Since Russia has been closely interacting with China in various fields over the past decades, many Russian representatives of small and medium-sized businesses are beginning to actively cooperate with Chinese partners. Russian businessmen who are not aware of the peculiarities of the Chinese mentality may encounter serious difficulties when signing contracts with Asian partners.

In this review we would like to draw your attention to the important features of concluding contracts between partners from Russia and China, which will help you to avoid a number of mistakes:

1. The only official language in China is Chinese. Thus, it is advisable to sign the text of the contract not in Russian and English, but in Russian and Chinese (the official languages of Russia and China).

If the Chinese partners do not insist on this, this can only mean that they do not intend to register the contract with the Chinese government authorities.

2. The name of a Chinese company registered in China can only be in Chinese, and the English name of the company is not legally valid to the full extent Chinese, as well as Russian, courts do not consider claims if the documents do not indicate the real (registered) company names.

3. It is necessary to check the registration of the Chinese company by requesting from the partner a certificate of registration of a legal entity, and also make sure that its representative has the appropriate authority.

It should be kept in mind that only the legal representative of the company has the right to sign a contract without a power of attorney. This may not always be the CEO of the company. The legal representative must be indicated in the certificate of registration of a legal entity.

If someone else signs the contract on the Chinese side, they are required to present a power of attorney. Therefore, when concluding a contract with a Chinese company, it is worth asking the future partner for a power of attorney confirming the authority of the signatory.

4. It is important to check the registration (legal status) of the Chinese seal.

Each Chinese company generally has one main seal, which is strictly controlled. However, to support various types of activities, companies often produce additional types of seals, including “contract seals.” Having produced such seals, Chinese companies often do not amend the registration documents accordingly or otherwise register their legal status.

In this regard, it is recommended to check whether the Chinese partner’s seal is registered by requesting a certificate from the State Commerce and Industry Administration of the government at the place of registration of the Chinese company. It is quite easy to obtain such a certificate, and falsifying it is dangerous for a Chinese partner.

5. To protect yourself, it is recommended to check the company’s website. The site must have a Chinese version, otherwise there is a high chance of encountering scammers. You should check the domain name registration date and ownership.

6. In order to avoid difficulties with the recognition and enforcement of decisions of Russian courts in China, it is recommended to introduce an arbitration clause and include in it one of the well-known institutional arbitration centers in China, for example, the China International Economic and Trade Arbitration Commission (CIETAC), the Beijing Arbitration Commission (BAC), etc.

On the one hand, this will require additional costs for contacting Chinese lawyers or Russian specialists with experience in representing the interests of parties in Chinese arbitration. On the other hand, this will simplify the issue of recognition and enforcement of the decision under the New York Convention of 1958.

If the Chinese partners do not want to resolve the dispute in arbitration due to the high cost of the procedure, then, in order to avoid difficulties with the recognition and execution of decisions of Russian courts in China, it is better to establish a clause for those disputes, for which this is possible, regarding their resolution in a Chinese state court, since Russian courts readily recognize decisions of Chinese courts.

On 10.07.2023, the Federal Law No. 316-FZ “On Amendments to the Federal Law “On the Legal Status of Foreign Citizens in the Russian Federation” (hereinafter referred to as Federal Law No. 316-FZ), about which we informed earlier, was signed and published.

We remind you that, starting from 01.03.2024, the provision of the specified Federal Law No. 316-FZ comes into force, which changes the wage (remuneration) rate for highly qualified specialists (hereinafter referred to as HQS).

In particular, starting from 01.03.2024, the wages (remuneration) of an HQS must be at least 750 000 RUB per quarter. Previously, the minimum wage (remuneration) for an HQS in general was 167 000 RUB per month.

Taking into account the above, in the first quarter of 2024, the total wages (remuneration) of an HQS must be in conformity with the amount specified in the legislation, that is, at least 750 000 RUB per quarter.

Please note that the above position corresponds to the position of the Directorate of External Labour Migration of the Main Directorate for Migration Issues of the Ministry of Internal Affairs of the Russian Federation stated by the department when contacted in writing.

