On 17 December 2024, amendments came into effect regarding the rules for obtaining permits from the Governmental Commission for Control over Foreign Investments (“Commission“). These amendments pertain to the fulfillment by Russian residents of obligations under loans, credits, financial instruments, as well as the payment of dividends (profits) to “unfriendly” non-residents.
Key Changes
- Involved Authorities: Application for a permit is submitted to the Ministry of Finance (“Minfin”) and the federal authority regulating the debtor company’s area of activity (“Supervisory Authority“), which provides the Commission with its opinion on the advisability of issuing the permit.
- Key Performance Indicators (KPIs): The debtor company must commit to meet the KPIs. The KPIs are determined based on the position of the Supervisory Authority, are typically approved for a period of at least three years, and may include the following indicators:
- Preservation of technological capacity;
- Continuation of core activities and retention of jobs;
- Achievement of production and financial targets.
- Review of Past Payments: To approve dividend (profit) payments, information on such payments over the past five years must be provided. Previously, Minfin considered past payments, but the extent of the review was not specified.
Context of the Amendments
In September 2024, the President of Russia transferred to the Commission the authority to issue such permits (excluding financial organizations). Previously, the permits were issued by Minfin with the consent of Bank of Russia. The amendments establish rules for issuing permits, the absence of which had effectively prevented the Commission from approving such payments.
Previously, Minfin and Bank of Russia established guidelines for granting profit distribution permits, which included the following conditions:
- General conditions:
- The payment amount does not exceed 50% of net profit for the previous year;
- The company continues its activities in Russia and commits to meeting the KPIs;
- Dividends (profits) are paid quarterly upon meeting the KPIs.
- Alternative condition:
- Profit payments within the limits of investments made by foreign creditors into the Russian economy after 1 April 2023.
We expect the Commission to follow established approaches, but do not rule out changes, particularly given the current trend towards stricter Commission clearance practices.
Outlook
The resumption of issuing permits, especially for dividend payments, could have a positive impact on both foreign companies continuing operations in Russia and those planning to exit. The new rules will allow for the approval of business sales transactions with dividend payments or repayment of loans by subsidiary Russian companies without a separate application to Minfin, which will reduce costs and speed up the authorization process.
*** Nordic Star Law Offices team will be happy to assist in the approval of transactions and payments with the Commission in accordance with the current requirements.