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.

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!

On 12.07.2023 an extract fr om the decision of the sub-commission of the Government Commission for Control of Foreign Investment in the Russian Federation dated 07.07.2023 No. 171/5 was published on the official website of the Russian Ministry of Finance which:

• has updated the conditions for authorizing transactions with company shares and dividend payments;
• has declared the minutes of the meetings of the sub-commission dated 22.12.2022 No. 118/1 and dated 02.03.2023 No. 143/4, which we informed you about earlier, as invalid.

To be more specific, now the conditions for granting permissions by the Government Commission for transactions with company shares are as follows:

• a report on independent assessment of the market value of the assets carried out by an appraiser that works in private practice and is listed among the appraisers (appraisal organizations) that are recommended by the sub-commission, or by an appraiser who has concluded the employment agreement with a legal entity that is included in this list.
• an expert opinion prepared by an expert or by experts from an appraiser’s self-regulatory organization listed among the appraiser’s self-regulatory organizations that have been recommended by the sub-commission to prepare an expert opinion;
• sale of assets at a discount of at least 50% of the market value of the relevant assets as indicated in the assets assessment report;
• the 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.
• establishment of key performance indicators for purchasers and (or) the OOO acquired by them, which should provide for:
• preservation of the technological potential and the main type of economic activity of such OOO;
• preservation of jobs;
• discharge of contract obligations under agreements with other legal entities.
• buyback transaction at the market value on the date of exercise of such option, economic benefit to the holder of the asset who is a Russian resident, and restriction of the period of validity of the permission (generally, no longer than two years from the date of the primary transaction) – for a transaction that provides for the buyback transaction;
• settlement of the transaction:
• either using a C-type account (more details here);
• or in rubles within the banking system of the Russian Federation without transfer of money out of the Russian Federation;
• or by transfer of money to the vendor’s account in a foreign bank, but in case of installment payment.
• the applicant has any other permissions required for the transaction under Russian law, details of which are provided by the applicant (g., the approval of the Federal Antimonopoly Service of Russia).

When decisions are made on granting permissions for dividend payments to foreign creditors, the followings shall be taken into account:

• the amount of dividends to be paid is no higher than 50% of the amount of net profit for the previous year;
• the results of retrospective analysis of dividend payments for previous periods shall be taken into account;
• readiness of participants (shareholders) who are foreign creditors to continue commercial activities in the territory of the Russian Federation;
• accounting of the positions of federal executive authorities on the assessment of the importance of the organization’s activities and the influence of the organization’s activities on the technological and industrial independence of the Russian Federation and the social and economic development of the Russian Federation (constituent entities of the Russian Federation);
• applicant’s performance of its obligations to meet the key performance indicators that has been confirmed by the federal executive authorities;
• the opportunity for dividends to be paid on a quarterly basis, if the established key performance indicators are met.

We would like to draw your attention to the fact that the abovementioned conditions for dividend payments have been mitigated according to the extract from the minutes of the sub-commission of the Government Commission for Control of Foreign Investment in the Russian Federation dated 09.08.2023 No. 182/5 which was published on the official website of the Ministry of Finance of Russia on 23.08.2023.

In particular, residents may now be authorized to pay dividends to foreign creditors without meeting these conditions, as a rule, in cases wh ere after 01.04.2023 foreign creditors make investments in the Russian economy, including the expansion of production in the Russian Federation, development of new technologies, and in the amount not exceeding the amount of such investments.

In this overview, we would like to draw your attention to some of the issues that foreign-owned companies face in liquidating an LLC (rus. OOO) in Russia in 2023.

What is generally important to keep in mind when deciding on liquidation:

• Liquidation is not a quick process and will take up to 1 year. This term may be extended for 6 months through the court (para 6 of the article 57 of the Federal Law No. 14-FZ dated 08.02.1998 “On Limited Liability Companies”);
• As soon as the decision is made to liquidate the company, the powers of the current CEO will be terminated and the liquidator/liquidation commission will take over the management of the company (a previously acting CEO may also be appointed);
• The company will need to carry out “preparatory work”: by the time of liquidation, it will need to ensure that it has no open tax and supplier/buyer debts;
• It is necessary to plan work with personnel and terminate labor contracts;
• It will be necessary to archive documents: archiving is mandatory for certain types of documents, and the retention period should be 75 years or even more, depending on the type of a document;
• It is necessary to be prepared for a possible tax audit: the depth of the audit, as a rule, may be up to three preceding years.

