Family Foundation is intended to serve the long-term management and protection of assets, but its very nature creation This doesn't mean that once adopted, the solutions will remain appropriate throughout its entire lifespan. Therefore, it's worth periodically checking whether the foundation's operations are still aligned with its assumptions and are not generating new legal, tax, or organizational risks.
A good time for such verification may be mandatory audit of a family foundation. Although it's required by law, it doesn't have to be a mere formality. Properly conducted, it can help identify problems early and limit their potential impact.
Does every family foundation have to undergo an audit?
Yes, in accordance with Article 79(1) Act of 26 January 2023 on family foundations (hereinafter referred to as: "Act on the Russian Federation") every family foundation, without exception, is obliged to do so at least once every 4 years years to pass an audit.
Importantly, the four-year period should be counted from the moment of establishing the family foundation in the organization, referred to in Article 23, paragraph 1 of the Act on the Russian Federation, i.e. from the drawing up of the deed of incorporation or the announcement of the will. This is of great importance because the registration of a family foundation itself may take even a dozen or so months, which means that part of the four-year period expires before the foundation is entered in the register.
It is also worth remembering that some family foundations are subject to audit every year.This applies to those foundations whose financial statements, in accordance with the regulations Act of 29 September 1994 on accounting, are subject to mandatory audit. Pursuant to Article 64, Section 1, Item 4 of the Accounting Act, this obligation covers, among others, entities that met at least two of the following three conditions in the previous financial year:
- employed an average of at least 50 people annually,
- had assets worth at least EUR 3,125 million or,
- achieved net revenues from the sale of goods and products of at least EUR 6,25 million.
example 1
The founding act of the family foundation was prepared in the form of a notarial deed May 30, 2025 On that day, a family foundation was established within the organization. However, it was only entered into the Register of Family Foundations May 30, 2026
Assuming that the four-year period between audits should be counted from the moment of establishing a family foundation in the organization, the first audit should be carried out by May 30, 2029 at the latest
The four-year deadline does not mean, however, that it is worth waiting until the end of the period for the first comprehensive verification of the foundation. Even at the initial stage of operation, it's a good idea to verify, among other things, the adopted settlement methods, the economic justification for individual activities, and the compliance of the activities conducted with the catalog of permitted activities of a family foundation. An early audit can help identify any irregularities before they generate significant legal or tax risks.
Who conducts the audit?
In accordance with the direct wording of Article 77, paragraph 1 of the Act on the Russian Federation, the audit is carried out by auditing company and/ or team of auditors appointed by the meeting of beneficiaries. Article 77, paragraph 2 of the Law of the Russian Federation indicates that the team of auditors includes:
- auditor,
- tax advisor,
- attorney or legal counsel.
Moreover, Article 78 of the Law on the Russian Federation introduces the requirement independence of the persons conducting the auditThis means that the auditor can't be a person who, during the period covered by the audit or during its conduct, was involved in the foundation's activities, participated in making her decisions and/ or provided consulting services and financial auditing to it.
To put it simply, the audit should be carried out by someone who has not previously co-created the solutions that are now being assessed. Therefore, if a given law firm or tax firm provided ongoing advice to a family foundation during the period covered by the audit, its representatives should not audit the same foundation later.
What exactly is an audit?
An audit of a family foundation is intended to verify that the foundation is operating properly and in accordance with the principles it has adopted. It includes, in particular:
- management of the foundation's assets, i.e. the way of managing its assets and making decisions regarding the property;
- incurring liabilities, including concluding contracts and taking other actions that involve the obligation to pay or provide a specific service;
- settling obligations, including checking whether the foundation fulfills its obligations correctly and on time;
- public law settlements, primarily taxes. An audit can help verify whether the foundation conducts activities outside the statutory scope, which may result in income being taxed at the 25% CIT rate, and whether specific benefits to the founder or beneficiaries should not be recognized as taxable benefits or so-called hidden profits. Verification may also include: marketability of transactions concluded with related entities;
- compliance of the foundation's activities with legal regulations, its purpose and internal documents, primarily the statute.
example 2
A family foundation regularly purchases apartments with the intention of quickly reselling them for a profit. The founder assumes that since the foundation can manage and dispose of its assets, the income thus obtained benefits from the exemption applicable to family foundations. However, Article 5, paragraph 1, item 1 of the Russian Federation Law does not cover the disposal of property acquired solely for the purpose of resale. Therefore, income from such activities is subject to the exemption. 25% CIT pursuant to Article 24r paragraph 1 CIT Act.
