- September 13, 2022
Western Sanctions and Retaliatory Restrictions by Russia
We have prepared an overview of the most important legislative changes that affect foreign companies and their operations in Russia. We conduct daily monitoring of changes in Russian legislation in order to provide you with the latest information to make timely decisions.
Foreigners From Unfriendly Countries Will Be Able to Buy or Sell Stakes in Russian Limited Liability Companies Only by Decision of a Special Commission
According to the presidential decree, the Commission on Foreign Investment will issue permits for transactions with the shares of foreigners from unfriendly countries in Russian limited liability companies (LLCs).
Restrictions on Payment of Dividends to Foreign Participants
С Since May 04, 2022, the Presidential Decree № 254 of 04.05.2022 established a temporary procedure for residents of Russia (LLC, business partnerships, production cooperatives) to perform obligations to pay profits to their foreign owners. Foreign owners are understood as:
- Persons associated with countries from the List of Unfriendly Countries approved by Russian Government Regulation No. 430-p of 05.03.2022, as well as
- Persons who are under the control of the above-mentioned foreign persons, regardless of their place of registration (except when their place of registration is the Russian Federation)
Distribution of profits in favor of foreign participants may only be made in rubles to a C-type account opened with a Russian bank. This procedure applies if the debt exceeds 10 million rubles per calendar month or the equivalent of this amount in foreign currency at the official exchange rate of the Central Bank of the Russian Federation on the 1st day of each month.
At the same time, the Bank of Russia and the Ministry of Finance of Russia have the right to determine another procedure for fulfilling obligations to foreign creditors. For this purpose the resident must obtain permission from the relevant office. There are no deadlines for obtaining such permits, as well as criteria for their evaluation.
Ministry of Industry and Trade approved the list of goods for parallel imports
The Ministry of Industry and Trade has published a list of goods for parallel imports. Such goods can be imported into the country without the consent of the rights holder.
In total, there are 96 categories of goods in the order. For example, the list includes cars, products of Apple, Samsung and Sony, HP, Intel, clothes, shoes, bags, fur and plastic products, household appliances, cosmetics and perfumes, paper and cardboard, equipment for mining, electricity and other industries.
On retaliatory economic measures
The President’s Decree № 252 of 03.05.2022 introduced retaliatory economic measures for transactions with foreign counterparties. According to the text of the decree, public authorities, organizations and individuals under the jurisdiction of Russia are prohibited:
- To carry out transactions (including foreign trade contracts) with sanctioned persons;
- To fulfill obligations to the sanctioned persons under the completed transactions, if the obligations are not fulfilled or not fulfilled in full;
- Carry out financial transactions that benefit sanctioned individuals.
- To export products and raw materials, the production and extraction of which is carried out in the country, if they are supplied to the benefit of sanctioned persons or by sanctioned persons to the benefit of third parties.
The list of persons under sanctions will be determined by the Russian Government within 10 days.
Source: publication.pravo.gov.ru .
The key rate reduced to 14%
29 Apr. 2022, the Central Bank of Russia lowered its key rate to 14%. The previous decrease to 17% took place on April 8.
The deadline for payment of insurance contributions for the II – III quarters of 2022 has been postponed by 12 months
A number of companies have been given the opportunity to postpone the payment of insurance contributions for the 12th month. The use of the exemption depends on the company’s main OKVED code, information on which is contained in the Unified State Register of Legal Entities / USRLE as at April 1, 2022. The OKVED codes to which the exemption applies are given in the Decree of the Government of the Russian Federation.
Also earlier, as part of tax measures to support business, the public authorities of the subjects of the Russian Federation were allowed to extend the deadlines for payment of regional taxes (on transport tax, corporate property tax, land tax) established by the Tax Code of the Russian Federation.
Source: Decree of the Government of the Russian Federation of 29.04.2022 № 776 “On changes in the timing of payment of insurance contributions in 2022”.
The Central Bank has decreased the key rate from 20% to 17%
The Central Bank explains this decision by the slowdown in inflation, in particular, due to the strengthening of the ruble.
