On 08.09.2022, the President of the Russian Federation issued Decree No. 618 which established a special procedure for transactions with shares in the authorised capital of limited liability companies (“OOO”).

In particular, these are transactions resulting directly and/or indirectly in the establishment, modification or termination of rights to own, use and (or) dispose of shares in the authorised capital of OOOs or other rights allowing to determine the management conditions of such OOOs and (or) the conditions for their entrepreneurial activities.

Now, for the purposes of performing the above transactions involving persons from foreign countries who commit unfriendly acts against the Russian Federation, permits issued by the Government Commission for the Control of Foreign Investment in the Russian Federation are required and, if necessary, must contain the conditions for performing such transactions.

The new rules do not apply to entities in the financial and fuel and energy sectors.

It is expected that the procedure for issuing the above permits by the Government Commission for Control of Foreign Investment in the Russian Federation will be approved by the Russian Government within 10 days after the Decree is issued.

Earlier we informed you that on 08.09.2022 the President of the Russian Federation issued the Decree No. 618 (hereinafter referred to as “Decree”).

This Decree establishes the requirement to obtain permission fr om the Government Commission for Control of Foreign Investment in the Russian Federation (“Government Commission”) for transactions with shares in limited liability companies (“OOO”), if the parties to such transactions are persons from foreign countries that commit unfriendly acts against the Russian Federation.

On 19.09.2022 the Government of the Russian Federation issued the Resolution No. 1651 “On Amendments to Resolution No. 295 of the Government of the Russian Federation of 6 March 2022“ (the “Resolution”) that regulates the procedure for obtaining the respective approval of the Government Commission.

The list of cases wh ere the Government Commission is authorized to issue permits includes transactions resulting directly and/or indirectly in the establishment, modification or termination of rights to own, use and (or) dispose of shares in the authorised capital of OOOs or other rights allowing to determine the management conditions of such OOOs and (or) the conditions for their entrepreneurial activities.

According to the Resolution, in order to carry out the abovementioned transactions involving persons from foreign countries that commit unfriendly acts against the Russian Federation, the rules previously issued in relation to loans and credits with persons from unfriendly countries by Resolution of the Government of the Russian Federation No. 295 of 6 March 2022 will be fully applied.

It is envisaged that a permit to carry out a transaction or a group of transactions (“permit”) can be obtained by applying to the Ministry of Finance of the Russian Federation with an application and accompanying documents, the list of which is established by the Resolution of the Government of the Russian Federation No. 295 of 6 March 2022.

Please note that the Ministry of Finance of the Russian Federation can also be approached by federal executive bodies and (or) the Bank of Russia in order to issue a permit. In this case, the application and accompanying documents must be submitted to the relevant federal executive body and (or) the Bank of Russia.

The application and accompanying documents must be drawn up in Russian. If the original documents are in a foreign language, a duly certified translation into Russian (with an apostille of the competent authority of the state in which the document was drawn up) will be required.

The application and accompanying documents may be submitted both in hard copy and electronically, including in the form of electronic documents signed with a digital signature.

We will be happy to answer your questions and assist you in preparing the package of documents required to obtain the permit.

We would like to draw your attention to the recent clarifications issued by the Central Bank of Russia (hereinafter referred to as the “Central Bank”) regarding the relevant changes in legislation in accordance with the Presidential Decrees.

On 05.03.2022, Presidential Decree No. 95 “On the temporary procedure for meeting obligations to certain foreign creditors” (hereinafter referred to as Decree No. 95) was issued. Decree No. 737 of 15.09.2022 also introduces additional restrictions on payments to foreign residents – in particular, it concerns the implementation of payments to the participant in case of liquidation or reduction of shared capital (entered into force on 15.10.2022).

