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Clarifications of the Ministry of Finance on restrictions on the sale of shares by foreign investors in Russia

Clarifications of the Ministry of Finance on restrictions on the sale of shares by foreign investors in Russia

Since the beginning of September, the sale of shares in Russian limited liability companies (OOO) by shareholders from “unfriendly” states has been subject to the permission of a special Government Commission. The Russian Ministry of Finance has since commented on some unclear issues related to the application of Decree No. 618 (Letter No. 05-06-14RM/99138 dated October 13th, 2022).

In its letter, the Ministry of Finance specifically indicated that sale or acquisition of shares in the share capital of a legal entity may require the approval of the Government Commission, in particular, the following transactions are affected:

the transfer of a share in the share capital of an OOO to the shareholders of the OOO or to a third party;
the acquisition of a share in the share capital of an OOO by the OOO itself;
withdrawal of a shareholder from the OOO;
conclusion of a shareholders' agreement;
transfer of a share in an OOO to an investment fund;
convertible loan agreement, agreement to pledge OOO shares, agreement to manage OOO shares;
restructuring of an OOO;
agreement on transfer of powers of the sole executive body, trust administration, agency and other agreements, the subject of which is the exercise of rights attached to OOO shares,
other transactions that directly and/or indirectly lead to the establishment, modification or termination of rights of ownership, use or disposal of OOO shares or other rights that allow to determine the terms of management of OOO or the terms of its business activity.

It was also clarified that for the application of Decree No. 618 the approval of the Government Commission is not required for transactions aimed at the implementation of a final court decision, carried out against the person’s will. In addition, the liquidation of a Russian OOO should also not be subject to approval. The practice of notarization of liquidation resolutions without an approval is already established.

Actions such as making amendments to the articles of association (in particular the voluntary reduction of the share capital) and holding of meetings on issues not related to the sale of shares are not mentioned and should therefore be possible to carry out without approval. It is not yet clear how practice will develop and, in particular, how notaries will implement the regulation. Transactions carried out without a permit are generally void.

The letter also clarifies that legal entities from foreign states are not considered “unfriendly” if

they are controlled by Russian persons (the final beneficiaries are Russian persons), even if such control is exercised by foreign legal entities, provided that the information on control has been disclosed by the Russian persons to the tax authorities of the Russian Federation;
they are under control of legal entities or individuals whose personal law is the law of a foreign state that is not an unfriendly state, provided that such control was established before March 1st, 2022;
persons under the control of a foreign state that is not a foreign state committing unfriendly acts, provided that such control was established before March 1st, 2022.

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27.10.2022

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