In case of violation of the established amount of payments, the company shall be deprived of the right to attract foreign citizens to work in the Russian Federation as HQS for two years (subclause 1 of clause 26 and clause 26.1 of the art. 13.2 of the Federal Law No. 115-FZ dated 25.07.2002 “On the Legal Status of Foreign Citizens in the Russian Federation”, hereinafter referred to as Federal Law No. 115-FZ).

We remind you that in accordance with the clause 13 of the article 13.2 of the Federal Law No. 115-FZ, employers and customers of work (services) are obliged to notify the federal executive body in the field of internal affairs or its authorized territorial body for the fulfilment of obligations to pay wages (remuneration) to the HQS on a quarterly basis, no later than the last working day of the month following the reporting quarter.

Failure to notify or violation of the established procedure and (or) form of notification by the employer or customer of work (services) involving highly qualified specialists entails administrative liability established by the part 5 of the article 18.15 of the Code of Administrative Offenses of the Russian Federation, namely:

• imposition of an administrative fine on officials in the amount of 35 000 – 70 000 RUB; for legal entities – from 400 000 to 1 million RUB.

We will be happy to answer your questions!

Dear colleagues,

We sincerely wish you a Merry Christmas and a Happy New Year! May the New Year 2024 bring only pleasant surprises, growing numbers, well-being and prosperity. Thank you for your cooperation and trust. 

With best wishes,
Your swilar team

On 01.09.2022 clause 3 of the article 1 of the Federal Law dated 02.07.2021 No. 347-FZ came into force, which amended the Federal Law dated 13.03.2006 No. 38-FZ “On Advertising” (hereinafter referred to as the “Law on Advertising”) and obligated participants in the Internet advertising placement market to transfer data about it to a unified information system created by Federal Service for Supervision in the Sphere of Telecom, Information Technologies and Mass Communications (Roskomnadzor) – the Unified Register of Internet Advertising (hereinafter referred to as “URIA”).

Important: the new requirements apply to internet advertising that is displayed only in the Russian Federation.

Distinguishing between advertising and other information of a non-advertising nature

According to the article 3 of the Law on Advertising, advertising is information distributed in any way, in any form and using any means, addressed to an indefinite number of persons and aimed at drawing attention to the object of advertising, creating or maintaining interest in it and promoting it on the market.

On 14.11.2023, in order to clarify the concept of advertising and eliminate ambiguities, as well as to distinguish advertising fr om other information of a non-advertising nature, the Federal Antimonopoly Service of Russia approved the Guidelines for compliance with mandatory requirements “The Concept of Advertising” (Order No. 821/23).

Additionally, the Federal Antimonopoly Service of Russia has provided answers to frequently asked questions about advertising, and also provides examples of advertising on the Internet that are subject to marking, which can be found here.

Important: each case is unique and is considered individually.

What exceptions are there?

All advertising on the Internet is subject to marking, with the exception of:

• social advertising;
• announcements on the websites of TV channels and radio programs that are duplicated on the Internet without changes compared to the original sources;
• mailings via own database of e-mail addresses and push notifications.

What must be done to carry out Internet advertising marking?

1. Familiarize yourself with the register of advertising data operators (hereinafter referred to as “ADO”) on the official website of Roskomnadzor, register on the website of one of the ADOs, read the terms of service, tariffs and accept the offer agreement.
2. After activating access in your personal account of ADO, fill in the information about the counterparties participating in the placement, about the agreement, about the advertising creative. Download a sample advertisement.

Immediately after registering the creative, ADO will assign it an advertising identifier (token) – erid, which looks like a set of numbers and Latin letters (for example, 5UGfwMukZ4).

Important: one token is given per creative; any change in the creative requires obtaining a new token.

1. Include in your advertisement:

• the mark “advertising”, other expressions cannot be used (for example, “sponsored material”, etc.);
• information about the advertiser – the full name of the company or a link to the website (website page) with information about the advertiser;
• advertising identifier (erid).

1. Enter in your personal account of the ADO service on any day, starting from the date of completion of placement, but no later than the 30th day of the month following the month of displaying advertising on the Internet, the information:

• about the platform(s) wh ere the creative was shown;
• on statistics of shows;
• on the fulfillment of obligations under the agreement.

1. Check the information in URIA. Access for Russian users without registration, with a State Services (Gosuslugi) portal account.