If this type of behavior isn't identified early enough, after a few years the foundation may find itself with significant tax arrears, plus interest. Catching the problem early during an audit allows for the rapid streamlining of the business model and limiting the potential tax consequences.
example 3
The founder granted the family foundation a long-term, interest-free loan, assuming that the lack of interest meant full tax neutrality. The Director of the National Tax Information (KIS) in an individual tax ruling of August 28, 2025, file ref. 0111-KDIB1-2.4010.299.2025.2.BD, stated that such a loan does not constitute a so-called hidden profit for the foundation, but the interpretation concerned only the CIT consequences for the foundation. The founder may still be exposed to risk resulting from Article 23o, paragraphs 1 and 2 Personal Income Tax Act, according to which transactions between related entities should take place on market terms, and the authority may determine the taxpayer's income without taking into account the conditions resulting from the relationship. Already in 2026, the authorities refused to issue similar interpretations. As a result, the authority could attempt to determine the founder's income corresponding to the market interest rate on the loan, while the interest on a privately granted loan is, in principle, subject to 19% PIT pursuant to Article 30a, paragraph 1, point 1 of the Personal Income Tax ActEarly identification of this risk through an audit allows for verification of the marketability of the adopted financing terms before potential arrears begin to accumulate over the coming years.
Individual audit activities cover three areas: law, taxes and accountingEach of these reviews examines different elements of the foundation's operations, which together allow us to assess whether it is operating properly, safely, and in accordance with its adopted assumptions.
Law – does the foundation operate in accordance with the adopted principles?
In the legal part, the audit covers primarily:
- compliance of the foundation's activities with legal regulations, its purpose and internal documents, in particular the statute;
- management of the foundation's assets, including how decisions about its assets are made;
- incurring and fulfilling obligations, including by analysing concluded contracts and the manner of fulfilling the obligations arising therefrom;
- the proper functioning of the foundation’s bodies, including the responsibility of the members of these bodies and the resolutions and decisions they adopt.
Taxes – does the way the foundation operates generate an additional burden?
The tax section allows us to verify whether the foundation's activities and individual transactions are being properly accounted for. The audit may cover, among other things:
- correct recognition and tax classification of operations performed by the foundation;
- compliance of the conducted activity with the statutory catalogue of permitted activities of a family foundation, because going beyond this catalogue may mean taxation of income at the 25% CIT rate;
- correct qualification benefits for the founder and beneficiaries, including the identification of so-called hidden profits (Example 3);
- transactions with related entities and the correctness of transfer pricing settlements;
- timeliness and correctness of other tax settlements and other public law obligations.
Accounting – do the accounting records accurately reflect the family foundation’s operations?
In the accounting area, verification primarily examines whether the foundation's books and reporting accurately reflect its assets and financial situation. This includes:
- way recording assets, liabilities and individual transactions;
- correctness of bookkeeping and accounting principles applied;
- compliance of accounting data with source documents;
- the correct preparation of financial statements and the inclusion of significant events concerning the foundation therein.
These three areas should always be examined comprehensively. A legally sound agreement may have negative tax consequences, while incorrectly recording a transaction in the books may hinder or mislead tax settlements. Therefore, the audit should be carried out assuming a universal and comprehensive view of the foundation and should not be limited to checking only one selected area..
The audit culminates in a report, which is submitted to the family foundation's board of directors pursuant to Article 81, paragraph 1 of the Law of the Russian Federation. This document summarizes the auditors' findings, indicates identified irregularities or risk areas and may include recommendations regarding the foundation's continued operation. This means that the audit goes beyond the inspection itself, but provides the management with concrete evidence to streamline processes and mitigate future risks. Ultimately, in addition to fulfilling the statutory obligation and providing peace of mind for the next four years, the family foundation gains a real picture of its legal, tax and financial situation, along with specific recommendations prepared by professionals.
