Month: November 2024
Account of a Russian LLC abroad
In the context of ongoing difficulties with international payments, many companies have found it necessary to open an account in a foreign bank.
However, it is important to remember that opening a bank account in another jurisdiction imposes a number of additional obligations on the company, including the submission of necessary reports and notifications.
In our review, we will look at how not to violate the law in this situation and how to avoid penalties.
Let’s take a step-by-step look at what a company has to do to comply correctly with all requirements.
1. Notify the Federal Tax Service of Russia.
It is necessary to notify the Federal Tax Service in the following cases:
- opening a bank account outside the Russian Federation;
- closing such an account;
- changing the account details.
All Russian organizations are required to submit the corresponding notification. (Part 2, Part 8 of Art. 12 of the Law No. 173-FZ). The notification should be sent to the tax authority at the location of the organization in the form approved by the Order of the Federal Tax Service of Russia dated 26.04.2024 N SD-7-14/349@, within one month from the date of opening (closing) an account or changing the details, respectively (Part 2 of Art. 12 of the Currency Control Law).
Two forms have been approved: one is for opening and closing an account (Appendix N1), the other is for changing the details of this account (Appendix N2).
The notification can be submitted to the tax authority on paper (in person, through a representative, by registered mail) or in electronic form via telecommunication channels (TCC) or through the taxpayer’s personal account (PA).
When making the first transfer to a bank account abroad, the organization needs to provide the Russian bank with a notification on opening this account with a tax inspector’s note on its acceptance (Part 4 of Art. 12 of the Currency Control Law).
Failure to submit a notification about account or violation of the terms or procedure for submitting it may result in a penalty being imposed on the organization.
Their amounts are established in the Art. 15.25 of the Code on Administrative Offenses of the Russian Federation.
2. Report to the Federal Tax Service on flow of funds.
If a legal entity (resident of the Russian Federation) has foreign accounts, it has to submit a cash flow statement to the tax authority quarterly within 30 days after the end of the reporting quarter, attaching supporting documents: statements or other documents issued by the bank (Decree of the Government of the Russian Federation dated 28.12.2005 N 819 (as amended on 22.05.2024)).
If the documents are drawn up in a foreign language, the organization has to attach a translation into Russian, duly certified in accordance with the legislation of the Russian Federation (cl. 7 of the Rules for the Submission of Reports by Residents – Legal Entities).
The translation can be carried out by an employee of an organization or an organization engaged in translation activities, since the methods of translation are not limited by the law.
If necessary, at the request of the tax authorities, translation into Russian, notarized in accordance with the requirements of the legislation of the Russian Federation, shall be provided.
3. Comply with the currency legislation, in particular, carry out only legal currency transactions.
Contracts with non-residents, the amount of obligations for which exceeds the established threshold, namely, import contracts from 3 million rubles and export contracts from 10 million rubles, must be registered by an authorized bank of the Russian Federation.
The bank will assign a unique number to the contract (cl. 4.2, 5.5 of the Bank of Russia Instruction dated 16.08.2017 N 181-I (as amended on 09.01.2024).
When crediting export proceeds to an account abroad, it is necessary to provide to the authorized bank a certificate of currency transactions for settlements through an account abroad under accounting contracts, as well as provide a bank statement.
The term for providing a certificate of currency transactions for settlements through an account abroad is within 30 working days after the last day of the month in which such transactions were carried out.
4. Is it necessary to repatriate currency?
At present, the obligation to repatriate currency has only been retained for some companies.
From 16.10.2023 to 30.04.2025 inclusive, certain Russian exporters specified in the List approved by the Decree of the President of the Russian Federation dated 11.10.2023 No. 771, are required to credit to their accounts in authorized banks and sell proceeds in foreign currency on the domestic currency market of the Russian Federation within the established period and in the established amounts (cl. 1, 5 of the Decree of the Government of the Russian Federation dated 12.10.2023 No. 1681 “On measures for the implementation of the Decree of the President of the Russian Federation dated October 11, 2023 No. 771”).
The closed list consists of 43 groups of companies belonging to the sectors of the fuel and energy complex, ferrous and non-ferrous metallurgy, chemical and forestry industries, and grain farming. Exporters are notified of their inclusion in the list within 3 days by the Ministry of Economic Development of Russia.
For companies that are not on the closed list, the amount of foreign currency earnings subject to mandatory sale is currently 0%.
Therefore, if the organization is subject to the cancellation of repatriation, the terms for transferring export proceeds from the organization’s account opened abroad to a Russian bank are not established by regulation, i.e. such funds may remain on account abroad and these funds can be used, for example, for settlement of import or other contracts.