Important: not only you, but also your counterparty can receive an advertising identifier and transfer information about placement, if you provide for the corresponding obligations in the agreement. In this case, the same person must receive the advertising identifier and transmit statistics of shows.

You can find out more details about these stages here.

Who exercises control?

The controlling government authorities are the Federal Antimonopoly Service of Russia (issues of classifying information as advertising; control over the presence of the mark “advertising”; control over the indication of information about the advertiser) and Roskomnadzor (presence of an identifier (token); transmission of information about advertising to URIA through ADO).

What is the liability for violation of requirements?

On 01.09.2023, the Federal Law dated 24.06.2023 No. 274-FZ “On Amendments to the Code of the Russian Federation on Administrative Offenses” came into force, which establishes measures of administrative liability for violations in the field of marking of Internet advertising:

• Failure to provide, or untimely provision of information about distributed Internet advertising to URIA, or provision of incomplete, unreliable, irrelevant information (part 15 of the article 14.3 of the Code of the Russian Federation on Administrative Offenses):
• citizens: 10.000 – 30.000 rubles;
• officials: 30.000 – 100.000 rubles;
• legal entities: 200.000 – 500.000 rubles.
• Distribution of Internet advertising without an advertising identifier or violation of requirements for its placement when distributing Internet advertising (part 16 of the article 14.3 of the Code of the Russian Federation on Administrative Offenses):
• citizens: 30.000 – 100.000 rubles;
• officials: 100.000 – 200.000 rubles;
• legal entities: 200.000 – 500.000 rubles.

It should be noted that administrative liability applies to offenses identified after 01.09.2023. At the same time, the new rules apply, among other things, to Internet advertisements that were placed before that date, continue to be displayed after that date, and the transaction for them has not been closed.

For archived advertisements, the placement of which ended before 01.09.2022 (i.e. transactions for them have been closed) and which are currently available for reading, obtaining and placing an identifier is not required. However, it is recommended to indicate the date of their publication (see Recommendations of Roskomnadzor).

On 28.11.2023 a so called “Big Tax Law” Federal Law No. 539-FZ of 27.11.2023 was published, which makes revolutionary changes in transfer pricing already fr om 01.01.2024.

We have compiled a detailed overview of the planned changes.

What will be changed:

1. A 15% withholding tax has been introduced on intragroup services provided by foreign related parties;
2. The list of related parties will expand;
3. More transactions will be recognized as controlled;
4. The amount of additional tax charges will increase;
5. Penalties for failure to comply with transfer pricing rules will increase;
6. The list of information submitted in transfer pricing reporting will be expanded;
7. New “safe” intervals for interest rates.

Below we will consider each of these significant changes separately.

    1. Withholding tax on services of foreign related parties

According to the new rules, a withholding tax of 15% will obligatory be withheld from the services of foreign related parties with residence in a country with which the DTT has been suspended.

For transactions with other countries, it is necessary to read the terms of the DTT agreement.

    2. Expansion of the list of related parties

The list of related parties will be added to:

• the related party and its controlled foreign company (CFC)
• CFC’s of the same related parties,  «sister’s» CFC
• foreign structures without the formation of a legal entity registered in an offshore jurisdiction (or if at least one of the participants in such a structure is registered in an offshore jurisdiction)

    3. Expansion of the definition of a controlled transaction

Transactions, one of the parties to which is a person whose place of registration (place of residence, place of tax residence) is a so-called offshore jurisdiction, are considered controlled.

Since the list of offshore jurisdictions was expanded from 01.07.2023, all international transactions with these jurisdictions, even with independent partners, will be considered controlled from 01.01.2024.

Reporting on such transactions must be submitted after exceeding the threshold of 120 million rubles per year.

At the same time, transactions will not be recognized as controlled if the following conditions are met:

• transactions were concluded before March 1, 2022
• the procedure for determining prices and (or) pricing methods (formulas) used in such transactions did not change after March 1, 2022,
• transactions are not recognized as controlled in accordance with transfer pricing legislation as of March 1, 2022.

    4. Possible additional tax charges

When a tax audit is carried out and it is discovered that prices other than market prices have been used for a controlled transaction, the tax base will be adjusted to the median value (and not to the maximum-minimum value of the corridor, as it was previously).

