privatetax.ru

The Decrees of the President of the Russian Federation dated February 28, 2022 “On application of specialeconomic measures due to the non-amicable actions of the USA and foreign countries, international organizations taking sides with them” (hereinafter referred to as Decree 1) and dated March 1, 2022 “On Additional temporary economic measures to ensure financial stability of the Russian Federation” (hereinafter – Decree 2) introduced new currency restrictions for residents of the Russian Federation, which, particularly, affect individuals with the status of the currency residents of the Russian Federation.

What transactions are considered as prohibited?

According to Decree 1:

Execution of currency transactions related to provision of foreign currency by residents in favor of non-residents under loan agreements;
Residents’ transfer of foreign currency to their accounts (deposits) opened in banks and other financial market organizations located outside the territory of the Russian Federation, as well as the transfer of funds without opening a bank account using electronic means of payment provided by foreign payment service providers;

According to Decree 2:

Transactions on granting loans and credits to persons of foreign countries committing non-
amicable actions (in rubles);
Transactions resulting in acquisition of title on securities and immovable property carried out with
persons of foreign countries committing non-amicable actions;
Export of cash foreign currency and cash instruments in foreign currency in the amount exceeding
the equivalent of ten thousand US dollars and calculated at the official rate of the Central Bank of
the Russian Federation established on the date of export.

What countries are considered non-amicable?

Currently the list of non-amicable countries is not published.

According to unofficial information, this list includes Albania, Australia, Anguilla, Austria, Belgium, the British Virgin Islands, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Ireland, Italy, Japan, Jersey, Latvia, Lithuania, Luxembourg, Malta, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, USA, UK.

Who are considered as persons of foreign countries committing non-amicable actions in
accordance with Decree 2?

Citizens of the countries included in the list,
Persons/entities with a place of incorporation, with a place of predominant business activity, or a
place of predominant profit-making in non-amicable countries,
Persons/entities that are under control of the above persons, regardless of their nationality.

Procedure of currency transactions under loan agreements with non-residents:

Do restrictions on granting loans in foreign currency to non-residents established by Decree 1 apply only to residents of non-amicable countries?

No, Decree 1 prohibits issuing loans to all non-residents, regardless of the recognition of such persons as residents of non-amicable countries.

In accordance with the Law on Currency Regulation, the following persons are considered to be non-
residents:

Individuals who are not residents, i.e., the persons who are not Russian citizens, persons with a residence permit in Russia;
Legal entities established in accordance with the laws of foreign countries and located outside the territory of the Russian Federation;
Organizations that are not legal entities, established in accordance with the laws of foreign countries and located outside the territory of the Russian Federation, etc.

Am I allowed to grant a loan to my controlled foreign company in a foreign currency or in rubles?

Granting a loan in foreign currency to non-residents is prohibited.

Granting a loan in rubles is permitted if the controlled foreign company does not fall under the definition of a person related to non-amicable countries.

Nevertheless, this prohibition doesn’t apply if the transaction is carried out based on a permit issued
by the Government Commission for the Control of Foreign Investments in the Russian Federation
(hereinafter – the Permit).

Am I allowed to receive money from the non-resident as a loan repayment or interest within the terms of the loan if I granted a loan to a non-resident before March 1, 2022?

Foreign currency transactions on receipt of foreign currency by residents in fulfillment by non-residents of the obligations under loan agreements previously provided by residents to non-residents are not limited (including transactions on repayment by non-residents of the loan, payment by non-residents of interest and (or) penalties on such a loan). This approach is confirmed by the clarifications of the Central Bank of the Russian Federation, published on the official website of the Central Bank of the Russian Federation.

I (as a lender) have entered into a loan agreement with a non-resident in February 2022. Under the terms of the loan agreement, the funds can be transferred in March 2022. Will this transaction be allowed?

The transfer of funds in foreign currency to non-residents as part of the execution of existing loan agreements concluded before March 1 of the current year is subject to immediate termination. This approach is confirmed by the clarifications of the Central Bank of the Russian Federation.

Am I allowed to grant a loan or credit in rubles to a citizen of non-amicable country?

In accordance with the general rule, this transaction can only be carried out based on the Permit.

Restrictions on remittance of funds to accounts opened in foreign banks:

Am I allowed to transfer foreign currency from my account in a Russian/foreign bank to my account in a foreign bank?

No, this transaction is prohibited under Decree 1.

Am I allowed to credit Russian rubles to my foreign account and then convert them into foreign currency?

We believe that this transaction will be recognized as a transfer of foreign currency to a foreign account, so this transaction will also be prohibited.

Am I allowed to credit Russian rubles to my foreign account?

The Decree provides no restrictions for this transaction, the transaction is allowed.

If I receive money to my account in a foreign bank from a non-resident, will this transaction be considered prohibited?

The Decree doesn’t impose new restrictions on the crediting of funds from non-residents. The current restrictions are stipulated by Article 12 of the Law on Currency Regulation. Due to the focus of Decree 1 on preventing capital outflow from Russia, in our opinion, the transaction will be recognized as permitted. There are no clarifications on this issue now.

