The President of the Russian Federation recently signed Decree No. 254 of 4 May 2022 (“Decree No. 254”) [1]. Adding to measures already taken, Decree No. 254 establishes, from 4 May 2022, a temporary procedure for fulfilling obligations to pay profits of resident LLCs, business partnerships, and production cooperatives to their foreign participants who are from unfriendly countries or persons controlled by them regardless of the place of their registration, unless they are registered in Russia (“Unfriendly person”).
Decree No. 254 states that when there is a decision to distribute profits, payments to Unfriendly persons must follow the procedure of paragraphs 2-9 of Presidential Decree No. 95 of 5 March 2022 (“Decree No. 95”) [2], that is, with a type “S” ruble account being opened in the Unfriendly person’s name. Funds are then transferred to the Unfriendly person’s settlement accounts in rubles by permission [3].
In order to use the funds in the type “S” account, the Unfriendly person should submit an application to the credit institution that opened the account. The application procedure is determined by the Bank of Russia or the Ministry of Finance.
This temporary procedure applies to obligations exceeding: (i) 10 million rubles per calendar month, or (ii) the equivalent of this amount in foreign currency at the official Bank of Russia exchange rate on the 1st day of each month.
The Bank of Russia and the Ministry of Finance of Russia have been instructed to determine a different procedure for fulfilling obligations to pay residents’ profits to Unfriendly persons. Decree No. 254 also authorises the Bank of Russia and the Ministry of Finance of Russia to issue permits for the payment of profits bypassing the established procedure.
[1] Presidential Decree No. 254 dated 4 May 2022
[2] Presidential Decree No. 95 dated 5 March 2022
[3] Paragraph 5 of Decree No. 95; Paragraph 1.1. of the Decision of the Board of Directors of the Bank of Russia dated 18 March 2022