Amendments to the Government Commission Approval procedure

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.

Changes to HQS regulations

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.

Russian residency for foreign investors

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.

Monitoring of the 6-months term of HQS staying outside Russia is back

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 to suspend the DTTs with EU

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.

Further restrictions on shareholders’ rights

Rights restrictions of “unfriendly“ shareholders participating in big russian market players

The recently released Decree of the President of the Russian Federation dd. January, 17 2023 establishes temporary procedures of corporate decision-making for Russian legal entities (i.e. the meetings of shareholders, boards of directors or other collegial executive bodies).

The new procedure is applicable to the entities meeting the following requirements simultaneously:

  • The entity belongs to energy\machinery engineering\trade industries,
  • Its revenue in the year prior to the intended decision’s adoption is more than 100 billion rubles (approx. 1 319 600 00 EUR),
  • Sanctions against the beneficiary owner\controlling person of the entity were imposed by ‘unfriendly’ states[1] or unions,
  • Not more than 50% of the share capital belongs to the shareholders from the ‘unfriendly’ states.

As from January, 17 2023, it is allowed for such entities to make decisions on the agenda without taking into account the votes belonging to persons from ‘unfriendly’ states (except for those who have their registration in Russia) and/or candidates nominated by such persons to the governing bodies. The votes of the mentioned persons and candidates also should not be taken into account when determining the quorum.

However, the new temporary procedure does not come into force automatically, it can only be adopted by a majority vote of the company’s shareholders being from ‘not-unfriendly states’)

The Decree specifies what persons\entities are not to be considered as ‘unfriendly’:

  • Citizens of the Russian Federation and persons\entities controlled by them,
  • Persons coming from ‘not-unfriendly’ states exercising control over persons\entities from ‘unfriendly’ states on condition that such control was established before March, 01 2022,
  • Persons, being under control of persons\entities from ‘not-unfriendly’ states (or under control of ‘not-unfriendly’ states themselves) on condition that such control was established before March, 01 2022.

[1] USA, Canada, Austria, Bahamas, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Estonia, the Great Britain (including Jersey, Anguilla, British Virgin Islands, Gibraltar), Ukraine, Montenegro, Switzerland, Albania, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, North Macedonia, Japan, South Korea, Australia, Micronesia, New Zealand, Singapore, Taiwan, Isle of Man, Guernsey Island, the Bermuda, the British Antarctic Territory, the British Indian Ocean Territory, the Cayman Islands, the Falkland Islands, Montserrat, the Pitcairn Islands, Saint Helena, the Ascension and Tristan da Cunha Islands, the South Georgia and South Sandwich Islands, Akrotiri and Dhekelia, Turks and Caicos.

Governmental approval on transactions with Russian shares

Barriers for foreign investors on the way out of the Russian market –

Mandatory Government Approval for transactions with Russian shares

On September this year Presidential Decree No. 618 introduced restrictions for foreign investors trying to sell their Russian businesses in order to slow down the outflow of investments from Russia. Since the issuance of the Decree it is required to obtain a mandatory approval of the Government Commission for transactions with shares of Russian limited liability companies (hereinafter LLC) where at least one of the parties involved is registered in or controlled from an “unfriendly” country[1].

You can find more about the Decree No. 618 in our previous article https://www.juralink.nl/en/new-obstacles-for-foreign-exit-strategies-from-the-russian-market/  

The Decree affects transactions that result in direct or indirect establishment, modification or termination of:

  1. rights to own, use or dispose of shares in an LLC
  2. other rights that allow determining the conditions for the management of LLCs or their entrepreneurial activities.

Subject of the approval[2]:

  • Transfer of LLC shares to one (several) member(s) of this company or to a third party;
  • Acquisition by an LLC of a share in its own authorized capital;
  • Exit of the shareholder from an LLC by way of alienation of his share to the LLC or demanding such acquisition by the LLC;
  • Transfer of LLC shares to an investment fund;
  • Management contract on the transfer of powers of the sole executive body of a LLC;
  • Corporate (Shareholder) agreement;
  • Convertible loan agreement;
  • Share pledge agreement;
  • Pledge management agreement;
  • Voluntary reorganization of an LLC;
  • Joint Venture Agreements, concluded by an LLC;
  • Trust or fiduciary agreement, or any other agreement, the subject of which is the exercise of rights on shares of an LLC;
  • Other transactions (operations) entailing directly and (or) indirectly establishing, changing or terminating the rights of possession, use and (or) disposal of shares in the authorized capitals of an LLC or other rights that allow to determine the management conditions of an LLC and (or) conditions their business activities

Hereto the list of transactions is open for broad interpretation and can for example include option agreements, any introduction of changes into the LLC’s authorized capital (capital increase or decrease) or even amendments into the LLC’s Articles of Association, if such addresses the management /approval rights of shareholders.

