The Decrees of the President of the Russian Federation No. 79 of 02/28/2022, No. 81 of 03/01/2022, No. 322 of 05/27/2022, No. 618 of 09/08/2022 establish restrictions on certain transactions with individuals and legal entities from unfriendly countries and controlled persons, as well as transactions with residents of other countries, if they concern assets acquired after 02/22/2022
Such transactions can be concluded on the basis of permission from the Government Commission for Control over the Implementation of Foreign Investments in the Russian Federation
Transactions require approval if they are concluded:
- Between residents and persons of foreign states committing unfriendly acts;
- Between persons of foreign states committing unfriendly acts;
- Between persons of foreign states committing unfriendly acts and foreign persons who are not persons of foreign states committing unfriendly acts.
Subject of transactions requiring approval:
- Transactions with shares in the authorized capital and stocks, including the purchase and sale of shares (stocks), an increase or decrease in the authorized capital, option agreements and corporate agreements;
- Provision of loans and credits to persons from unfriendly states;
- Transactions resulting in the alienation of real estate;
- Transfer of payments for intellectual property to foreign accounts of copyright holders from unfriendly states;
- Subsequent transactions with objects for which permission was previously issued by the Government Commission.
What transactions need to be approved?
- Transactions with shares (stocks) and changes in the composition of participants.
Permission from the Government Commission will be required in the case of acquiring from a foreigner from an unfriendly country or selling to him shares of Russian joint-stock companies or shares in the authorized capital of limited liability companies.
It is important that transactions that actually entail a change in the proportion of ownership of participants (shareholders) require approval from the Government Commission, even if they are not related to the sale and purchase. Thus, consent will be required when increasing or decreasing the authorized capital, leaving the composition of participants, concluding option agreements and corporate agreements.
2. Transfer of ownership of real estate.
A similar situation requiring the consent of the Government Commission on Foreign Investments arises in the case of concluding transactions with residents of unfriendly countries related to the transfer of rights to real estate.
These rules also apply to all types of contracts for the transfer of real estate located in the Russian Federation: contracts of sale and purchase, donation, exchange, novation, assignment of rights of claim and any other similar transactions.
As a result, the parties to the transaction must either obtain permission or change the structure of the transaction.
3. Loans, transfers of payments to foreign copyright holders.
The approval of the Government Commission is also required for a Russian resident in the event that it is necessary to issue a loan or credit in rubles or foreign currency to an individual or company from an unfriendly foreign state.
Permission is also required in the event that a company intends to transfer a license fee for the use of a trademark or the result of intellectual activity to a foreign account of the copyright holder – a resident of an unfriendly state. At the same time, payments to some copyright holders who have not suspended their work in the Russian Federation are allowed without approval.
The procedure for obtaining permission from the Government Commission.
Preliminary preparation:
(I) Agreement of commercial terms of the transaction between the parties, signing of the term sheet;
(II) Independent valuation of assets with SRO expertise;
(III) Agreement of a discount of 50% or more of the estimated value;
(IV) Agreement of economic and technological key performance indicators for the buyer;
(V) Agreement by the parties to the transaction of a mandatory contribution to the federal budget in the amount of 15% of the value of the assets;
(VI) Obtaining consent from the Federal Antimonopoly Service of Russia (if applicable).
Collection of necessary documents:
(I) Preparation of an application to the Government Commission with information on the purposes and essential terms of the transaction, as well as the planned validity period of the permit;
(II) Formation of a set of constituent documents, certificates and certificates in relation to Russian and foreign participants in the transaction, apostillation and translation of documents;
(III) Preparation and approval of a draft agreement between the parties;
(III) Collection of documents on the beneficial owners of the parties;
(IV) Preparation of a balance sheet and information on the book value of assets (in the case of the sale of real estate).
