New criteria and restrictions for dividends and share deals
Valeria Khmelevskaya
by Valeria Khmelevskaya
Currently, a number of transactions and operations with residents of so-called “unfriendly states” in Russia require special permission from the Sub-Commission of the Governmental Commission for the Control over Foreign Investments in Russia or from the Ministry of Finance. The procedure for obtaining these permissions was previously only specified to the extent of filing an application with the respective authority. However, requirements for granting the permissions for alienation (including sale) of shares in Russian companies and payments of dividends have since been made publicly available. It is to be noted that the following requirements are used at the discretion of an authorised authority.
Alienation of shares in Russian companies
In order for a resident of an unfriendly state to receive permission for alienation of a share in a Russian company from the Sub-Commission, the following requirements must be met:
Preparation of an independent appraisal of the market value of the assets of the company/shares;
Sale at a discount amounting to at least 50% of the above-mentioned market value;
Establishment of KPI for the new shareholders;
A lump sum payment in the amount of at least 10% of the transaction price to the Russian budget OR payment of the transaction price in instalments within 1 to 2 years.
It remains unclear how these criteria will be applied in relation to non-sale alienation (e.g. transfer by gift, contribution of a share to the net assets of another company, etc).
Payment of dividends
The restricted payments for residents of unfriendly states include returning loan amounts, payments of interest and dividends, as well as a number of other transactions. The total cumulative amount of such payments may not exceed RUB 10 million per month, whereas payments exceeding this threshold are to be credited to a special type-“C” account, with further disposal of funds being severely limited. As an alternative, special permission from the Ministry of Finance for direct payment may be obtained. For this purpose, the following criteria are relevant:
The amount of dividends to be paid must not exceed 50% of the net profit for the previous year;
The foreign shareholders must be willing to continue carrying out commercial activities in Russia;
Establishment of KPIs by federal authorities;
The company must be able to pay dividends on a quarterly basis, provided the KPIs are met.
Moreover, the Ministry of Finance will review the lookback analysis of past dividend payments, and the evaluation by government authorities of the influence of the respective company’s activities on the Russian economy, technological sovereignty, etc.
Despite the fact that the above conditions may be described as additional restrictions, they do provide some guidance for foreign companies planning to apply for said permissions. With several open questions remaining, further clarifications are expected.
Valeria Khmelevskaya is a Partner, Lawyer and Tax Consultant admitted to practice in Russia. She has over 20 years of experience of consulting in matters of Russian and international tax law. She is also the Deputy Head of the Management Board and the Chair of the Committee for Taxes and Financial Reporting of the German-Russian Chamber of Commerce (AHK) and recommended attorney of the Austrian Foreign Trade Centre Moscow (Advantage Austria). Contact Valeria.
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