Restrictions on sale of shares in Russian companies to shareholders from “unfriendly states”

On September 8th, 2022 the President of Russia signed a Decree which made the sale of shares in Russian companies subject to approval (Decree No. 618 of September 8th “On special procedure for specific transactions between specific persons”). The decree has already been published and thus entered into force.

The decree applies to transactions with shares in Russian limited liability companies when parties to such transactions are affiliated with “unfriendly states”. This includes, in particular, all western states. The approval clause also applies to sales to Russian individuals or legal entities.

Currently, such transactions are permitted only following the approval of the Government Commission for the Control of Foreign Investment in the Russian Federation. A more detailed procedure is to be defined by September 19th.

At present it is not at all clear whether it will be possible to obtain the approval of the Government Commission and, if so, under what conditions. Taking into account the aim of the decree to exclude negative consequences for the Russian economy, the approval seems to be attainable as long as the relevant Russian company continues to operate.

The decree applies not only to sale and purchase transactions, but also to all legal transactions that directly or indirectly result in the establishment, change or termination of rights of ownership, use or disposal of shares, as well as other rights allowing to obtain control over Russian limited liability companies.

A similar approval procedure has already been introduced in March 2022 for transactions with securities of Russian companies for “unfriendly” non-residents.

The decree does not apply to transactions involving the purchase of shares in Russian strategic enterprises, oil refineries, manufacturers of equipment for the fuel and energy complex, and banks with investors from “unfriendly states”. They are already prohibited from August 5th, 2022 until the end of 2022.

The requirements of the decree do not apply to residents of “unfriendly states”, controlled by Russian citizens or legal entities, if these beneficiaries have disclosed the relevant information regarding the control to the Russian tax authorities. The same exemption applies to residents of “unfriendly states” who are under the control of persons from so-called “friendly states” provided that such control was established before March 1st, 2022.