If tax authorities make a transfer pricing adjustment to the tax base in the Russian Federation for foreign trade transactions, these adjustments will be qualified as hidden dividends from sources in the Russian Federation (the so-called “secondary adjustment”), and will be subject to withholding tax at a rate of 15% (in addition to the penalty).

If the taxpayer independently carries out a transfer pricing adjustment before the start of control measures and the corresponding funds are transferred by a foreign partner to an account in a Russian bank, this transfer pricing adjustment would not qualified as hidden dividends.

Thus, the total possible amount of additional tax charges can be up to 35% of the price adjustment amount:

20% additional profit tax + 15% withholding tax

    5. New levels of penalties

For non-payment or incomplete payment of tax as a result of the application of prices that do not correspond to market prices:

• in relation to foreign trade transactions – 100% of the amount of unpaid tax on the profit of the foreign counterparty, equal to the amount of the transfer pricing adjustment (but not less than 500 000 rubles)
• in relation to domestic Russian transactions – 40% of the amount of unpaid tax (but not less than 30 000 rubles)

For failure to submit within the prescribed period or provision of a notification of controlled transactions containing misinformation – 100 000 rubles

For failure to submit documents within the prescribed period – documentation regarding a specific transaction (group of transactions), notification about participation in an international group of companies (for each fact of violation) – 500 000 rubles.

For failure to submit within the prescribed period or provision of documents containing misinformation – country report, global documentation, local documentation, accounting (financial) statements of a member of an international group of companies (for each fact of violation) – 1 000 000 rubles.

    6. More information to submission to tax authority

Expanded information required to be submitted to the Federal Tax Service from 01.01.2024

Notification of controlled transactions

(compulsory annually no later than 20.05.)

· terms of the transaction (details are established only for goods transactions)

· methods and sources of information used in the transfer pricing (previously not required to be disclosed)

· value creation chain for transactions in the field of foreign trade in raw materials (according to the list of the Ministry of Industry and Trade, clauses 5-6 of Article 105.14 of the Tax Code of the Russian Federation) only with related parties.

Documentation on transfer pricing
(upon request of the Federal Tax Service within 30 days)

· information on income and expenses, number of employees, amount of profit (loss), value of fixed assets and intangible assets of a foreign counterparty that is a party to a controlled transaction (including the attachment of relevant supporting documents)

· description of the terms of the transaction

· financial statements of a foreign counterparty.

The refusal of an independent counterparty to provide the requested information must be reported to the Federal Tax Service of Russia.

In transactions with related counterparties, the taxpayer does not have the right to refer to a refusal to disclose information.

Disclosure of information will require the taxpayer to collect a significant amount of additional information, as well as its systematization and storage in the accounting system.

      7. New “safe” interest intervals for loans

From 01.01.2024, the lower lim it of the basic “safe” intervals for loan transactions is reduced:

• for loans in RUB: min – 10% of the key rate of the Central Bank of the Russian Federation (but not less than 2%), max -150% of the key rate of the Central Bank of the Russian Federation;
• for loans in CHF and JPY: min – 1%, max – corresponding rate plus 5%;
• for loans in EUR, CNY, GBP and other currencies: min – 1%, max – corresponding rate plus 7%.

The first reporting period under the amended rules is 2024, notification of controlled transactions must be submitted before 20.05.2025, but an audit of contracts that are subject to changes and possible adjustments to international transactions must be carried out now.

There are many changes in transfer pricing, and the risks of additional charges for transfer pricing are increasing.

High-quality documentation remains a tool for protecting the taxpayer’s position regarding approaches and methods for justifying market prices

We have been working with transfer pricing and preparing documentation for our clients for many years.

We will gladly support you in preparing a reasoned tax position.

In October 2023, the Russian Ministry of Finance published two updates at once on the conditions for obtaining permissions from the Government Commission for Control of Foreign Investments in the Russian Federation (hereinafter referred to as the “Government Commission”) to carry out transactions with shares of LLCs with the participation of persons from unfriendly countries included in the list, approved by the Order of the Government of the Russian Federation dated 05.03.2022 No. 430-р.