The Application procedure is stipulated by the Governmental Decree dd. 6.03.2022 N 295

Applicant: both residents and non-residents from unfriendly states (any party)

Approval term: is not stipulated. There is no clear rule so far when and how often the commission meets. According to an official publication at one meeting of the Government commission, no more than 10 applications can be considered[3]. Based on our experience the application approval takes considerable time (at least 1 to 3 months).

Required documents and data:

  1. Application in the form prescribed by the Ministry of Finance;
  2. Petition in a free from, containing information about the planned transaction (purpose, subject, content, all essential terms of the transaction (including the price and payment terms), the planned duration of the consent, the number of votes for the shares that are the subject of the transaction);
  3. Documents confirming the state registration of the applicant;
  4. Constituent documents of the applicant;
  5. Applicant ID, if it is an individual;
  6. Information about the beneficiaries, beneficiaries and controlling persons of a non-resident associated with unfriendly countries;
  7. Independent appraisal report on the market value of alienated shares (in some cases the Government commission advises on 50% discount to the established market value)
  8. Information about the Russian and foreign accounts of the applicant and amount of funds on them;
  9. Information about the order of transfer and use of funds received from the implementation of the transaction;
  10. Shares and votes distribution after the transaction;
  11. Rational for approval grant and consequences of refusal to grant permission for the applicant as well as for the socio-economic development of the Russian Federation

Nota bene: The Presidential Decree No. 618 does not affect transactions involving credit institutions and non-credit financial institutions, which are regulated separately.

Furthermore, the obtainment of Government approval in accordance with the Presidential Decree No. 618 does not eliminate the obligation for antitrust clearance, in case an envisaged SPA-transaction is also subject to FAS approval in line with general rules of Competition law.

In the event a strategic clearance is required, the rules of the Strategic Law No. 57-FZ dd. 29.04.2008[4] have primacy over the Government Commission approval.

If you are evaluating an exit strategy from the Russian market our M&A experts would be glad to assist you with the transaction structuring and implementation, accompany the procedure for obtaining permission from the Government Commission and complete all necessary registration actions.


[1] The list of unfriendly countries is determined in the Government Decree dd. 5.03.2022 N 430-r

[2] Official explanations No. 1 of the Ministry of Finance as of 13.10.2022 No 05-06-14PM/99138

[3] Clause 2.2 Extracts from the Minutes of the meeting of the subcommittee of the Government Commission for the Control of Foreign Investments in the Russian Federation dd. 14.03.2022 No. 9, released by the Ministry of Finance on 17.03.2022 No. 05-06-10 / BH-12520

[4] On the procedure for making foreign investments in business entities of strategic importance for ensuring the defense of the country and the security of the state

Employers to help the Russian state organize the mobilization  

After the announcement of partial mobilization by the President’s Decree on September 21, 2022 the employers are obliged to facilitate the enlistment into the Russian army when the call up to the military service will be forwarded to the reservists through the employer-company.

According to the Government Decree November 11, 2006 N 663 an employer must notify his employees on the enlistment against their signature as a rule, no later than 3 days before the appearance date specified in an army service summons. By failure to do so the employer would face administrative fines up to 3.000 RUB Clause 21.2 Code of Administrative Offences. Mobilization notification has to be organized by company’s HR department or its director, in case the employer does not have persons specially designated for such tasks.

The employer who duly notified the employee on the enlistment is not responsible for the employee’s further actions. Employer is only obliged to facilitate the timely appearance of the employee by the military enlistment office and not to interfere with the conscription.

In cases where an employee is directly summoned to the army by the military enlistment office, the employer should take the opportunity to make a copy of such summons for his staff files/personnel record.

According to the Federal Law On military duty and military service No 53-FZ dd. 28.03.1998 the called up employee should be released from work and continue to get an average monthly pay for the period he will be absent from work for a medical examination, mandatory preparation for military service, conscription for military service or entry into military service under a contract, admission to the mobilization manpower reserve, conscription for military training. The employee also retains his working place and position in the company. The time spent by the employee at events related to conscription for military service is included in the length of service for his annual paid leave. The employee’s costs during his absence period should be later reimbursed to the employer by the military enlistment office. Called up employees could not be dismissed. Their employment contracts should be uphold and they have the right to return to their previous place of work after they were released from the military service.