In addition to the abovementioned general standards, in 2023 the companies with foreign participation from unfriendly countries must consider the following points:

• Restrictions on payments with participants from foreign (unfriendly) states.

Payments in the amount exceeding 10 million Rub. (or equivalent in other currency) per calendar month made by residents to persons from unfriendly states as a result of liquidation of Russian legal entities are subject to a special procedure: in accordance with paras 2-9 of the Presidential Decree No. 95 dated 05.03.2022, they must be made through C-type accounts. More details on C-type accounts can be found here.

Payments may be made without following this procedure on the basis of permissions issued by the Bank of Russia and the Ministry of Finance of Russia (Presidential Decree No. 737 dated 15.10.2022).

• Permission of the Governmental Commission

Based on the official explanations of the Russian Ministry of Finance, liquidation is not directly included in the list of transactions for the purpose of applying Presidential Decree No. 618 dated 08.09.2022 and does not relate to transactions that require permission of the Governmental Commission for Control over Foreign Investment in the Russian Federation (the “Governmental Commission”).

Still most notaries refuse to certify liquidation applications if there is no permission issued by the Governmental Commission, so it is necessary to take this factor into account when planning the process.

Thus, when deciding on liquidation, we recommend to consider the abovementioned peculiarities, carefully weigh the pros and cons, including considering other possible options that may help to simplify this procedure.

On July 10, 2023, Federal Law No. 316-FZ was adopted, introducing a number of significant changes regarding the legal status of foreign citizens in the Russian Federation (hereinafter referred to as “Law No. 316-FZ”).

This law entered into force on July 10, 2023, but provides for separate, later deadlines for the entry into force of a number of provisions (more details below).

According to the new rules, family members of highly qualified specialists (hereinafter referred to as “HQS”) will be required to undergo a medical examination again within 30 calendar days from the date of the decision to extend the validity of the HQS work permit or from the date of entry into the Russian Federation (if they were outside the Russian Federation on the day of such a decision). Previously, family members of HQS were required to undergo a medical examination annually.

In addition, after 180 days from the official publication of Law No. 316-FZ, the following changes will come into force:

The obligation to obtain a work permit within 30 calendar days from the date of the decision to issue (extend) it is introduced.
In the presence of documented valid reasons and a written application from the employer, a work permit may be obtained at a later date, but not exceeding 30 calendar days. After the expiration of the established period, a work permit is not issued, and the decision to issue (extend) it is canceled.

In the event of early termination of an employment or civil law contract, the HQS, as before, has the right to search for another employer or customer of work within 30 working days.
If a new contract has not been concluded upon expiration of this period, the HQS and his family members will be required to leave the Russian Federation within 30 calendar days, and their visas and residence permits (if any) will be considered cancelled.
Before the said changes come into force, HQS and their family members will be given 30 working days to leave.

A HQS who has worked in this capacity in the Russian Federation for at least two years and his family members who have a residence permit will be issued an indefinite residence permit if the following conditions are met:
The HQS and family members reside in the Russian Federation with a residence permit;
during the period of the HQS’s employment, the employer calculated, withheld and transferred taxes to the budget system of the Russian Federation.
It is envisaged to issue a work permit for highly qualified specialists to carry out labor activities in two or more constituent entities of the Russian Federation if the following conditions are met:
work in other constituent entities is provided for by the provisions of an employment or civil law contract for the performance of work (provision of services);
a foreign citizen carries out labor activities in separate divisions of an organization, branches or representative offices of a legal entity or with related parties located in these constituent entities.
A ban on the employer to attract foreign highly qualified specialists to labor activities in the Russian Federation for two years in the event of failure to provide the tax authorities with information on the amounts of personal income tax calculated and withheld by the tax agent in relation to highly qualified specialists after 6 months, as well as if the information provided turned out to be fake or counterfeit.

In addition, from 01.03.2024, the level of wages (remuneration) of highly qualified specialists will increase to 750 thousand rubles per quarter. Before the changes were introduced, the threshold was 2 million rubles/year.

At the same time, Law No. 316-FZ does not cancel the previous reduced wages required to attract highly qualified specialists who are medical, teaching staff, participants in the implementation of the Skolkovo project, and employees of resident companies of special economic zones.

We are closely monitoring the development of the situation and innovations in legislation and will be happy to answer any questions you may have!