For which purposes it is compulsory to open a type C special account:

For payments in excess of 10 million rubles (or the equivalent in a foreign currency) per calendar month to “unfriendly” foreign counterparties, as well as to “friendly” foreign creditors, if the rights of claim on obligations passed to them fr om unfriendly foreign creditors after March 1, 2022 (Item 8 of Decree № 95) for:

• total liabilities of the debtor (including loan repayment and interest on it) on loans and borrowings, as well as payment of dividends/distribution of profits of Limited Liability Companies
• loans, borrowings, and financial instruments (including securities) of Joint Stock Companies 
• fulfillment of obligations under concluded agreements which are derivative financial instruments
• purchase of real estate fr om “unfriendly” individuals
• Disbursement of funds by residents due to reduction of shared capital, liquidation or bankruptcy proceedings of resident legal entities (or permission obtained – Decree № 737 of 15.09.2022).

Who, where and in what currency should a type C account be opened:

• A resident sends an application to a credit institution in the name of a foreign creditor for a C-type account, whereby a bank account agreement does not need to be concluded.
  A foreign creditor cannot open a C-type account on its own initiative (Letter of the Bank of Russia No. 019-12-4/2759 dated 06.04.2022).

• The C-type account is kept in rubles, is not opened in a foreign currency and cannot be opened in a foreign credit institution (clauses 3,5 of Decree No. 95).
• A bank account previously opened in the ordinary course of business will not be suitable for use as a C-type account, but depo accounts opened in the name of a foreign creditor before 24.03.2022 can be used.

When is a special account NOT needed?

• C-type accounts are not used if the aggregate amount of all debtor’s liabilities to all foreign creditors mentioned in Clause 1 of Decree No. 95 in a calendar month does not exceed 10 million rubles or its equivalent in foreign currency (at the official exchange rate of the Bank of Russia set as of the first day of the respective calendar month) or there is a permit from the Government Commission.
• If the obligation stipulated by Decree No. 95 is performed to a person who is not “unfriendly” (at the same time meeting the requirements set out in clause 12 of Decree No. 95 that the ultimate beneficiaries are the Russian Federation, its legal entities or individuals, and this information is disclosed to the tax authorities in an appropriate manner)

What is allowed when using a Type C account:

• It is possible to use a C-type account opened to a non-resident upon application of one resident for performance of obligations by other residents to the same non-resident and not to open a new C-type account.
• Transfer of funds to a non-resident to a C-type account opened with a bank different from the bank wh ere the resident is serviced.
• Transfer of rubles from a C-type account opened in favour of a non-resident legal entity of an “unfriendly” state in one credit institution to a C-type account of the same legal entity opened in another credit institution.
• There are no restrictions on residents using several C-type bank accounts for different obligations (contracts, products) in favour of one non-resident or applying one C-type account.

Limitations and specifics of the Type C account:

• Funds in the C-type account opened in the name of a foreign creditor belong to the foreign creditor from the moment the account is credited and until an agreement is concluded with the foreign creditor.
• The bank wh ere the C-type account was opened may not unilaterally close such account due to the absence of the foreign creditor’s application.
• A resident is not entitled to dispose of or request refund from a C-type bank account, except in case the funds were mistakenly credited to a C-type account. 
• Transfer by the client from a C-type bank account to another non-resident bank account (opened both in the Russian Federation and abroad) is currently not possible (without authorisation).

For which purposes money can be written off:

• payment of taxes, duties, fees and other mandatory payments payable to the budget
• transfers for the purchase of federal loan bonds
• transfers to current accounts of non-residents in the currency of the Russian Federation, as stipulated by the permit
• transfers for other transactions provided for by the permit
• payment of commissions to the authorised bank servicing the account.

Dear colleagues,

We would like to wish you a happy New Year!
May the coming year be peaceful, prosperous and successful!
Thank you for your trust and collaboration.

With deep respect,
Your team of swilar

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:

1. 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.
   
   
2. 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.

The new Federal Accounting Standard FSBU 4/2023 “Accounting (Financial) Statements” is mandatory for use starting with the accounting statements for 2025 in all commercial organizations in the real sector.