It concerns, first of all, the Extract from the minutes of the meeting of the sub-commission of the Government Commission dated 26.09.2023 No. 193/4, which states that now one of the conditions for obtaining permissions from the Government Commission to carry out such transactions is:

• the presence of an obligation to make a voluntary contribution to the federal budget in the amount of at least 15% of the market value of the relevant assets, indicated in a report on independent assessment of the market value of the assets.

Let us remind you that previously this condition sounded as follows[1]:

• the presence of an obligation to make a voluntary contribution to the federal budget within three months from the date of the transaction in the amount of:
• at least 10% of half of the market value of the relevant assets – if the assets are sold at a discount of less than 90% of the market value of the relevant assets, or
• at least 10% of the market value of the relevant assets – if the assets are sold at a discount of more than 90% of the market value of the relevant assets.

In addition, on 16.10.2023, the Application Form for granting permission to carry out (execute) a transaction (operation) or a group of transactions (operations) was updated. The application must now disclose the beneficial owners of all parties to the transaction, not just the applicant’s party.

The remaining conditions for obtaining permissions from the Government Commission to carry out transactions with shares of LLCs with the participation of persons from unfriendly countries can be found here.

We will be happy to answer your questions!

[1] Subclause 4 of clause 1 of the Extract from the resolution of the sub-commission of the Government Commission dated 07.07.2023 No. 171/5 is declared invalid.

Many companies, while in the process of restructuring, experience a phase of reduced activity – this phase is often called “hibernation mode”. Often the “hibernation” phase precedes the liquidation phase.

In this review, we have collected answers to the most frequently asked questions about “hibernation” mode.

What is a company’s “hibernation” mode?

“Hibernation” mode is not an official legal term and represents the transfer of a company into an inactive state (suspension of business activities) while maintaining the existence of a legal entity.

What is important to consider when putting the company into “hibernation” mode?

• the company is still required to submit tax returns (including zero reporting) and pay taxes;
• the company must still have a CEO;
• the company must still have a legal address;
• for a company in “hibernation” mode, in any case, it will be necessary to plan liquidity to pay current (minimum) payments, which means the company will in any case have a (minimum) turnover on the account: expenses for maintaining accounting and tax records, software, wages, rent.

Is documentation required for “hibernation” mode?

Documentation for “hibernation” mode is not required. However, in some cases, in order to approve the procedure, the participants may prepare a resolution to suspend the company’s activities. Such a resolution can be submitted to government bodies if requested, a local act (order) can be issued on its basis, etc.

Is it necessary to notify government authorities about the “hibernation” mode?

As a general rule, it is not necessary to send a notification to put a company into the “hibernation” mode.

However, when planning activities, it is important to take into account that the company must notify government authorities of other specified circumstances (if any).

So, for example, in the event of a reduction in staff when the company is put into the “hibernation” mode, the employment service must be notified 2 months in advance.

Is it necessary to notify counterparties about the “hibernation” mode?

As a general rule, it is not necessary to send any special notifications to counterparties.

However, if the company has existing open obligations, then it will be necessary to notify counterparties of the planned suspension or reduction in business activity. Please also note that the “hibernation” mode does not relieve the company from its obligations under agreements with counterparties and does not exclude the company’s liability for violation of such obligations.

And what to do with the personnel?

It must be remembered that the “hibernation” mode is not a reason for non-payment of wages or dismissal of employees.

In this regard, it will be necessary to resolve personnel issues with the employee.

For a limited period of time, under certain circumstances, the company may impose a formal business interruption, reduce staff, or otherwise terminate employment contracts. However, in any case, it will be necessary to plan this process carefully to avoid the risks of violating labor laws.

Earlier, we provided you with an overview of the current situation with the liquidation of LLCs in Russia.

In addition to the previous review, we would like to further draw your attention to this year’s innovation: a simplified liquidation procedure.

A simplified liquidation procedure is available for SMEs (for the latest information on the status of SMEs, see here and here) and allows you to reduce the time and cost of the liquidation procedure, as well as reduce possible risks of improper liquidation (for example, restrictions on participation and management in new companies within three years).

However, not all SMEs are eligible for simplified liquidation by default. To do this, the company must comply with a list of certain additional criteria.

What conditions must be met to be eligible for simplified liquidation?

