Russian Government Commission Updates Requirements for Obtaining Authorizations for Transactions
On July 12, 2023, the new minutes of a meeting of the Russian Government Commission on Control over Foreign Investments in the Russian Federation (the “Russian Government Commission”) regarding the rules for obtaining authorizations for closing transactions in interests or shares and paying dividends were published on the website of the Russian Ministry of Finance [1]. These new minutes have cancelled the previous Minutes No. 118/1 dated December 22, 2022 and Minutes No. 143/4 dated March 2, 2023.
The new minutes formalize the rules that have already existed in practice for some time and add some new rules. There have been no changes made to the conditions for obtaining authorizations for paying dividends.
What are the conditions on which it is now possible to close transactions in interests and shares with persons from so-called ‘unfriendly’ countries?
Below we will discuss the conditions the new minutes have introduced for closing transactions in interests and shares with persons from so-called ‘unfriendly’ countries:
- It is no longer allowed to use a deferred payment of the purchase price instead of a voluntary contribution to the Russian federal budget. The parties were previously allowed to provide for a deferred payment of the purchase price, in which case they would not be required to pay a voluntary contribution. Now, a voluntary contribution must be paid, whether there is a deferment or not. The amount of a voluntary contribution remains unchanged—5% or 10% of the market value of interests/shares (depending on the discount on the transaction). Please note that in practice, the Russian Ministry of Industry and Trade proposes that applicants should assume the obligation to pay a voluntary contribution at 15%.
- According to the new minutes, a voluntary contribution must be paid within three (3) months after the closing of a transaction. This eliminates the uncertainty about when exactly a voluntary contribution is to be paid.
- Payment for interests/shares to persons from so-called ‘unfriendly’ countries must be made:
- either in type C bank accounts, or
- in Rubles within Russia’s banking system, without transferring funds outside of Russia.
If you need to pay the transaction price in the seller’s foreign bank account, you will be required to provide for a deferred payment of the purchase price. However, there are no specific conditions set out for such deferment.
- The key performance indicators (KPIs) must, inter alia, include keeping the technological potential and the main type of economic activity of the acquired company, preserving jobs, and fulfilling the obligations under the agreements (contracts) that the acquired company has entered into with other legal entities.
- If closing a transaction necessitates obtaining authorization from other government authorities, for example, the Russian Anti-Monopoly Service, the applicant must also have such authorizations in place. It still remains unclear whether such authorizations from other government authorities will be required as early as when the Russian Government Commission issues authorization or when the transaction is implemented. In practice, until now, it has not been required to present authorizations from other government authorities for a transaction as early as when an applicant files an application for obtaining authorization with the Russian Government Commission.
- The possibility of granting the seller a buyback option has been considerably limited: in the event of a buyback, the price of an acquired asset must correspond to the market value as of the date such an option is exercised, and the option term must not be longer than two (2) years after the date of the initial transaction.
- An appraisal report and an SRO opinion must be issued by the companies that are on the list of those recommended by the Russian Ministry of Finance. In practice, this rule has applied before, but now it has been explicitly formalized in the minutes. We believe that this requirement does not fully agree with the provisions of the law on the protection of competition.
- The acquisition of shares in public joint-stock companies is subject to special conditions—i.e., an obligation to float up to 20% of the acquired shares on the stock exchange.
The new minutes reflect the existing trend towards making it harder for foreign investors to withdraw from Russia.
If you have any questions or need any further assistance, please send an email to Anton Kabakov or Alexandra Yudina.
Sincerely,
Forte Tax & Law Team
[1] https://minfin.gov.ru/ru/document?id_4=302853-vypiska_iz_resheniya_podkomissii_pravitelstvennoi_komissii_po_kontrolyu_za_osushchestvleniem_inostrannykh_investitsii_v_rossiiskoi_federatsii_ot_7_iyulya_2023_goda__1715. (in Russian)