It has been reported in public sources that the Sub-Commission of the Government Commission for Control of Foreign Investments in the Russian Federation (the “Sub-Commission”), which issues permits for the sale of Russian assets by companies from ‘unfriendly’ countries, has decided to tighten the conditions for the exit of foreign companies from the Russian market.
Thus, the Sub-Commission set new conditions for the sale of Russian assets of “unfriendly” foreign persons (or persons under their control):
1. Mandatory discount on the asset being sold in the amount of at least 60% of its market value confirmed by a recommended appraiser. (previously, the Extract from the decision of the Sub-Commission dated 07.07.2023 No. 171/5 established discount requirement in the amount of at least 50% of the value of the asset).
2. The obligation to send to the Russian budget a voluntary contribution of not less than 35% of the value of the asset being sold (compared to the previous contribution of 15%), subject to the following conditions:
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25% of the market value within one month from the date of the transaction;
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5% of the market value within one year from the date of the transaction;
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5% of the market value within two years from the date of the transaction.
The amendments do not stipulate which party is obliged to make a voluntary contribution to the budget. On the one hand, the nature of such a voluntary contribution looks like an “exit tax” - implies that the contribution should be made by the seller exiting the Russian market. On the other hand, under the updated conditions in such a case the seller shouldsell the asset at 5% of its market value, which significantly reduces the attractiveness of such transactions. Also, payment of the “exit tax” may be complicated for foreign persons due to their obligations to comply with sanctions in foreign jurisdictions (for instance, OFAC requires applying for a special license).
Given this, we believe that in the current environment, foreign sellers will seek to shift the obligation to pay the voluntary contribution to the budget to buyers. This is also confirmed in informal communications with the relevant ministries through which applications are to be submitted.
3. Obtaining the mandatory consent of the President of the Russian Federation for a transaction involving the purchase or sale of Russian assets with a market value of more than 50 billion rubles.
We also note that the officially updated terms and conditions have not been published in the extract format communicated by the Ministry of Finance of the Russian Federation. Nevertheless, one of the federal executive authorities confirmed to us during informal communication that the new rules apply from 9 October 2024, and all applications already submitted but not considered by the Sub-Commission must be brought into compliance with new rules. At the same time, the other requirements set out in the Extract of 07.07.2023 No. 171/5 remain in force.