Submission of an application and obtaining consent:
(I) Determination of the form for submitting an application: the document can be sent to the relevant authority in paper or electronic form with an electronic signature;
(II) Submission of an application in parallel to the Ministry of Finance of Russia and other relevant ministries that regulate the activities of the target company;
(III) Obtaining permission in the form of (a) an extract from the Minutes of the meeting of the subcommittee of the Government Commission and (b) a cover letter from the authority to which the permit was applied;
(IV) Preparation, conclusion and registration of a transaction for which permission from the Government Commission was requested.
Rules for filing an application to the Government Commission.
The rules for issuing permits for transactions by the Government Commission for the Control of Foreign Investments in the Russian Federation are defined in RF Government Resolution No. 295 of 06.03.2022 (last amended on 22.01.2024).
The Rules define what exactly must be indicated in the application, what supporting documents must be attached to the application, and who has the right to submit an application to the Government Commission.
What must be indicated in the application to the Government Commission?
The application must include information about the purpose, subject, content, and essential terms of the transaction, the availability and source of funds for payment under the agreement, and the planned validity period of the permit.
If the application concerns transactions with shares in the authorized capital or stocks, it must additionally include the number of such shares, stakes, or votes attributable to such shares or stakes.
What documents should be attached to the application to the Government Commission?
- State registration document or identity document (passport) of the applicant;
- Constituent documents of the applicant – legal entity;
- Information on beneficiaries, beneficial owners and controlling persons;
- Balance sheet and information on the book value of assets (in the case of real estate transactions);
- Report on an independent assessment of the market value of the transferred shares or stocks and the opinion of an SRO expert;
- Key performance indicators established for the buyer of shares or stocks;
- Draft agreement between the parties to the transaction;
- Inventory of submitted documents.
If the original documents are drawn up in a foreign language, they are submitted with a notarized translation and an apostille. The documents are submitted stitched and certified with a seal. If the applicant is an individual, the documents are certified by a notary. Who has the right to submit an application to the Government Commission? Any party to the transaction may submit an application and supporting documents to the Commission: both a resident of the Russian Federation and a resident of an unfriendly or friendly foreign state. The application may be submitted to the relevant ministry by a representative of the applicant under a notarized power of attorney. Within what time frame must the Government Commission consider the application?
Unfortunately, the Rules for issuing permits by the Government Commission do not specify the time frame for considering applications for permits. Taking into account possible additional requests, as well as regularly changing non-public regulations for considering such applications, the average time frame for making a decision on applications is 3 months.
The Government Commission may refuse in 90% of cases if the transaction is worth less than $50 million and is not an important infrastructure project for the Russian state. Or if a citizen of an unfriendly state has ever tried to act outside the interests of Russia or violated Russian legislation.
For violation of counter-sanctions, the Russian government, primarily the Ministry of Finance, proposes to fine companies from unfriendly countries that managed to circumvent Russia’s sanctions legislation by 40% of the transaction amount.
The Ministry of Finance proposes to supplement the Code of Administrative Offenses with a new article “Failure to comply with measures of influence (counteraction) aimed at ensuring the financial stability of the Russian Federation.” The norm provides for liability for transactions or operations that violate the prohibitions established by anti-sanction legislation. The explanatory note states that the purpose of the changes is to protect the interests of the country from unfriendly actions of foreign states. For such violations, it is planned to establish fines for individual entrepreneurs and legal entities in the amount of 20 to 40% of the transaction amount. The same amount is to be collected from officials. At the same time, the bill notes that the total amount for them cannot exceed 30,000 rubles. The document notes that in some situations, failure to comply with the established measures does not have a monetary expression, for example, if a gratuitous transaction is made. In such cases, the Ministry of Finance proposes to establish a fine for citizens from 4,000 to 5,000 rubles, for officials – from 40,000 to 50,000 rubles, and for legal entities – from 800,000 to 1 million rubles. The bill establishes that the statute of limitations for administrative liability is two years from the date of the violation. The Ministry published the bill on the federal portal of draft regulatory legal acts.
The article was prepared by lawyers and experts of the legal center “Geoburo” on 15.08.2024.