The next meeting of the Board of Directors of the Bank of Russia can bring a new change of the key rate. The meeting is scheduled for April 29, 2022.
The Central Bank of Russia imposed restrictions on currency transactions with non-residents
From April 2, 2022 the Central Bank of Russia has set limits on the amounts of currency operations between resident and non-resident companies (companies and individuals from unfriendly countries):
- The amount of advance payment to be made by a resident under a contract with a non-resident is limited to 30%. Contracts, the subject of which is provision of services by a non-resident, performance of works, transfer of information and results of intellectual activities, shall be subject to restrictions
- Certain service contracts (in particular, financial, insurance or international transport services) and contracts not exceeding USD 15,000 are exceptions.
- The purchase of foreign currency in the domestic currency market of the Russian Federation by non-resident legal entities from unfriendly countries is fully prohibited.
From April 1, the Bank of Russia has set new thresholds for the next 6 months on the amount of funds transfers abroad by citizens
Individuals can transfer from their account in a Russian bank to their foreign account or to another individual abroad no more than $10,000 per month, when transferring through payment systems — $5,000 per month. These rules apply to residents and non-residents from non-sanctioned countries, as well as non-residents from all other countries working in Russia under labor or civil law contracts.
Transfers abroad from the bank accounts of non-residents — individuals from countries that do not support the sanctions and do not work in Russia, as well as legal entities from these states, are suspended for 6 months.
Payment of VAT in case of purchasing services from foreign organizations may be made by the Russian buyer
The Federal Tax Service has issued clarifications on how Russian organizations and individual entrepreneurs should pay VAT when purchasing electronic services from foreign organizations under conditions of financial restrictions imposed by Western countries.
If the Russian buyer in the relationship with a foreign organization will independently calculate, withhold and pay VAT to the budget from the amount of payment, and then take the amount of VAT paid to a deduction or include it in the cost (to expenses), such foreign organization is not required to re-pay VAT.
Source: Letter of the Federal Tax Service of Russia from 24.04.2019 № SD-4-3/7937.
From April 1 and for six months a moratorium on bankruptcy is introduced
From April 1, a moratorium is introduced for six months on the initiation of bankruptcy proceedings on the applications of creditors against legal entities and citizens, including individual entrepreneurs.
Source: Government Decree № 497 of March 28, 2022
Until December 31, 2022 a number of transactions with non-residents will be possible only after approval of the Central Bank of the Russian Federation
Presidential Edict No. 126 of 18 March 2022 introduces a number of restrictions on transactions with non-residents. The following transactions may be carried out only with the permission of the Central Bank:
- payment by a resident of a share, contribution or interest in the property (authorized capital) of a non-resident legal entity
- a resident’s contribution to a non-resident under a partnership agreement with investments in the form of capital investments (joint venture agreement)
Residents will be able to transfer currency to their accounts in foreign banks to finance current activities
Russian companies will be allowed to transfer currency to their accounts in foreign banks to finance current activities but with restrictions. Individuals will also be able to transfer currency from their foreign accounts opened before March 1, 2022.
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- Resident companies may transfer funds in foreign currency to their accounts opened with foreign banks and other financial market organizations to finance current operating activities of branches and representative offices. The amount of transfer must not exceed the amount of funding for the previous year;
- Permission is granted to transfer foreign currency received from non-residents in the form of salaries, rent, coupons and dividends on securities, and other interest payments to Russian citizens’ accounts with foreign banks;
- Citizens will be able to transfer funds in foreign currency from their foreign accounts, opened in foreign banks until March 1, 2022, to their other foreign accounts, information on which is disclosed to the Russian tax authorities.
The Central Bank of the Russian Federation has provided additional clarification on currency transactions
A company can withdraw up to US$5,000 from a foreign currency account in Japanese yen, US dollars, euros and pounds sterling to pay for travel expenses. The maximum limit of $5,000 applies to the entire period of the interim order of cash transactions in foreign currency (until September 9, 2022).