The standard regulates the composition and content of information, the composition of appendices to the balance sheet and the statement of financial results, the composition of appendices to the balance sheet and the statement on the proper use of funds, the composition of interim financial statements, sample forms of financial statements and the conditions for the reliability of financial statements.

The composition of the annual and interim financial statements in accordance with the cl. 5 and 6 of FSBU 4/2023 of a commercial organization includes a balance sheet, a statement of financial results and appendices thereto. The appendices to the balance sheet and the statement of financial results consist of a statement of changes in equity, a statement of cash flows, and notes to the balance sheet and the statement of financial results.

Balance sheet

An idea of the financial position of an economic entity as of the reporting date is provided by the disclosure in the balance sheet of at least the following indicators: intangible assets; fixed assets; investment property; deferred tax assets; financial investments; inventory; long-term assets for sale; value-added tax on acquired assets; accounts receivable; cash and cash equivalents; equity (for commercial organizations)/targeted financing (for non-profit organizations); borrowed funds; accounts payable; deferred tax liabilities; provisions (cl. 9 of the FSBU 4/2023).

In addition to the indicators given in the cl. 9 of the Standard, other indicators may be disclosed considering materiality (for example, indicators of goodwill; intangible exploration assets; tangible exploration assets; capital investments in intangible asset objects; capital investments in non-current assets; rights to use the assets investment in a lease; underbillings; lease liabilities (cl. 10 of the FSBU 4/2023).

Statement of financial results

The statement of financial results should give an idea of the financial results of the activities of an economic entity for the reporting period. The statement of financial results discloses information about all income and expenses of an economic entity (cl. 25 of the FSBU 4/2023).

One of the main changes in the statement of financial results is the indicator of profit (loss) from discontinued operations (less the related corporate income tax). It is disclosed separately from profit (loss) from continuing operations before taxation.

Cl. 28 of FSBU 4/2023 determines the procedure for offset between indicators of other income and other expenses. An offset between these indicators is made if they are related to one (for example, the result from the disposal of non-current assets, the result from the disposal of a capital investment object) or several similar facts of economic life (in particular, exchange rate differences, the result of revaluation of non-current assets included in the income or expenses of the reporting period, the result of impairment of non-current assets and recovery of impairment included in the expenses or income of the reporting period). An exception is when the separate presentation of such income and expenses can affect the decisions of users of financial statements or such presentation is provided for by other standards.

Clause 29 of FSBU 4/2023 contains a list of income and (or) expenses that, taking into account materiality, are disclosed in the statement of financial results or notes. This list includes indicators of income and (or) expenses for the reporting period related to the impairment of inventories and reversal of impairment, impairment of non-current assets and reversal of impairment, revaluation and disposal of non-current assets, settlement of litigation and write-off of provisions.

According to the cl. 30 of FSBU 4/2023, the notes disclose information on the composition of expenses for ordinary activities recognized in the statement of financial results (taking into account changes in the balances of work in progress and finished goods). The information is presented in the context of the relevant elements.

Statement of changes in equity

The sample report presents the result of changes in equity for the reporting period, and not separately the increase and decrease in capital, as in the form.

All changes are reflected in one table, including information on the impact on each component of equity of adjustments to the reflection of the consequences of changes in accounting policies and the correction of significant errors in accounting.

The accumulated revaluation of non-current assets is allocated as an independent component of capital.

Statement of cash flows

In the sample report, a separate line singles out cash flow receipts from current operations in the form of interest on accounts receivable from customers. Apart from that, the composition of the information in the sample corresponds to the composition of the information in the form of the cash flow statement, approved by the Order of the Ministry of Finance of Russia dated 02.07.2010 No. 66n.

Notes

The notes disclose information that is necessary for users of financial statements to make economic decisions, but is not disclosed in the balance sheet, statement of financial results, statement on the planned use of funds, statement of changes in equity, or statement of cash flows (cl. 40 of the FSBU 4/2023).

