Additional Rules for the Fulfillment of Financial Obligations in Corporate Relations with Foreign Creditors

Decree of the President of the Russian Federation No. 254 of May 4, 2022 (“Decree No. 254”) establishes additional rules for the fulfillment of financial obligations in corporate relations with foreign creditors and clarifies the procedure for the implementation of several previously published Presidential Decrees¹.

Below is the review of the main changes provided for by the Decree No. 254.

1. The list of transactions for which the consent of the Government Commission is not required is clarified

Under sec. 5 of the Decree No. 254, it is not required to obtain a consent of the Government Commission in accordance with Presidential Decree No. 81 to carry out the following operations:

Real estate transactions:

1. Transactions where foreign citizens of unfriendly states acquire ownership of real estate;
2. Transactions where foreign citizens of unfriendly states alienate the real estate, provided that settlements are made using a type “C” account;
3. Gratuitous transactions with real estate between spouses or close relatives, if a party is a citizen of unfriendly state;

Transactions made in accordance with Federal Law No. 214-FZ of 30.12.2004 (on participation in the shared construction of apartment buildings and other real estate objects):

4. Transactions made under the said Federal Law, if the participants in the shared construction of apartment buildings and/or other real estate objects are:

   (a) foreign persons associated with unfriendly states, or

   (b) Russian organizations controlled by such foreign persons;

5. Transactions entailing the emergence of ownership of premises in apartment buildings and/or other real estate objects, if the party to the transaction is:

   (a) a foreign person associated with foreign unfriendly states; or

   (b) Russian organization controlled by such foreign person;

Transactions with shares (participation interest):

6. Transactions entailing the emergence of ownership rights to additional shares (participation interest), bonds of Russian legal entities that meet simultaneously the following criteria:

   (1) a foreign person from unfriendly state is a party to the transaction and is included in the same group of persons with the Russian legal entity based on the presence of more than 50% of voting shares (participation interest) in the authorized capita²;

   (2) payment under the transaction is made in rubles;

7. Transactions involving the acquisition of additional shares (participation interest) of Russian organizations by persons of unfriendly states, unless this leads to the right to directly or indirectly dispose of more than 25% of the shares (participation interest) of the authorized capital of the Russian organization.

2. The list of foreign persons associated with unfriendly states is clarified

The following persons are not recognized as foreign persons associated with unfriendly states for the purposes of subparagraph "a" of paragraph 1 of Presidential Decree No. 81 and Presidential Decree No. 95, provided that the control is established before March 1, 2022 (sec. 4 of the Decree No. 254):

• persons controlled by foreign organizations and individuals, provided that the place of establishment of such organizations and the citizenship of such individuals is not an unfriendly state;
• persons under the control of a foreign state that is not related to foreign unfriendly states.

3. A special procedure for paying profits to foreign shareholders

A temporary payment of profit distribution to the foreign persons connected with the unfriendly states if these persons are shareholders of the following Russian entities (sec. 1 of the Decree No. 254):

• Limited liability company
• Partnership
• Production cooperative

The payment of profits to such foreign shareholders is made in accordance with the clauses 2-9 of the Presidential Decree No. 95 (implies, inter alia, using a type "C" account).

A different procedure for fulfilling the obligations to pay the profits to such foreign shareholders may be established by the Bank of Russia (with respect to financial organizations) or the Ministry of Finance of Russia (with respect to other entities). Also, these bodies are authorized to obtain a consent for the distribution of profits without observing the procedure provided for by Decree No. 254.

The Decree No. 254 entered into force on May 4, 2022. Further explanations on its implementation can be provided by the Bank of Russia.





¹ Presidential Decrees No. 81 of March 1, 2022; No. 95 of March 5, 2022, etc.
² Clause 1, Part 1, Article 9 of Federal Law No. 135-FZ of July 26, 2006 "On Protection of Competition"