Non-resident companies cannot receive cash in U.S. dollars, euros, Japanese yen and pounds sterling from Russian banks until September 9, 2022. Receipt of cash in other currencies is not restricted.
The Central Bank of Russia introduces a temporary procedure for the issuance of cash currency for business
From March 10 to September 10 a temporary procedure for cash currency transactions will be introduced:
- Resident companies during this period can receive cash in U.S. dollars, Japanese yen, pounds and euros in an amount equivalent to 5 thousand U.S. dollars, and only to pay for expenses on foreign business trips.
- Non-resident companies will not be able to receive cash U.S. dollars, Japanese yen, pounds sterling and euros during the interim order period.
All other currencies companies can receive from their accounts in rubles without restrictions, at the market rate on the date of issue.
The government has determined the list of goods and equipment that are prohibited to export from Russia until the end of 2022
The list includes:
- technological equipment;
- telecommunications equipment;
- medical equipment;
- agricultural equipment;
- electrical equipment.
Source: Decree of the Government of the Russian Federation №312 of 09.03.2022
The Central Bank of Russia introduces a temporary procedure for cash currency transactions for individuals
The restrictions will be introduced from March 9 to September 9, 2022. Bank customers can withdraw up to $10,000 in cash currency, and the rest in rubles at the market rate on the date of issue. The market rate is equal to the official rate of the Central Bank of Russia. The sale of cash currency to citizens at the time of restrictions will not be carried out.
Additional clarifications from the Central Bank of the Russian Federation on currency operations of individuals
The Central Bank of Russia has published an additional set of clarifications on the withdrawal of currency from accounts and the purchase of cash currency. (The previous explanations were published on March 04, 2022). In particular, the Central Bank clarified that:
- If there are several foreign currency accounts at the same bank, a citizen will be able to receive cash currency in the aggregate not more than 10 thousand dollars (the rest of the funds from the account, can only be withdrawn in rubles).
- If a citizen has a foreign currency account in different banks, then he will receive $10,000 in cash in each bank.
- It will be impossible to receive cash in foreign currency from the account starting from March 9, 2022, while the interim order of cash transactions is valid. These funds will be available in rubles at the market rate on the date of disbursement.
- Transfers from Russia in foreign currency to their accounts abroad are currently suspended.
- Transfers from Russia in foreign currency to another person abroad may be made, but not more than USD 5 thousand (or the equivalent in any other currency) per month.
Restrictions on import and export of products and raw materials
Additional measures were introduced to restrict the import and export of a list of products and raw materials to/from the territory of Russia. The Government of the Russian Federation will determine the list of commodities and countries affected by this Decree.
Source: Decree of the President of the Russian Federation of 08.03.2022 No. 100
From March 9 the Federal Tax Service will not initiate bankruptcy of debtors
The priority in the work of tax authorities will be to facilitate the restructuring of debts. All statutory procedures of installments and amicable agreements will be applied.
The list of unfriendly countries was approved
The list includes Albania, Andorra, Australia, Great Britain, including Jersey, Anguilla, British Virgin Islands, Gibraltar, European Union member states, Canada, Iceland, Japan, Liechtenstein, Micronesia, Monaco, Montenegro, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, Switzerland, Taiwan (China), Ukraine, USA.
The government approved the rules for transactions with foreign companies from countries and territories unfriendly to Russia
The following transactions and operations of Russian companies with citizens and companies from the list of unfriendly countries can be carried out after approval by the Government Commission for the Control of Foreign Investment:
- transactions involving the granting of loans and credits (in rubles and foreign currency) to such foreign companies;
- transactions that entail the emergence of ownership rights to securities and immovable property;
- transfers by residents of Russia of foreign currency to their accounts opened with banks outside of Russia or transfers using electronic means of payment (without opening a bank account).
The special procedure of execution of the transactions is applicable to the fulfillment of the obligations in an amount exceeding 10 million rubles per calendar month (or the equivalent in foreign currency at the exchange rate of the Central Bank of the Russian Federation as of the 1st day of the month).