Cl. 46 of FSBU 4/2023 specifies the list of information disclosed in the Notes.

We will be happy to answer your questions regarding FSBU 4/2023.

We hereby inform you that Federal Law No. 287-FZ of August 08, 2024 introduced a number of important changes affecting both limited liability companies (OOO) and joint-stock companies (AO). The changes come into effect at different times. In this message, we would like to talk about changes in relation to OOO that will be in effect from September 01, 2024.

From this date, the resolution on the election (appointment) of the sole executive body of the OOO – for example, the general director – will need to be necessarily certified by a notary. Also, when registering such changes in the Unified State Register of Legal Entities, a notary will be the applicant.

Thus, the procedure for changing the general director in an OOO has been significantly changed. Previously, participants could make such a resolution without a notary (if an alternative procedure was stipulated in the articles of association), and then the new director would sign the application for registration himself. Now the participants or their representatives will be required to be present at the Russian notary to make a resolution (with the issuance of the appropriate certificate), after which the notary will sign an application sent by him to the registration authority.

For foreign participants in Russian OOO, such changes mean the presence of two options:

• arrival in the Russian Federation and visiting a Russian notary to make a resolution on changing the director of a controlled Russian company;
• issuance of a power of attorney to Russian representatives for carrying out such actions (please note that the power of attorney must be properly legalized and translated into Russian).

At the moment, we are awaiting clarification regarding whether notarization will be mandatory for participants to make resolutions on extending the powers of the general directors of OOO, as well as the beginning of the liquidation of controlled companies.

With regard to the liquidation of an OOO, from September 01, it is legislatively confirmed that the notary submits to the Federal Tax Service (FTS) a notification about the formation of a liquidation commission/appointment of a liquidator. Such a notification is usually sent simultaneously with the message that the legal entity is entering into the process of liquidation. The notification shall be submitted to the Federal Tax Service by the notary who certified the liquidator’s signature on it, no later than the end of the working day on which the notification was signed.

According to another change, from September 01, the list of information on shares in the authorized capital of OOO, which is contained in the Unified State Register of Legal Entities, is being expanded. The Register will contain information about the arrest of the share imposed by the court or enforcement officer. So far, the Unified State Register of Legal Entities includes information on the size, nominal value of shares and shareholders.

In the future, we will inform you about other significant changes to corporate legislation introduced by Federal Law No. 287-FZ dated August 08, 2024.

We will be happy to answer your questions and, if necessary, support you in the preparation, signing and submission of relevant documents to the authorized bodies.

We would like to draw your attention to the screening possibilities of foreign counterparties in the Republic of Kazakhstan.

To reduce risks and check the reliability, solvency and security of your foreign counterparty, you should take the following steps:

• Legal check;
• Financial check;
• Check valid licences, if applicable;
• Check other factors such as publicly available information / business reputation: customer reviews, relationships with partners or contractors.

As part of the legal review of an LLP (Limited Liability Partnership or “TOO”), which acts as a separate legal entity based on its own Charter, you should request the following legal documents:

• Charter;
• Memorandum of Association (however, the counterparty may refuse to provide this as the provisions may be confidential);
• Resolution/protocol on the appointment of the directors;
• State registration certificate – certificate of registration. What to check: Consistency of the information in the certificate with other incorporation documents;
• Business Identification Number (BIN) – a unique number created for a legal entity (branch and representative office) and self-employed persons;
• Registration number of the VAT payer’s certificate.

Also pay attention to the company’s legal address for local authorities. It must be specified in the Charter and other documents when registering the LLP and can be either a commercial premises or a private address (e.g. the founder’s flat).

There are following risk factors:

• “mass registration address”;
• mismatch between the legal and actual addresses (when submitting to the tax office), which is especially relevant for VAT payer counterparties.

