We bring to your attention a review of the latest changes in the procedure for transactions with shares of OOOs with participants from unfriendly countries.

We would like to remind you that any transactions or groups of transactions with securities of Russian legal entities and/or shares constituting the share capital of Russian legal entities require obtaining permits from the Government Commission and performing a number of procedures (obtaining an independent assessment, establishing KPIs, etc.).

On 23.01.2024, Decree of the Government of the Russian Federation dated 22.01.2024 No. 40 “On amendments to the Decree of the Government of the Russian Federation dated 06.03.2022 No. 295” (hereinafter – the “Decree No. 40”) was published, which contains some clarifications of the procedure.

Decree No. 40 established the need to comply with certain previously formulated conditions for obtaining permits (see Extract from the decision of the subcommission dated 07.07.2023 No. 171/5) and made some additions.

In particular, it is now established at the regulatory level (clause 5 (1) of the Rules approved by the Decree of the Government of the Russian Federation dated 06.03.2022 No. 295, hereinafter – the “Rules”) that the following information must be additionally included in the application for a permit:

• report on an independent assessment of the market value of the relevant securities of Russian legal entities and/or shares constituting the share capital of Russian legal entities.

This assessment must be carried out by an appraiser engaged in private practice and included in the list of appraisers (appraisal organizations) recommended by the subcommission to carry out such an assessment, or by an appraiser who has entered into an employment contract with a legal entity included in such a list (paragraph 3 of clause 1 of Decree No. 40). The right to determine the specified list is granted to the subcommission (clause 8 of Decree No. 40).

• key performance indicators and their target values for buyers, proposed as conditions for the implementation of transactions or a group of transactions.

Decree No. 40 also details the procedure for monitoring the achievement of key performance indicators.

In particular, Decree No. 40 clarifies who will monitor the implementation of the set KPIs (performance indicators). Monitoring of achievement of indicators and their target values will be carried out by:

• federal executive authorities (in each case, the authority will be determined depending on the scope of activity of the legal entity or party to the transaction), and (or)
• the Central Bank of the Russian Federation,

on the basis of documents confirming the achievement of these indicators and their target values, submitted within the time limits established in the decisions of the subcommission (clause 8 of Decree No. 40).

Please note that, in accordance with the clause 5 (2) of the Rules, the requirement to include additional information in the application in the form of an independent assessment report, as well as KPIs, does not apply to transactions and operations:

• between persons included in the same group of persons in accordance with competition law,
• between persons associated with unfriendly countries.

Additionally, you can read our previously published reviews on the topic: on the procedure for issuing permits for transactions with shares in the share capital of OOOs, on the conditions for obtaining permits for transactions with shares in OOOs, as well as on changes to these conditions.

We will be happy to answer your questions!

Please note that all representative offices and branches of foreign companies are required to submit information about the members and beneficiaries of their parent structures to the tax authority by 28.03.2024.

According to the clause 3.2 of the article 23 of the Tax Code of the Russian Federation, foreign organizations (FO), as well as foreign structures without formation of a legal entity (FSWFLE), are obliged annually no later than March 28:

• to submit information about the members of such a FO (for FSWFLE – information about its founders, beneficiaries and managers) as of December 31 of the year preceding the year of submission of the specified information to the tax authority at the place of their registration, as well as
• to disclose the procedure for indirect participation (if any) of an individual or public company in the event that the share of their direct and/or indirect participation in the FO (FSWFLE) exceeds 5%.

This obligation does not apply to foreign companies that are registered with the Russian tax authorities only because of the provision of services in electronic form, as well as to subsidiaries (OOO) with foreign participation.

The form of communication about the members of a FO (for a FSWFLE – about its founders, beneficiaries and managers), the format of its submission in electronic form, as well as the procedure for filling in the form are approved by the Order of the Federal Tax Service of Russia dated 01.12.2021 No. ED-7-13/1046@.

Wrongful failure to submit (untimely submission) by a foreign organization (foreign structure without formation of a legal entity) of the above information to the tax authority entails a fine of 50,000 RUB (clause 2.1 of the article 129.1 of the Tax Code of the Russian Federation).

You can find information previously published by us on this topic here.

We will be happy to answer your questions and offer our assistance in creating the report.

Exclusively for the Russian Business Guide magazine, Daria Pogodina, Managing Director of swilar presented a review article “CHANGES IN 2024: Double Taxation Agreements (DTAs), Transfer Pricing, Offshoring and other news” providing detailed step-by-step analysis of the changes and their consequences.

You can read the article online in Russian or English, or download two-language article in pdf-format by clicking the “Download ru” button below the message.

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.