Russian counter measures. Recent developments ( 12 january 2023 update)
Governmental Commission on Foreign Investments revised rules on the sale of assets and the payment of dividends
On 30 December 2022, Russian Governmental Subcommission of the Commission of the Ministry of Finance on Foreign Investments (the – Commission) published revised rules and criteria for authorization of the sale of assets in Russian companies involving persons from unfriendly states (as defined by the Government, including the EU and the United States), as well as payment of dividends to such foreign persons.
The new document provides for the following requirements necessary for the transaction to be approved:
- Purchase of shares in Russian companies involving foreign persons from unfriendly states
- Market appraisal report. Provision of an independent market appraisal of the assets;
- Discount. Sale of the assets with a discount of at least 50 % of the market price of the assets indicated in the appraisal report;
- KPIs. Provision of the key performance indicators for the new shareholders / owners;
- Installment payments and / or exit tax. Obligation to make payments in installments for one to two years and (or) obligation to voluntarily transfer at least 10 % of the price of the transaction (operation) to the federal budget. The wording of this provision is ambiguous. It is presumed that the rule should apply alternatively, i.e., either the price is paid in installments, or in a different manner but with an exit tax. However, the wording leaves some discretion to the Commission: namely, the Commission formally may still require a 10 % payment even if the applicant provides the installments payment schedule.
The above criteria are obligatory; however, the wording of the document allows for certain digression to be made by the Commission. Namely, according to the document the Commission’s decision should “as a rule” be based upon mentioned criteria when reasonable.
- Payment of dividends to foreign shareholders from unfriendly states
- Amount of payment. The amount of the profit / dividends paid does not exceed 50 % of the net profit of the entity for the past year
- Retrospective analysis. Provision of retrospective analysis of dividend payments for the previous periods
- Continuation of business. Foreign shareholders should demonstrate their commitment to continue commercial activity in Russia.
- Significance of business. The Commission will consider the position of federal agencies and the Bank of Russia on the significance of the activity of the organization and the impact it has on technological and production sovereignty of Russia and its regions, their socio-economic development. The position is provided to the commission by the relevant authority when it submits the application;
- KPIs. Federal agencies will establish quarterly key performance indicators for the companies that request authorization to pay dividends. The KPIs will be provided to the commission by the relevant authority when it submits the application;
- Quarterly dividends. The company may pay dividends quarterly if it meets the set KPIs.
The above criteria are obligatory; however, the wording of the document allows for certain digression to be made by the Commission. Namely, according to the document the Commission should “as a rule” refer to the mentioned criteria when making a decision.
We are actively following the developments related to those issues and are fully prepared to advise our clients.