The conditions which are recommended to be taken into account by the Government Commission for Control over Foreign Investments in the Russian Federation when issuing permits for transactions involving the alienation of shares (stocks) in Russian companies by “unfriendly” foreigners and for the payment of dividends (profits) from the activities of Russian companies to such persons have been updated.
Some of the criteria were known before: for example, assessment of the market value of the alienated assets by an independent appraiser and the provision of an expert opinion to the report by an SRO, while both the appraiser and the self-regulatory organization should be included in the lists recommended by the Government Commission; sale of assets at a discount of at least 50% of the market value indicated in the report.
The obligation to make a 10% voluntary contribution to the budget also remains. If the price of the alienated asset is less than 90% of its market value, 10% is calculated from half of the market value of the asset; when selling shares (stocks) at a discount of more than 90% of their market value, 10% of their whole market value must be paid to the budget. In both cases, data on the market value of the asset from the aforementioned report of an independent appraiser are used.
Key performance indicators must still be established for the new owner and the acquired company, but now they must include the preservation of technological potential and the main economic activity of the company, preservation of jobs and fulfilment of obligations under concluded contracts. The relevant ministry monitors the achievement of the established KPIs.
The recommended criteria are set with regard to the price and term for the buy-back of stocks (shares): it should be made at the market value as of the date of exercise of the respective option with economic benefit for the former owner. In addition, the Commission’s permission for repurchase of the said assets will generally not exceed two years from the date of the original transaction.
The changes also affect the payment procedure, for which there are now 3 options. Funds may be transferred to the “unfriendly” seller to a C-type account in a Russian bank; it is also possible to make payments in rubles without transferring money outside the Russian Federation. Finally, the share purchase price can be paid to the seller's foreign account, but in this case the contract will need to include an instalment payment clause.
Additional conditions are also introduced for public joint stock companies (PAO). Thus, not later than one year from the date of purchase of stocks up to 20% of the acquired securities will have to be placed on the stock exchange, and the term of the placement should not exceed three years from the date of its commencement. Similar rules are provided for the termination of public status or liquidation of a public company, as well as in case of absorption by the PAO of another company.
As for the payment of profits (dividends) to “unfriendly” foreigners, the main requirements have not changed. As before, the amount of such payments should not exceed 50% of the net profit of a Russian company for the previous year, while the amounts of dividends paid for previous periods and the willingness of foreign shareholders to continue commercial activities in Russia are taken into account. However, whereas previously the relevant ministry independently established KPIs for Russian organizations, now this state body will only confirm that applicants fulfil their obligations to meet KPIs. The Government Commission may also authorize the payment of dividends on a quarterly basis, provided that these indicators are achieved.
Source: “Extract from the decision of the subcommission of the Government Commission for Control over Foreign Investments in the Russian Federation of July 7, 2023 N 171/5" (communicated by the Ministry of Finance of Russia on 11.07.2023 N 05-06-10/VN-32671)
Some of the criteria were known before: for example, assessment of the market value of the alienated assets by an independent appraiser and the provision of an expert opinion to the report by an SRO, while both the appraiser and the self-regulatory organization should be included in the lists recommended by the Government Commission; sale of assets at a discount of at least 50% of the market value indicated in the report.
The obligation to make a 10% voluntary contribution to the budget also remains. If the price of the alienated asset is less than 90% of its market value, 10% is calculated from half of the market value of the asset; when selling shares (stocks) at a discount of more than 90% of their market value, 10% of their whole market value must be paid to the budget. In both cases, data on the market value of the asset from the aforementioned report of an independent appraiser are used.
Key performance indicators must still be established for the new owner and the acquired company, but now they must include the preservation of technological potential and the main economic activity of the company, preservation of jobs and fulfilment of obligations under concluded contracts. The relevant ministry monitors the achievement of the established KPIs.
The recommended criteria are set with regard to the price and term for the buy-back of stocks (shares): it should be made at the market value as of the date of exercise of the respective option with economic benefit for the former owner. In addition, the Commission’s permission for repurchase of the said assets will generally not exceed two years from the date of the original transaction.
The changes also affect the payment procedure, for which there are now 3 options. Funds may be transferred to the “unfriendly” seller to a C-type account in a Russian bank; it is also possible to make payments in rubles without transferring money outside the Russian Federation. Finally, the share purchase price can be paid to the seller's foreign account, but in this case the contract will need to include an instalment payment clause.
Additional conditions are also introduced for public joint stock companies (PAO). Thus, not later than one year from the date of purchase of stocks up to 20% of the acquired securities will have to be placed on the stock exchange, and the term of the placement should not exceed three years from the date of its commencement. Similar rules are provided for the termination of public status or liquidation of a public company, as well as in case of absorption by the PAO of another company.
As for the payment of profits (dividends) to “unfriendly” foreigners, the main requirements have not changed. As before, the amount of such payments should not exceed 50% of the net profit of a Russian company for the previous year, while the amounts of dividends paid for previous periods and the willingness of foreign shareholders to continue commercial activities in Russia are taken into account. However, whereas previously the relevant ministry independently established KPIs for Russian organizations, now this state body will only confirm that applicants fulfil their obligations to meet KPIs. The Government Commission may also authorize the payment of dividends on a quarterly basis, provided that these indicators are achieved.
Source: “Extract from the decision of the subcommission of the Government Commission for Control over Foreign Investments in the Russian Federation of July 7, 2023 N 171/5" (communicated by the Ministry of Finance of Russia on 11.07.2023 N 05-06-10/VN-32671)