The charter capital of an LLP must be at least 100 times the monthly calculate on index (MCI) at the time of submitting the formation documents for state registration. Fr om January 1, 2024, the MCI will be 3,692 tenge, i.e. the minimum capital must be 369,700 tenge (approx. RUB 73,000). The charter capital must be fully paid within one year from the date of registration. For small companies (up to 100 employees, income up to 300,000 MCI/year) there is no minimum capital (it can therefore be 0 tenge).

The executive body can be collective (directorate) or individual (director). An LLP can have several directors who act independently of each other (but only natural persons). 

In addition, we would like to draw your attention to the official regime of “suspension of activity” in the Republic of Kazakhstan (the official analogue of “sleep mode” in the Russian Federation). During suspension, a company cannot conduct any profitable activities, but it is not liquidated and can be reinstated. Information on companies whose activities have been suspended can be obtained from the website of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan (SRC).

Further, in case the signatory of the contract is a director acting on the basis of the Charter, you should check the following aspects:

• Timeliness of the authorization (the data in the decision / protocol of appointment should coincide with the data in the state registers);
• Duration of the authorization;
• Existence of possible restrictions (e.g. transactions above a certain amount may require the approval of the participants, this may be specified in the Charter);
• Delimitation of powers if there are several directors.

If the signatory of the contract is acting on the basis of a power of attorney, be sure to request and scrutinize it for:

• The authority of the person issuing the power of attorney. If it is not signed by a director, but by another person based on the power of attorney with the right of overriding power of attorney, you should also request and check the original power of attorney;
• Description of the powers of the person acting on the basis of the power of attorney.

Wh ere to get data (open sources):

• Portal of the Bureau of National Statistics of the Agency for Strategic Planning and Reforms of the Republic Kazakhstan (RK).

Here you can find basic information about the company.

• Portal of the State Revenue Committee of the Ministry of Finance of the RK (www.kgd.gov.kz).

Here you can find:

• Details on suspension / non-suspension of activities;
• Information on the absence (presence) of tax arrears;
• Total amount of taxes paid;
• Presence of the counterparty in the List of unreliable taxpayers;
• Information about being / not being in the process of liquidation.

• Portal of the Supreme Court of the RK, Portal of the Ministry of Justice of the RK.

Here you can find the availability of open and past court cases.

• Public procurement portal.

Here you can see if the counterparty is on the list of unfair participants in public procurement.

• Portal of the Electronic Government of the Republic of Kazakhstan Egov.kz.

Here you can find:

• Information about the registered legal entity as of a given date;
• Details of the latest amendments to the constituent documents;
• Information about participation of the legal entity in other legal entities;
• Information on the presence of branches and representative offices of the legal entity;
• Information on the category of the subject of entrepreneurship;
• Data on encumbrances (seizure) on the legal entity’s share;
• Information on recognition of the legal entity as an inactive legal entity or involvement of its participants in inactive legal entities.

Unfortunately, as in many other jurisdictions, to obtain full data from public official sources, in most cases verification or authorization may be required, which requires a local phone number or IIN / BIN (analogue to the Russian TIN). In this regard, it may be necessary to engage a local partner to carry out a full-fledged verification.

For bigger or more significant deals, of course, the financial condition of the counterparty should be checked. For this purpose, it is necessary to request and analyze financial and tax statements for the last reporting periods:

• Balance sheet,
• Profit and Loss Statement,
• Cash flow statement.

Analyzing the financial statements will help to understand how successful and sustainable the company is, and to identify problems / risk factors.

We would also advise you to look at:

• review of financial ratios,
• analysis of current assets and total debt,
• profit and loss analysis,
• and get information about the bank details of the counterparty in advance – not all banks in Kazakhstan accept and send payments to Russia or do so with restrictions on the type of currency / banks from the Russian Federation.

We will be happy to answer your questions and, if necessary, carry out a counterparty check at your request.

Exclusively for the Russian Business Guide magazine, Daria Pogodina, Managing Director of swilar presented a review article “International payment practices in the current environment”.

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