Contacts:
Natalia Safiulina
Nadezhda Kolomnikova
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Online seminar 13.12.2024: Doing Business in Russia – Practical Experience in New Circumstances
Changes in regulating transactions with persons from unfriendly countries
At this moment, for companies with Western participation, coordination of transactions with the subcommittee of the Government Commission for Control of Foreign Investments in the Russian Federation remains of great relevance. The subcommittee has the right to make decisions on the issuance by the Government Commission of permits for residents of the Russian Federation to carry out transactions with foreign persons from unfriendly countries, as well as currency transactions.
We would like to remind you that unfriendly countries, in accordance with the order of the Government of the Russian Federation dated 05.03.2022 No. 430-р, include, among others, Australia, Great Britain, Canada, the Republic of Korea, the USA, Ukraine, Switzerland, Japan and all member states of the European Union.
In particular, in the Decree of the President of the Russian Federation dated 08.09.2022 No. 618 restrictions were established for the execution of transactions that directly and/or indirectly entail the establishment, change or termination of the rights of ownership, use and/or disposal of shares in the authorized capital of limited liability companies or other rights that make it possible to determine the conditions for management of such companies. First of all, these are transactions for disposal of shares in the authorized capital of limited liability companies, which have become relevant due to the desire of a number of Western companies to temporarily or permanently leave the Russian market due to the political situation.
Such transactions can only be carried out on the basis of permits issued by the Government Commission for Control of Foreign Investments in the Russian Federation, which, if necessary, contain the conditions for carrying out these transactions. The procedure and criteria for issuing permits are constantly updated with a tendency to become stricter, which is aimed at complicating the exit of Western businesses from the Russian market and maintaining their presence in the Russian Federation.
In addition to the requirements for documents that must be drawn up and submitted for approval, from the end of 2022, in order to alienate the share of an “unfriendly” participant of a limited liability company, it is necessary to pay a voluntary contribution to the budget of the Russian Federation (see our previous review on changes in this area), as well as to carry out the transaction with a mandatory discount.
At the end of October 2024, the Ministry of Finance of Russia published an updated regulation (Extract from the minutes of the meeting of the subcommittee of the Government Commission for Control of Foreign Investments in the Russian Federation dated 15.10.2024 No. 268/1). The new procedure includes the following:
- The amount of the voluntary contribution to be paid to the budget when Russian companies are disposed of by “unfriendly” participants has increased. Now it is 35% of the market value of the asset based on the results of its independent assessment (previously it was necessary to pay 15%).
An installment plan was introduced for payment of the contribution. 25% of the asset value must now be transferred to the Russian Federation budget within a month from the date of the transaction, 5% within a year, and another 5% within two years from that date. - In addition, the size of the mandatory discount to the market value of the asset upon alienation of an LLC has been changed. Now it must be a minimum of 60%, whereas previously the company could be sold for 50% of its market value.
Also, if the market value of the alienated assets is more than 50 billion rubles, the consent of the President of the Russian Federation will be required to complete the transaction.
The new conditions should apply both to future applications for approval of transactions, and to those already submitted, but not considered by the Government Commission.
Other news includes amendments to the Decree of the President of the Russian Federation dated 04.05.2022 No. 254 regarding the payment of profit of Russian resident companies to their foreign participants.
Let us remind you that in order to pay “unfriendly” participants profit in an amount exceeding 10 million rubles per calendar month or the equivalent of this amount in foreign currency, it is necessary to follow the procedure established by the Decree of the President of the Russian Federation dated 05.03.2022 No. 95. This procedure involves opening a special account of type “C” in a Russian credit institution in the name of a foreign creditor, through which the corresponding settlements are made. At the same time, the Ministry of Finance of the Russian Federation was given the authority to determine a different procedure for payment of residents’ profits to foreign creditors, which meant the need to obtain permissions from the Ministry of Finance for this procedure.
From 09.09.2024, the authority to issue permits for the payment of dividends by Russian companies to persons from unfriendly countries was granted to the Government Commission for Control of Foreign Investments in the Russian Federation. Such permits may contain conditions for the payment of profits.
The Government of the Russian Federation will additionally develop and approve the procedure for issuing such permits by the Government Commission. After the adoption of the changes, the procedure and terms for approving the payment of dividends may become milder.
We will keep you updated on the news of the relevant regulation, and are also ready to provide legal support when interacting with authorized bodies on issues of approving transactions and paying dividends to “unfriendly” foreign persons.
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