Are there any consequences for not conducting an audit of a family foundation?
Although conducting an audit is a statutory obligation of a family foundation, Currently, the Russian Federation Act does not provide for a separate sanction for failure to conduct an audit within the required timeframeIn particular, the criminal provisions of the Russian Federation Act do not provide for an automatic fine imposed in the event of a breach of the obligation arising from Article 79. Article 128 of the Russian Federation Act does provide for criminal liability, but it concerns the information obligations specified in Article 84, and not the direct obligation to conduct an audit.
This does not mean, however, that the audit obligation can be ignored.Failure to conduct an audit constitutes a breach of the statutory obligation and may be significant, for example, in assessing the proper functioning of the foundation's governing bodies or causing registration problems. If such an omission would additionally result in harm to the foundation, the potential liability of those responsible for managing its affairs should also be analyzed in the specific circumstances.
Furthermore, the lack of a specific sanction may change in the near future. The draft Review of the Family Foundation Act of 11 June 2026 explicitly mentions the possibility of introducing sanctions for failure to conduct a mandatory audit. At this stage, however, neither the nature of such a sanction, nor its amount, nor the entity that would be subject to it have been determined. Therefore, for now, this is a direction for potential changes, not a binding regulation.
Is the audit report of a family foundation public?
The audit report of a family foundation is not currently subject to mandatory publication – however, it must be subject to internal analysis. The Russian Federation Act provides for its internal circulation: in accordance with Article 81, paragraph 1, the report is submitted to the foundation's management board, and then the management board presents it to the supervisory board, and if a supervisory board has not been established – to the meeting of beneficiaries at the next meeting.
However, the Act does not impose an obligation to publish the report, e.g. on a website, or to submit it to a publicly available register. This is also important from a practical perspective – an audit report may contain information about irregularities, tax risks, liabilities, transactions with related entities, or the management of family assets. Therefore, it is generally a document primarily used by the foundation's governing bodies to assess its performance and take any necessary corrective action.
It's important to distinguish between a family foundation's audit report and documents related to the auditor's audit of the financial statements. These are separate procedures, based on different regulations, and financial reporting obligations do not automatically entail an obligation to make the report publicly available pursuant to Article 81 of the Russian Federation Law.
Potential legislative changes regarding the audit of family foundations
The rules for conducting an audit of a family foundation may be clarified in the near future.The draft Review of the Family Foundation Act of June 11, 2026, prepared as part of work conducted by the Ministry of Development and Technology and the Ministry of Finance, identifies the need to develop guidelines for auditors, attorneys, legal advisors, and tax advisors participating in audits of family foundations. This is primarily intended to enhance the uniformity of audit procedures.
Potential legislative changes also include the possibility of carrying out an audit at the request or demand of the beneficiary, limiting its scope in certain cases to selected areas and, what is particularly important, introducing sanctions for failure to conduct a mandatory auditFor now, however, these are recommendations contained in the draft review, not binding regulations.
Summary
A family foundation audit doesn't have to be another chore to simply check off. If used well, it can offer the founder and board much more.: show whether the adopted operating model is still safe, whether settlements are being carried out correctly and whether there are no risks arising in the foundation's operations that could become a serious tax or legal problem in a few years.
It is also worth remembering that the sooner such irregularities are detected, the easier it is to sort them out. This applies to the manner of conducting business, settlements with beneficiaries, transactions with related entities, and the compliance of the foundation's activities with its statute and regulations. Although the regulations currently do not provide for a specific sanction for failure to conduct an audit, due to the statutory nature of this obligation, other legal consequences related to its failure cannot be completely ruled out, including those that may indirectly affect the foundation's corporate or registration matters. At the same time, as part of the ongoing review of the Russian Federation Act, explicit sanctions for failure to conduct a mandatory audit are being considered.
BTTP supports family foundations in comprehensive legal, accounting and tax services, including auditing. If your family foundation's audit is approaching or you would like to conduct it earlier, please contact our team.