1. All founders (members) of the company made a resolution to terminate activities unanimously.
2. The company is included in the unified register of small and medium enterprises (SMEs).
3. The company is not a VAT payer (it is on a simplified tax system) or is exempt fr om VAT.
4. The company does not have debts to creditors, including debts to employees and the state budget.
5. There are no marks in the Unified State Register of Legal Entities about the inaccuracy of data and about the initiation of bankruptcy proceedings.
6. The company has no real estate and vehicles in the property.
7. The organization is not in the process of liquidation, reorganization or in the process of forced exclusion from the Unified State Register of Legal Entities by decision of the Federal Tax Service.

How to implement simplified liquidation?
To start a simplified liquidation, you must submit an application to the tax service on form P19001. At the moment, the paper and electronic formats of this form have not yet been approved, at the current stage, you can familiarize yourself with the draft form.

In the application, the founders (members) of the company confirm that:

• All financial obligations to counterparties have been fulfilled.
• All payments due to dismissed employees have been made.
• No later than one business day before exclusion from the Unified State Register of Legal Entities, all taxes have been paid and final tax reporting has been provided.

The application can be submitted electronically (using an enhanced qualified electronic signature of each participant), directly to the tax service on paper (notarization of signatures will be required) or through a notary public.

What is the time lim it for simplified liquidation?
The tax service will check the application and within 5 business days will make a decision on the upcoming exclusion of the company from the Unified State Register of Legal Entities or refusal.

In case of a positive decision by the tax service, information about the upcoming exclusion of the company from the register will be published in the Unified State Register of Legal Entities and in the State Registration Bulletin.

Within 3 months from the date of publication in the bulletin, the creditors of the company will be able to send their objections, if any.

If there are no objections from creditors within 3 months, the liquidated company will be excluded from the register.

It is important to know:
The initial conditions for simplified liquidation must be met at the time of exclusion. If during this period the company accumulates debts or assets, or fails to submit reports, simplified liquidation will not take place.

On 27.03.2023 an extract from the minutes of the meeting of the sub-commission of the Government Commission for Control of Foreign Investment in the Russian Federation No. 143/4 dated 02.03.2023 (hereinafter the “Extract from the minutes No. 143/4”) was published on the official website of the Russian Ministry of Finance.

The aforementioned extract supplements the conditions for issuance of permissions for transactions with LLC shares, which were previously stated in the extract from the minutes of the meeting of the sub-commission of the Government Commission for Control of Foreign Investment in the Russian Federation No. 118/1 of 22.12.2022 (hereinafter the “Extract from the minutes No. 118/1”), about which we have written earlier.

In particular, now when the sub-commission of the Government Commission for Control of Foreign Investment in the Russian Federation (hereinafter the “Sub-Commission”) examines the possibility of issuance of a permission for transactions with LLC shares, the special attention will be paid to the following conditions of performance of such transactions:

• the obligation of the purchaser to make a voluntary contribution to the federal budget in the amount of at least 10% of half of the market value of the relevant assets as indicated in the asset assessment report;
• the obligation to make a voluntary contribution to the federal budget in the amount of at least 10% of the market value of the relevant assets specified in the asset assessment report, if the assets are sold at a discount of more than 90% of the market value of the relevant assets specified in the asset assessment report.

It is interesting to note that previously, in the Extract from the minutes No. 118/1, one of the conditions was the availability of an instalment payment for 1-2 years and/or an obligation to make a voluntary contribution to the federal budget of at least 10% of the amount of the transaction.

Thus, there was an alternative. Now it seems that the possibility of choosing an instalment payment instead of the obligation to make a voluntary contribution to the federal budget has been eliminated. We will closely follow the Sub-Commission’s practice in this regard and will wait for the further clarifications.

In addition, in the Extract from the minutes No. 143/4 the applicants are recommended to submit the expert opinions prepared by an expert or by experts from an appraiser’s self-regulatory organization together with the report on the assessment of the market value of assets. The purpose of this is to exclude the possibility of the arbitrary assessment of the market value of assets by appraisers.

We would like to remind you that on 22.02.2023 the List of appraisers (appraisal companies) recommended to appraise the market value of assets was published on the official website of the Russian Ministry of Finance.

We advise you to take the above information into account when drafting agreements on the sale and purchase of LLC shares and we will be happy to answer your questions!