With nearly half of Russian high net worth (HNW) wealth held offshore in 2016, the country’s residents still prefer to invest outside of Russia, highlighting the failure of the tax amnesty launched by the government in June 2015.

The tax amnesty law was music to the ears of the Russian economy. By offering residents the opportunity to disclose details of offshore assets without legal repercussions, Russia hoped to increase its tax revenue and improve compliance among Russian taxpayers – similarly to other jurisdictions that have launched tax amnesties, such as Brazil.

By curbing the outflow of capital from Russia, the added revenue would be used for the country’s development. While there was a noticeable inflow of assets returned to Russia from some countries in 2015 ($5.2bn from the Bahamas and $1.9bn from Bermuda), the tax amnesty law did not entirely go according to plan.

The amnesty did not require the repatriation of all assets to Russia, and indeed our 2016 Global Wealth Managers Survey shows that still 45% of an average Russian HNW portfolio is held overseas. More importantly, this is attributed to reasons of investors wanting a better range of investments and geographic diversification.

Together, these drivers account for 66.1% of HNW offshore investments. Tax efficiency is not a key driver among Russian HNW investors, being cited by less than 8% of individuals, as the tax rates in the country are relatively low. By assuming that Russian HNW individuals use offshore booking centers to lower their tax bills, the Russian authorities destined the amnesty law for failure.