Author: Anna Balashova

In accordance with the recently introduced amendments to the Government Decree No. 295 dd. March 6, 2022, establishing the rules for issuance of the Government Commission Approvals aimed at control of foreign investments in the Russian Federation and implementation of additional temporary economic measures to ensure the financial stability of the Russian Federation, the list of requirements to transactions conducted in regard to securities and shares of authorized capitals of Russian companies has been updated.

The amendments re-confirmed the requirements that had earlier been specified in the Minutes of the Subcommittee of the Government Commission for the control of foreign investments in the Russian Federation No. 171/5 dd. July 7, 2023, whereas the latter made important clarifications to the procedure of application for a Government Commission Approval, inter alia for intra-group transactions and transactions between persons from “unfriendly” states.

The actual general requirements for a transaction conducted in regard to securities and shares of authorized capitals of Russian companies and involving foreign persons from “unfriendly states” are as follows:

1. provision of a report on independent appraisal of the market value (hereinafter “Report”) supplemented by an expert opinion thereon, whereas both are arranged by a qualified appraiser included in the list of the appraisers recommended by the Government Commission;
2. sale of assets with a discount of at least 50% of the market value of the relevant assets specified in the Report;
3. payment of the exit tax 15 % (amount updated by the Minutes of the Meeting of the Subcommittee of the Government Commission for the control of foreign investment in the Russian Federation dd. September 26, 2023 No. 193/4);
4. in case of acquisition of shares constituting the authorized capital of a public joint stock company (hereinafter “PJSC”), placement of up to 20% of the acquired of shares at an organized auction (placement not later than 1 year from the date of the transaction, with the placement lasting for not more than 3 years; in case of reorganization in the form of a company joining a PJSC, placement of shares of the PJSC at an organized auction in the amount equivalent up to 20% of the shares of the company joined);
5. in case of termination of the public status of a joint stock company (hereinafter “JSC”) or its liquidation as a result of implementation of a transaction, placement of up to 20% of shares of a PJSC (newly created or as a result of a JSC becoming PJSC) at an organized auction;
6. establishment of key performance indicators and their target values in regard to the party purchasing the securities\shares;
7. repurchase of an asset at market value on the date of realization of an option concluded, presence of economic benefits for the owner of the asset (being a resident) and limitation of the validity period of the Government Commission Approval (as a general rule – 2 years);
8. use of the type “C” account in terms of the transfer of funds to the party being a person from an “unfriendly” state, or conduct of transactions in rubles with the use of the banking system of the Russian Federation without transferring funds outside the Russian Federation, or availability of installment payments in case of transactions being conducted to the bank account located outside the Russian Federation;
9. availability of other permits if so provided for by the legislation of the Russian Federation.

NOTE: provision of the documents as per the pp. 1 and 6 is not required for intra-group transactions and transactions conducted between foreign “unfriendly” persons, making such transactions also not subject to the 50% discount from the asset value and 15% exit tax Commission requirements.

Major changes have been recently introduced to regulations concerning highly qualified specialists (hereinafter referred to as the “HQS”) in accordance with the recently adopted Federal Law No. 316-FZ, which made amendments to the Federal Law No. 115-FZ dd. July 25, 2002 “on the legal status of foreign citizens in the Russian Federation”. A number of changes have already come into force, but the most part will be implemented early in 2024.

Effective from July 10, 2023:

1. in case of prolongation of a working permit (hereinafter referred to as the “WP”) of an HQS, the latter as well as members of their family are to undergo medical examination within the 30-days term after the decision on the WP prolongation is made or from the day they enter the territory of the Russian Federation.
2. requirement to undergo medical examination on a repeated basis (upon expiration of a 1-year term from the day the person had undergone such examination) is no longer applicable to HQS family members.

Effective from January 06, 2024:

1. an HQS who has been carrying out activities on the territory of the Russian Federation for 2 years, is now entitled to receive a permanent (unlimited) residence permit as well as their family members. The only condition in addition to the 2-years term is the employer of the HQS having accurately paid all taxes and fees for the entire period of stay of the HQS on the territory of the Russian Federation.
2. the period of stay of an HQS on the territory of the Russian Federation in case of termination of their employment contract has been reduced to 30 days, during which the HQS is to find a new employer and arrange the necessary documentation. If the foreigner fails to meet the aforementioned requirements and deadlines, they and their family are to leave the Russian Federation within 30 calendar days.
3. new term for receipt of WPs has been established (applicable to both new and prolonged WPs) – 30 days from the date the decision on issuance of such WP made. If the WP is not received by the HQS within the specified period of time, such WP gets revoked, then the HQS and their family have to leave the territory of the Russian Federation within 15 calendar days after decision thereon is made. Upon a respective application the 30-days term can be prolonged, but not more than for 30 days from the date of receipt of such application by the Ministry of Internal Affairs.
4. employers are no longer able to hire HQS within the 2-years term, in case the former failed to file (during the last reporting period) accurate information on the amount of personal income tax concerning HQS to the tax inspectorate.