In case the employee is absent (vacation, sick leave, unexcused absence) or rejects to accept and sign into the summons the employer should document this fact and report the military enlistment office hereon.

There are cases where the company may receive a request with unspecified employees’ lists who are due to appear before the military commission instead of personal summons for particular employees. Such request will indicate characteristics of military professions (specified in individual military record card), which are summoned to the military enlistment office. Hereafter the employer needs to notify all relevant employees on the summon request. The commissariat will still have to give each of the employees a personal summons. Additionally the employer should also draft a list of employees who meet the criteria indicated in the request and forward it to the military enlistment office.

September 27, 2022 Russian Parliament is considering the draft law on ensuring the labor rights of mobilized. We will monitor the situation closely and update our clients on the relevant changes.

New obstacles for foreign exit strategies from the Russian market

On September 08, 2022 the President Decree No. 618 implemented another hurdle for foreign companies trying to terminate their business operations in Russia. Since March of this year foreign companies from “unfriendly countries” were restricted to execute any transaction with shares of the Russian joint stock companies and other Russian securities, unless they obtained the consent of the Government Commission for these.

From now the approval of the Government Commission will be also mandatory in relation to any transactions with the shares of Russian limited liability companies in cases persons (individuals or legal entities) from “unfriendly countries” are involved. In the event foreign company is party to the transaction its “unfriendly status” can be based both on direct or indirect control of the person from the “unfriendly country”.

Hereto, any transactions entailing directly and (or) indirectly the establishment, change, termination of the rights of ownership, use or disposal of shares or of other rights that allow determining the conditions for managing Russian limited liability company or the conditions for its business activities are subject to the prior approval by the Government commission. If required the Government commission may also stipulate the conditions under which such transactions are allowed. 

The detailed procedure for obtainment of such governmental approval has not been specified yet, and should be issued within 10 days from the publication of President’s Decree.

The approval requirement will not be applicable in case the exemptions from the unfriendly status are given:

  • Entities whose beneficiaries are Russian persons will not be considered persons of unfriendly countries, provided that control is disclosed to the tax authorities.
  • Entities under the control of persons of friendly countries will also not be considered persons of unfriendly countries, provided that such control was established before March 1, 2022.

Consequently, the separation process from the Russian subsidiaries in the form of third-party sale or management buy-outs will require additional time and efforts from the foreign businesses and even could be put on hold by the Government Commission. 

We will monitor further changes and will be glad to provide advice on your exit / freezing options within the Russian market.

Russian Bonds – Funds Recovery

Seeking funds recovery from Russian bonds?  New payment options for bondholders of Russian sovereign debt.

Due to sanctions, many investors are desperate for restructuring opportunities of their portfolio, where the  foreign intermediaries cannot provide any services in paying bondholders of Russia’s sovereign debt. A recent Russian law has provided a temporary payment mechanism that will allow execution of payment obligations to Russian residents and foreign bondholders. It involves the transfer of funds to the National Settlement Depository (“NSD”).

There are 3 groups of bondholders, and the payment method will be different for each of them:

  • Group 1: bondholders keeping records with the Russian depositary infrastructure (NSD or sub-depositaries);
  • Group 2: bondholders keeping records with Russian depositaries that are clients of Foreign Depositaries;
  • Group 3: bondholders keeping records with Foreign Depositaries. This group cannot be paid in accordance with standard procedures.

Group 1 can receive payment in RUB at the RUB exchange rate to the bond’s nominal currency established by the Bank of Russia on the date of payment.

Group 2 will receive payment like Group 1, but through corresponding Russian Depositaries without participation of foreign intermediaries.

Group 3 payments will be deposited by the NSD on special RUB type “I- accounts” in the NSD.  The payment will be indexed at the foreign exchange rate for the bond’s nominal currency on the day of actual settlement.

Bondholders must follow a special identification procedure in order to receive their funds. This involves provision of documentation (either via the Foreign Depositary or by bondholder itself) and a waiver of potential claims against the Russian Ministry of Finance. The list of documentation is published in the Ministry of Finance Order № 245 of 24 June 2022.

Please feel free to contact us for further information or assistance on the subject.

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