A resident debtor has the right to apply to the bank and open a special “C” type account in the name of a non-resident to conduct settlements. The resident’s obligations shall be deemed to have been fulfilled when money is transferred to this account in rubles.
A non-resident has the right to apply to the bank to use funds from the “C” account in accordance with the procedure established by the Ministry of Finance of the Russian Federation.
A resident debtor may obtain a permit from the Ministry of Finance of the Russian Federation to perform obligations without following this procedure.
To approve a transaction, it is necessary to submit an application, indicating the purpose, subject and content of the transaction, as well as to attach the mandatory set of documents. All documents are prepared in Russian.
The rules are effective from March 6, 2022.
The Central Bank has banned the transfer of more than $5000 a month to relatives abroad
The Central Bank has limited the monthly amount of transfers abroad of $5 thousand for individuals-residents from their accounts in favor of their spouses and close relatives.
Source: Central Bank letter
Russian companies are allowed to pay debts to foreign creditors in rubles
A number of restrictions have been introduced on the performance by Russian residents of their obligations to certain foreign creditors, in respect of liabilities on loans and borrowings and financial instruments. The fulfillment of these obligations is envisaged in rubles.
The restrictions apply to liabilities of 10 million rubles or more per month or the equivalent of this amount in foreign currency at the Central Bank’s official exchange rate on the 1st day of each month.
The list of countries that will be subject to these restrictions will be prepared at a later date.
Explanations of the Central Bank on restrictions on currency transactions
We give you the most interesting answers:
Is there a ban on transactions that involve repayment of a loan by a non-resident, or payment of interest (fines) by a non-resident, or other payments provided for in a loan agreement?
On March 1, 2022, only transfer of funds in foreign currency to non-residents under both the newly concluded loan agreements and the loan agreements effective as of that date is prohibited. Transfer of funds in foreign currency to non-residents under the existing loan agreements concluded before March 1 of the current year is subject to immediate termination.
At the same time currency operations on receipt by the residents of the foreign currency in fulfillment of their obligations under loan contracts earlier given by the residents to non-residents are not limited (including the operations on repayment by the non-residents of the loan, payment by the non-residents of the sums of interest and (or) penalties under such a loan).
Is there any prohibition on transactions related to fulfillment of obligations by residents under loan agreements providing for extension of a loan by a non-resident to a resident?
Residents are not restricted from performing their obligations to non-residents under loan agreements providing for a loan to a resident by a non-resident.
Is it possible for residents to purchase goods abroad, pay for services, including those related to utility payments for real estate located abroad, pay for education and medical services?
The Presidential Decree does not prohibit residents (individuals and legal entities, individual entrepreneurs, persons engaged in private practice, “self-employed” persons) from making payments in favor of non-residents both in the currency of the Russian Federation and in foreign currency for the specified purposes.
What types (denominations) of foreign currencies are subject to mandatory sale?
At the moment we are talking about the compulsory sale of the part of currency proceeds received from non-residents in any types (denominations) of foreign currencies.
A complete list of explanations from the Central Bank of the Russian Federation is available at this link and is constantly updated cbr.ru/explan/support_measures_fin/
Some Russian banks will be disconnected from SWIFT
The European Union will disconnect the following banks from SWIFT by March 12:
The EU bans the sale, supply, transfer and export of euro banknotes to Russia
Importation of euro banknotes into Russia is allowed in two cases:
- by individuals traveling to Russia for personal use.
- for official purposes of diplomatic missions, consular offices or international organizations in Russia that enjoy diplomatic immunity.
Ban on export of cash currency from Russia in an amount exceeding $10,000
Vladimir Putin signed a decree banning the export abroad of cash currency in an amount exceeding the equivalent of $10,000. The decree enters into force on March 2. This restriction also applies to monetary instruments in foreign currency.
A number of transactions with securities and real estate will be controlled by the Government Commission for Monitoring Foreign Investment in Russia
A special procedure is established for residents to carry out (execute) a number of transactions (operations) with foreign persons associated with foreign states that commit unfriendly acts in relation to Russian legal entities and individuals, as well as with entities that are under the control of the abovementioned persons regardless of the place of their registration or the place of their predominant business activity.
