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.

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.

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.

On 30.12.2022 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 (hereinafter the “Sub-Commission”) No. 118/1 dated 22.12.2022 was published on the official website of the Russian Ministry of Finance.

According to the information contained in this extract, the Sub-Commission sets out the conditions that must be complied with in order to obtain permission to carry out transactions involving company shares. In particular, these include:

• independent assessment of the market value of the assets;
• sale of assets at a discount of at least 50% of the market value of the relevant assets as indicated in the asset assessment report;
• establishment of key performance indicators for the new owners;
• 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.

Please be reminded that our previously published regulations on transactions with limited liability company shares can be found in detail here.

In addition, the Sub-Commission lists conditions that will be taken into account when deciding on issuing permissions to organisations for payment of dividends to foreign participants in cases stipulated by Presidential Decrees No. 95 dated 05.03.2022 and No. 254 dated 04.05.2022, when the payment exceeds 10 million roubles per calendar month or the equivalent of this amount in foreign currency at the official exchange rate of the Central Bank of Russia set on the 1st day of each month. These include, in particular:

Previously, we drew your attention to the need to prepare for the transition to the Single Tax Account (STA) and the Single Tax Payment (STP) – we would like to remind you that the new regulations will become compulsory for all taxpayers from 01.01.2023. More information is available here.

However, these are not all the changes that await taxpayers from 2023. 

From 01.01.2023, Federal Law 269 of 05.07.2023 will unite the Russian Pension Fund and the Social Insurance Fund into a new fund – the Russian Pension and Social Insurance Fund. The abbreviated name of the Fund will be the Social Fund of Russia (SFR).

The consolidation of the funds will result in numerous changes to the way insurance contributions are calculated and to the procedure for submitting reports. For your convenience, we have prepared a summary of how to deal with the changes and prepare for them.

New: unified tariff on contributions

One of the changes from 01.01.2023 will be a unified insurance contribution tariff applicable to mandatory pension insurance contributions, mandatory social insurance contributions for temporary incapacity for work and in connection with maternity and mandatory health insurance contributions.

The single tariff for these categories of contributions will be set in the following amount (clause 3 of Article 425 of the Tax Code introduced by Federal Law dated 14.07.2022 N 239-FZ)

1. within the established unified maximum amount of the base for calculating insurance contributions – 30 percent;

2. above the established unified maximum amount of the base for the calculation of insurance contributions – 15.1 percent.

Insurers who now apply reduced tariffs will retain this right. For example, SMEs on payments above the minimum wage are subject to a 15% tariff (for more information, see the client information on this topic).

New: unified maximum insurance contribution base

From 01.01.2023, there will be a unified maximum insurance contribution base (clause 5.1 of Article 421 of the Tax Code).

The unified maximum insurance contribution base is the amount of payments for a year to a particular individual on which insurance contributions are paid at standard tariffs. From 2023 it will be the same for all types of contributions.

The unified maximum insurance contribution base in 2023 will be equal to the 2022 base for pension contributions indexed to the salary growth which will amount to 1,917,000 roubles (RF Government Decree No.2143 dated 25.11.2022.) Thereafter, the base will be indexed annually.

New: insurance contribution tariffs for employment contracts and civil law employment contracts will be the same

From 01.01.2023., payments and other remuneration under employment and civil law employment contracts with foreigners and stateless persons temporarily staying in Russia who are not recognized as insured will be excluded from the list of payments exempt from contributions.

The previous exemption from mandatory social insurance contributions for temporary incapacity for work and in connection with payments under civil law employment contracts will be abolished. 

Thus, the tariffs of insurance contributions for employment and civil law employment contracts will not differ from 01.01.2023.

New: unified information form to be submitted to the new fund (SFR) and a new report to the Federal Tax Service

In order to keep personal accounting records from 01.01.2023, insurers must submit a unified information form (“ЕФС-1”) to the new fund (SFR).

The new form will replace the previously submitted reports (“4-ФСС“, “СЗВ-СТАЖ“, “СЗВ-ТД” and “ДСВ-3”), and will be provided to the territorial offices of the united SFR for periods from 01.01.2023. 

The deadline for submission is the same – the 25th of the month.

The report is made up of sections that have different intervals for submitting data to the new fund (SFR):

Earlier we brought to your attention the new requirement for mandatory approval by the Government Commission for transactions with shares in limited liability companies (OOO) (introduced by Presidential Decree No. 618 of 08.09.2022). We would like to remind you that this refers to transactions with OOO shares involving entities from foreign countries that commit unfriendly acts against the Russian Federation.

In the following overview, we have compiled for you information on the procedure for obtaining such a permit (approved by Government Resolution No. 1651 of 19.09.2022).

On 13.10.2022 the Ministry of Finance published official clarifications (letter No. 05-06-14RM/99138 of 13.10.2022) specifying types of transactions covered by the new regulations. According to these clarifications, the following types of transactions will require approval by the Government Commission:

• transfer of a part in the share capital of an OOO to one or more participants of the OOO or to a third party;
• acquisition by an OOO of a share in its share capital;
• withdrawal of a participant from an OOO by disposing of their share in the OOO or by claiming the acquisition of a share in the OOO;
• transfer of a share in an OOO to an investment fund;
• agreement with a commercial organization or individual entrepreneur on delegation of authority of the sole executive body of an OOO;
• agreement on exercising participants’ rights in an OOO;
• contract of convertible loan;
• OOO share pledge agreement;
• OOO share pledge management agreement;
• voluntary reorganization of an OOO in accordance with the legislation of the Russian Federation;
• an ordinary partnership agreement entered into by an OOO;
• agreement of trust management, agency and (or) other agreement on exercise of rights certified by OOO shares;
• other transactions.

We remind that the special procedure established by Presidential Decree No. 618 of 08.09.2022 does not apply to organisations in the financial and fuel and energy sectors.

The Russian Ministry of Finance also clarified that the approval of the Government Commission is not required for transactions executed against the will of an entity as part of the execution of a legally enforceable court decision.

At the same time we would like to draw your attention to the Presidential Decree No. 737 of 15.10.2022 which imposes additional restrictions on residents making payments in cases (1) of reduction of share capital of an OOO, (2) liquidation of an OOO and (3) bankruptcy procedures applied to an OOO.

Under the new regulations, making payments in these cases to entities from foreign countries committing unfriendly acts against the Russian Federation in an amount exceeding RUB 10 million per calendar month will require the use of a C-type special account (for a detailed overview of the use of C-type special accounts, see link) or obtain authorisation from the Russian Ministry of Finance.