Will come into force from March 01, 2024:

The lowest salary/remuneration threshold for HQS has been raised to 750 thousand rub per quarter. In accordance with the clarifications provided by the Ministry of labor and social security of the Russian Federation, salary in the amount specified should already be paid for the period January-March 2024, respective data should be included in the notification filed to the Ministry of Internal Affairs for the 1st quarter of 2024.

The procedure of obtainment of residence permits has been much simplified for foreign investors. From now on, a foreigner applying for such residence permit and satisfying the criteria introduced by the Russian Government can undergo the procedure in an expedited manner, provide a significantly shortened set of documents. The governmental body the applications should be addressed to is the Ministry of Economic Development of Russia.

As established by the Government Decree No. 2573 dd. December 31, 2022, a foreign investor willing to apply for a residence permit is to satisfy one of the following criteria:

• investment of 15 million RUR or more in important social projects implemented in the Russian regions,
• investment of 30 million RUR or more in Russian companies,
• foundation of an active legal entity with at least 4 million rubles in taxes and fees paid annually (legal entity to be founded two or more years prior to application),
• purchase of real estate in Russia with minimal cost depending on the region of the country (Moscow: 50 million RUR, Far Eastern Federal District: 20 million RUR, other regions in Russia: 25 million RUR)

The set of documents to be provided as proof of satisfaction of one of the abovementioned criteria, as well as other important requirements, are approved by the Government Decree No. 1375dd. August 23, 2023. The results of the evaluation of the submitted application should be expected within 30 working days.

We would like to draw your attention to the return of limitation terms for validity of work permits for highly qualified specialists (hereinafter referred to as the ‘HQS’). In case a HQS stays outside Russia longer than 6-months (continuously) his working permit can be revoked.

For most countries, the 6-months period will be monitored and recorded from October 13, 2022 (except for the Republic of Abkhazia, Armenia, Belarus, Kazakhstan, South Ossetia, Donetsk People’s Republic, Luhansk People’s Republic, People’s Republic of China, Mongolia, Ukraine, Kyrgyz Republic – for those the start date is August 18, 2022).

Accordingly, on April 12, 2023, the first period of the 6-month term will end.

In case a HQS has been staying outside Russia since October 13, 2022 until April 12, 2023 the authorities can make a decision to revoke the HQS’s work permit.

Russia prepares to strike back in response to the 10th sanction package and its blacklisting as a tax haven i.e. non-cooperating jurisdictions in tax matters by the EU. 

Previous week the Russian Ministry of Finance together with the Foreign Ministry issued a joint press release proposing the Russian President to suspend DTTs with all countries that have introduced unilateral economic restrictions against Russia.

In case the envisaged Presidential Decree will come true the DTTs provisions will presumably cease to apply from the moment of it’s publication, as it happened in the case of Latvia.

Involved jurisdictions

Supposedly all countries specified as “unfriendly” (39 states at the moment) will be tangled by the new regulation. Besides EU it would be Australia, Albania, Canada, Iceland, Japan, Montenegro, New Zeeland, Norway, Singapore, South Korea, Switzerland, UK and US. 

Tax consequences  

DTTs suspension will have following major consequences:

1. Upturn of tax burden for passive income payments in favor of residents of unfriendly countries:

• Royalty and interest income 20%
• Dividend income 15%
• International transport service 10%

2. Difficulties with getting a foreign ta credit

• no foreign tax credit would be granted to the natural persons and legal entities in regard to the dividend income, 
• getting a foreign tax credit for further passive income would require extended documentation obligations;

3. Implications for of CFCs (controlled foreign companies) located in unfriendly countries:

• Profits cannot be exempted from taxation on the basis of a high effective rate;
• Mandatory provision of auditor report on CFC’s financial results; 

4. Increased risks of double taxations (for example in double residency conflicts) 

5. Multilateral pricing agreements with the participation of unfriendly countries, as well as to conduct of mutual agreement procedures could be no longer used;

6. Difficulties with the information exchange between the countries.

Taking into account that decision to suspend the DTT will affect the interests of EU players remaining on the Russian market and significantly increase the tax burden on investments in Russia we will closely monitor the implementation of the described proposal and will be glad to jointly assess the possibilities and potential restructuring needs on the side of business.

Please feel free to contact us.