This concerns the following transactions:
— transactions (operations) on granting loans and credits in rubles to persons of foreign states committing unfriendly acts, except for cases where granting of loans and credits is prohibited by the regulatory legal acts of the Russian Federation;
— transactions (operations) entailing the emergence of ownership of securities and real estate, carried out (executed) with persons of foreign states committing unfriendly acts.
Thus, in some cases, the transaction will require permission of the Government Commission for the control of foreign investment in the Russian Federation.
Source: Presidential Decree No. 81 of March 1, 2022
Restrictions on transfers from non-resident accounts
The Bank of Russia has temporarily suspended (from March 1 to March 31) transfers from accounts of non-residents (legal entities and individuals from a number of countries) to accounts abroad. In addition, transfers for non-residents without opening an account are limited to an amount of $5000 or such equivalent per month.
Non-residents of which countries this applies to
- Anguilla (British Overseas Territory)
- British Virgin Islands (British Overseas Territory)
- Great Britain
- Gibraltar (British Overseas Territory)
- Jersey (British Crown Estate)
- New Zealand
- Czech Republic
- South Korea
Limitations on currency transactions
- Exporters must sell 80% of foreign currency earnings credited since January 1, 2022.
- Russian residents are prohibited from granting foreign loans in foreign currency and crediting foreign currency to accounts in banks outside Russia.
We would like to draw your attention to the changes in the procedure for currency transactions, introduced by Presidential Decree No. 79 of 28.02.2022:
1. The requirement of mandatory sale of currency proceeds in the amount of 80% of the amount of proceeds was introduced in relation to residents participating in foreign economic activities (legal entities and individual entrepreneurs).
The mandatory sale requirement applies to credits in all foreign currencies under foreign trade contracts providing for the export of goods, works, services, results of intellectual activities and rights to them. Other types of credits (for instance, transfers of own funds from another bank) shall not be subject to obligatory sale.
The term for obligatory sale is 3 working days from the date of crediting the foreign currency to the transit currency account (we recommend including the day of crediting). It is important that all sums credited to resident transit currency accounts since January 1, 2022, until the entry into force of the Presidential Decree No. 79 dated February 28, 2022, and not written off from the said accounts until present, are subject to compulsory sale within 3 business days from the date the Decree comes into force.
In addition, the export currency proceeds in foreign currency current accounts of residents (legal entities and individual entrepreneurs) as of February 28, 2022, are subject to compulsory sale in the amount of 80%. This requirement for mandatory sale from foreign currency current accounts applies to funds received from non-residents from 01.01.2022 to 28.02.2022 and still remaining on the foreign currency current account. The deadline for the sale is 3 working days from the effective date of Decree No. 79.
2.From 01.03.2022 a ban on a number of transactions by residents (individuals, legal entities, individual entrepreneurs) was introduced:
— Loans issued by residents to non-residents in foreign currency (interest and principal repayment allowed).
— crediting of foreign currency to the accounts (deposits) of residents opened with banks and other financial institutions outside the Russian Federation, i.e., resident individuals cannot transfer funds to their accounts abroad, resident legal entities cannot transfer funds to their accounts abroad, as well as to the accounts of their foreign branches and representative offices. This prohibition also applies to foreign currency transfers to residents’ brokerage accounts opened with foreign financial market organizations.
— Money transfers without opening an account using electronic means of payment provided by foreign suppliers of payment services. Thus, a ban is imposed on replenishment of foreign e-wallets.
3. Public joint stock companies until December 31 will be able to conduct a buyback of shares only under certain conditions.
Source: Presidential Decree No. 79 of 28.02.2022
Which Russian banks are under sanctions?
The U.S. Treasury Department has imposed sanctions against Russian banks. The following banks were subjected to various restrictions:
- Alfa Bank
The Bank of Russia raised its key rate to 20%
The rate may continue to change. For the latest information, we recommend that you follow the official website of the Central Bank of the Russian Federation.