears for their safety in their home country. This trend can be explained by the consequences of Brexit.

Alternative options

When it comes to choosing countries for emigration, survey respondents may consider Austria, Germany, the USA, or Switzerland as alternatives to the UK, as these countries are known for their strong economies and high levels of stability.

Division of opinions on emigration

Opinions on the possible increase in the number of wealthy migrants are divided:

• 35%The respondents believe that the number of wealthy emigrants will increase.
• The same amountbelieves that this figure will remain at the same level.

Among those who believe that emigration is increasing, most think that the scale of changes will be insignificant.

Expectations in emigration statistics

Thus, most respondents do not expect significant changes in the statistics of wealthy Russians emigrating. In light of the recent recovery of the Russian economy, the increase in the number of those wishing to leave the country due to economic instability seems unlikely.

The process of emigration

The emigration process for Russian dollar millionaires is progressing gradually.

• First, they send their children to study abroad.
• Then they buyreal estate outside of Russia.
• They are opening accounts in foreign banks.
• More and more often, they spend time abroad.

Conclusion

It is important to note that the research conducted by New World Wealth and Spear’s magazine shows a worrying trend of high-net-worth Russians leaving the country. In the context of economic and political instability, as well as increasing tax pressure, many wealthy citizens are forced to seek safer and more favorable conditions for doing business and living.

The trend of high tax rates and unpredictable legislation driving business emigration highlights the need for reforms to improve the investment climate in Russia.

Most "high-net-worth individuals" realize that stability and predictability are key factors for successful business operations. By providing citizens with more favorable living and working conditions, Russia could not only curb capital flight but also attract new investors.

The main reasons for the outflow of high-net-worth individuals.

• Economic instability
• Political uncertainty
• High tax pressure

The world is changing, and many Russians are now considering foreign countries like the UK and Switzerland as attractive alternatives. The prospects of living and doing business in these countries, with their high standard of living and reliable legal systems, significantly influence the decisions of the "hinet" class.

It is important for the Russian authorities to pay attention to these signals and take measures to create a more stable and secure business environment, which will benefit not only wealthy citizens but also the entire economy of the country as a whole.

Recommendations for improving the situation

• Creating more stable legislation
• Improving the conditions for doing business
• Reduction of tax pressure

Only through joint efforts and a proactive approach can we change the current trend and bring back Russians who want to develop their businesses and continue living in their homeland. Right now, Russia needs to think about how it can become an attractive place for its affluent citizens to live and work.