Kindly note there is an opinion in the professional community according to which the prohibition applies to all credits of foreign currency to foreign accounts of a resident, including from non-residents.

Am I allowed to transfer foreign currency to an account in a bank located in a country which is not included in the list of non-amicable countries (for example, CIS)?

The text of Decree 1 doesn’t provide exceptions for these countries. This transaction would also be
considered prohibited.

Am I obliged to transfer foreign currency from accounts in a foreign bank to an account in a Russian bank?

The text of Decree 1 does not establish so.

Am I allowed to use foreign currency as a mean of payment in transactions with non-residents, i.e., credit funds to the account of a non-resident in a foreign bank?

The text of Decree 1 doesn’t provide limitations for these transfers. The transaction is permitted. This approach is confirmed by the clarifications of the Central Bank of the Russian Federation.

Am I allowed to transfer securities from the Russian depository to a foreign depository?

The text of the Decree doesn’t provide for restrictions on these transfers. However, restrictions may be set by the country where the respective bank is located.

Restrictions on currency transactions within real estate and securities deals with persons related to non-amicable countries:

Am I allowed to sell securities or real estate to a person who is recognized as a person associated with a non-amicable country?

Transactions involving ownership of securities or real estate carried out with persons of foreign countries committing non-amicable actions are prohibited, unless a Permit has been obtained. The prohibition applies to transactions involving both the sale and purchase of securities or real estate.

Do restrictions on securities transactions apply to both external and internal securities?

Decree 2 doesn’t specify the type of securities. Thus, transactions with both external and internal securities are subject to restrictions.

Does this prohibition apply to the sale of real estate located in the Russian Federation?

Decree 2 doesn’t specify the location of the real estate. Thus, transactions with any real estate, regardless of its location, may fall under the restrictions.

Am I allowed to buy (sell) securities or real estate from a citizen of country which is not included in the list of non-amicable countries?

The transaction is allowed without a Permit if the following conditions are met:

Seller/Buyer is not controlled by a person of non-amicable country (e.g., not a relative, affiliated person);
The party to the transaction acquired real estate/securities after February 22, 2022, not from persons of foreign countries committing non-amicable actions.

Am I allowed to donate securities to persons of foreign countries who commit non-amicable actions?

No, because the transaction results in acquisition of title by the person of a foreign country who commits non-amicable actions.

What responsibility is prescribed for committing prohibited transactions with real estate and securities?

We are waiting for clarifications from the regulatory authorities.

Common Questions:

If I am outside the Russian Federation for more than 183 days per year, do the restrictions apply to me?

A literal interpretation of the Decrees leads to the conclusion that the ban applies to all foreign currency residents of the Russian Federation, regardless of the time of their stay in the Russian Federation. Until further clarification, we recommend observing current restrictions.

What sanctions apply if I execute a prohibited currency transaction under Decree 1 and Decree 2?

The Decrees of the President of the Russian Federation dated February 28 and March 1 don’t contain provisions regulating the liability for committing illegal currency transactions. Liability must be directly stipulated by federal laws of the Russian Federation, in particular the Code of Administrative Offenses of the Russian Federation. In the meantime, the Code of Administrative Offenses of the Russian Federation currently contains a general rule regarding liability for violation of the currency regulation law of the Russian Federation, according to which the penalty for illegal currency transactions is 75- 100% of the transaction amount (article 15.25. of the Code of Administrative Offenses of the Russian Federation). We are waiting for additional clarifications from the regulatory authorities.

Due to the current situation, new currency restrictions may be introduced.

We recommend to follow the changes on the official portals of the authorities of the Russian Federation. The information presented in this alert doesn’t constitute professional legal advice.

If you have any questions, please don’t hesitate to contact us:

Sergey Gerasimov
Managing Partner

Tel.: +7 495 025 02 65
Mob.: +7 916 733 39 83
sgerasimov@privatetax.ru

Maxim Klyuchnikov
Partner

Tel.: +7 495 025 02 65
Mob.: +7 916 220 97 77
mklyuchnikov@privatetax.ru

Marina Vlasenko
Director

Tel.: +7 495 025 02 65
Mob.: +7 926 258 84 86
mvlasenko@privatetax.ru

Cash flow reports on foreign bank account of Russian residents shall be submitted by the 1^st of June (Cash flow reports submission deadline – короткая версия)

By June 1, 2020, all individuals must submit cash flow reports on their foreign bank accounts for the period of 2019.

However, starting from January 1^st, 2020 there is an exemption to the rule: submission of a report is not required if the respective account is opened in CRS or EAEU member states, and if at least one of the following criteria is satisfied:

– the amount of funds credited to the account does not exceed 600 thousand ₽; or

– account balance does not exceed 600 thousand ₽ (providing there was no crediting on the account over a year).

Failure to submit a cash flow report (on each particular bank account) may lead to imposing fines :

– from 2 to 3 thousand ₽ for a single violation,

– 10 thousand ₽ for a repeated violation.

According to the latest amendments to the Russian currency control regulations, as of 2021 the respective statements are to be submitted on non-bank accounts either (e.g. brokerage accounts).

Yours,

ALTHAUS Private Tax