06.05.2022 Александр Сологуб

News digest (May 6)

Dear colleagues and partners! News: we present the new overview of changes in the legislation of the Russian Federation…

Key rate

Since April 29, 2022, the key rate has been reduced from 17% and now amounts to 14% per annum.

The Press Release of the Bank of Russia dated 29.04.2022.

Reduction of the value of the key rate can be considered as a positive change, which not only affects the interest on loans, but also reduces the amount of interest accrued on the basis of the key rate indicator (refinancing rate) for late payment of taxes (fees) or interest on monetary obligations.

New sanctions measures

The President signed the Decree introducing special retaliatory economic measures in response to the sanctions imposed on Russia:

  1. Prohibition on concluding transactions with individuals / legal entities under sanctions imposed by the Russian Federation (the prohibition applies to conclusion of transactions by any residents of the Russian Federation: individuals, legal entities, as well as public authorities).
  2. Prohibition on fulfillment of obligations under completed transactions to individuals / legal entities under sanctions imposed by the Russian Federation.
  3. Prohibition on financial transactions, beneficiaries of which are individuals / legal entities under sanctions.
  4. Prohibition on export of products, raw materials, production (extraction) of which is carried out on the territory of the Russian Federation, if they are supplied in favor of individuals / legal entities under sanctions, or are supplied from the Russian Federation directly by individuals / legal entities on whom sanctions have been imposed.
  5. The Government of the Russian Federation has been instructed to approve the list of persons to be under sanctions.

The Decree of the President of the Russian Federation “On Application of Retaliatory Economic Measures Caused by the Unfriendly Actions of Some Foreign States and International Organizations” dated 03.05.2022 № 252.

The Presidential Decree concerns individuals / legal entities that interact with persons who Russia has imposed sanctions on. In fact, it fixes the consequences of sanctions to be imposed on a number of foreign legal entities and individuals. The Decree does not explain how debts to foreign companies will be “written off”. Recognition of these restrictions by force majeure circumstances seems troublesome, since in the current situation each party to the contract may not recognize retaliatory sanctions as mandatory. That is, in each country disputable situations can be treated differently.

Restrictions on payments of dividends for members of companies from “unfriendly” countries

The Presidential Decree introduces the temporary procedure for fulfilling obligations to pay dividends by resident companies of the Russian Federation to participants of the companies that are foreign legal entities from “unfriendly” countries. If a Russian company decides to pay dividends, their payment will be carried out, in accordance with the Presidential Decree № 95 dated March 5, 2022 “On the Temporary Procedure for Fulfilling Obligations to Certain Foreign Creditors”, if the amount of dividends exceeds 10 million rubles per month (or the equivalent of the amount in foreign currency):

  • the transfer of dividends is carried out to the type “C” account to be opened by the resident of the Russian Federation in a credit institution in the Russian Federation for the foreign participant;
  • the money is credited to the type “C” account in rubles.

However, the Ministry of Finance has been given the authority to determine the different procedure for fulfilling obligations to pay dividends to foreign participants. Moreover, the Ministry of Finance has the authority to issue the permit for payments of dividends without following the procedure established by the President.

As of today, it is not known how the Ministry of Finance will implement its new authority.

The Decree of the President of the Russian Federation “On the Temporary Procedure for Fulfilling Financial Obligations in the Field of Corporate Relations to Certain Foreign Creditors” dated 04.05.2022 № 254.

On the one hand, this measure restricts the outflow of capital from the Russian Federation. On the other hand, the state actually restricts the rights of foreign shareholders/participants of Russian companies to income from investments. However, the provisions of the Decree set the monthly limit, i.e. it is possible to pay dividends in installments for several months to bypass the established threshold of 10 million rubles. This staged procedure for dividends payment is likely to be assessed in future, in judicial practice or in explanations of the government bodies.

New rules for acquisition/alienation of real estate by foreign residents – individuals

According to the Presidential Decree, no permission of the Government Commission for Monitoring the Implementation of Foreign Investments in the Russian Federation is required for carrying out transactions:

  • entailing the emergence of ownership rights to immovable property acquired by citizens of “unfriendly” countries;
  • aimed at alienation of immovable property by citizens of “unfriendly” countries, provided that settlements on such transactions are carried out via the type “C” account.

The Decree of the President of the Russian Federation “On the Temporary Procedure for Fulfilling Financial Obligations in the Field of Corporate Relations to Certain Foreign Creditors” dated 04.05.2022 № 254.

From the positive news… Thus, the previously established procedure for citizens of “unfriendly” countries to make transactions with Russian real estate (only through the permission of the Government Commission) has been simplified. However, the requirement to make payments via the special account in a Russian bank still remains an encumbrance (not every foreign citizen is ready to receive money for real estate via the type “C” account and in rubles). Regarding real estate transactions, in which at least one of the parties is an organization from an “unfriendly” state, the restrictions imposed remain.