9. Currency control

General

The Currency Control Law and related regulations still contain a number of restrictions which should be taken into consideration when dealing with transactions between residents and non-residents (in particular when importing and exporting goods and capital); and when importing and exporting foreign currency in cash.
Moreover, since 2022, Russia has introduced extensive countersanctions measures. These do not form part of currency regulation, yet they significantly restrict numerous transactions.

Currency transactions

Currency transactions between residents
The following persons are considered to be “residents” for the purposes of the Currency Control Law:
· Citizens of the Russian Federation;
· Foreign nationals and stateless individuals who live permanently in Russia on the basis of a residence permit;
· Legal entities duly registered under Russian law (with the exception of the so-called “international companies”¹);
· Branches and representative offices of Russian legal entities located outside the Russian Federation;
· Diplomatic representatives, consular offices and other official representatives, permanent representative offices at the international organisations and some other official representative offices of the Russian Federation and its bodies; and
· The Government of the Russian Federation, regions, and municipal units of the Russian Federation.
Generally, foreign currency operations between residents are prohibited, although there are some exceptions. For example, residents may borrow from, and then repay to, Russian authorised banks² in a foreign currency. Contracts in Russia may be concluded with reference to foreign currencies. However, the actual payment must be made in Russian roubles. This can lead to exchange rate differentials which may arise between the date the transaction is entered into and the payment date.
Certain transfers of foreign currency and roubles are deemed to be currency operations, with the effect that certain limitations exist for residents when transferring funds from their accounts, whether held in Russia or abroad, to either accounts they hold abroad or to those held by third parties.
Residents are obliged to notify tax authorities regarding opening, closing and change of details of their accounts abroad, as well as report on their accounts and electronic payment systems abroad. In addition, residents belonging to multinational groups are obliged to report account of other group entities in some cases.
In addition, residents qualified as politically exposed persons are prohibited from opening accounts abroad, holding currency or valuables in foreign banks or entering into transactions with foreign financial instruments.
Currency transactions between non-residents
The following persons are considered to be “non-residents” for the purposes of the Currency Control Law:
· Foreign nationals who do not qualify as residents;
· Legal entities and all other organisations that are registered under the legislation of a foreign jurisdiction and located outside the Russian Federation;
· Russia-located representative offices and branches of legal entities or other organisations registered under the legislation of a foreign jurisdiction and located outside the Russian Federation;
· Diplomatic representatives, consular offices and other official representatives of foreign countries, as well as international and intergovernmental organisations that are located in the Russian Federation; and
· Legal entities having the status of an “international company”.
Payments in any currency are permitted without restriction between non-residents, provided that any such payments in roubles within Russia are made to and from those non-residents’ accounts opened with Russian authorised banks Payments in cash may not exceed RUB 100,000 or the equivalent in a foreign currency. Settlement under rouble transactions for sale of securities between non-residents is also permitted, although it can be subject to Russian securities market, anti-monopoly and other regulations.
Currency transactions between residents and non-residents
Foreign currency transactions between residents and non-residents are also generally permitted subject to a few specific restrictions.

¹ Federal Law “On International Companies” No. 290-FZ dated 3 August 2018 permitted foreign legal entities to change their place of incorporation to Russia and obtain the status of an “international company” (by becoming a participant in special administrative areas located on the Russky and Oktyabrsky Islands). These international companies enjoy some tax benefits (please see the Tax system section) and are considered to be non-residents for currency control purposes.
² Credit institutions established under Russian law and authorised on the basis of the licences issued by the Russian Central Bank to conduct operations in a foreign currency.

Registration of foreign trade contracts

Pursuant to Instruction No. 181-I of the Russan Central Bank (the “Instruction”), since 1 March 2018, Russian authorised banks are required to generate data on foreign trade transactions of residents (in any foreign currency or in roubles) and of non-residents (in roubles), by registering contracts in respect of such transactions. The list of such transactions is formalised in the Instruction and includes, among others, cross-border transactions between residents and non-residents.
Any contract must be registered if its value is equal to or exceeds the equivalent of:
· For import contracts or loan agreements – RUB 3m; and
· For export contracts – RUB 10m.
In order to register a contract, the resident must submit to the Russian authorised bank:
· Information on the contract (including type, number, currency, date of the contract, value and date of performance of the obligations, as well as the details of the non-resident counterparty); or
· The contract itself (or an extract from it containing sufficient information for its registration).

Repatriation of proceeds

As a general rule, residents must repatriate roubles and foreign currency received from international trade and commercial activities to their bank accounts held with Russian authorised banks. However, amendments to the Currency Control Law adopted in August 2019 and April 2020 abolished the repatriation requirement in relation to certain types of contracts between residents and non-residents. Moreover, the repatriation requirement was temporarily suspended by Presidential Decree No. 529 dated 8 August 2022.
In addition to the repatriation requirement, the Currency Control Law generally requires currency residents to ensure proper (in accordance with Russian law) performance or termination of obligations under foreign trade contracts between residents and non-residents.
Applicability of repatriation requirements and possibility of restructuring and terminating cross-border obligations must be checked on a case-by-case basis.

Reassessment of payments under foreign trade contracts as sham transactions

Over the past years the definition of illegal transactions evolved in practice. Historically, it included transaction explicitly prohibited by the Currency Control Law. However, in current practice, supported by the Russian Supreme Court, it also includes cases where reality of performance of substance of transactions cannot be proved by appropriate and sufficient documental evidence.

Import and export of foreign currency in cash

Residents and non-residents can import and export cash currency subject to customs declaration of amounts exceeding the equivalent of USD 10,000.
Additionally, there is a temporary restriction on export of cash foreign currency exceeding the equivalent of USD 10,000.

Countersanctions regulations

Restricted transactions
The list of restricted transactions includes:
· Lending in Russian roubles by a resident to an “unfriendly” non-resident, lending in foreign currency by a resident to any non-resident;
· Dividend and interest payment, debt and deposit repayment to “unfriendly” shareholders (within RUB 10m per month or subject to special approval with specific conditions/payment to a special Russian account);
· M&A deals with the residents of “unfriendly” states – subject to special approval and specific conditions.
Consequences of breach / penalties
Generally, as currency control agents, Russian authorised banks must monitor compliance with currency control rules and countersanctions regulations in respect of transactions involving their accounts. Tax and customs authorities are empowered to investigate and penalise currency control violations. Prosecutors have special powers to reverse transactions in violation of countersanctions.
Breaching the currency control rules can result in administrative and criminal sanctions.
The Russian Code on Administrative Offences provides for administrative fines:
· for illegal currency transactions - up to 40% of the value of the relevant transaction and up to RUB 30,000 for company officials (or disqualification for up to three years for a repeated offence);
· for non-repatriation of funds to accounts held in Russia in due time where required by law - up to 100% of funds not credited to accounts;
· for not fulfilling or terminating contracts - up to 100% of the value;
· repeated violation by company officials may result in disqualification from holding office in the management body or the board of directors (supervisory board) and otherwise managing a legal entity for up to three years;
· for not notifying or reporting to the tax authorities when opening or changing details of accounts held with banks or other financial institutions located outside Russia; not complying with the time periods and/or form of notification required when opening or changing details of accounts in banks located outside Russia. Breaches of these rules can result in penalties of up to RUB 20,000 for individuals, up to RUB 50,000 for company officials, up to RUB 1m for legal entities.
More serious criminal sanctions may apply under the Russian Criminal Code. In particular, it stipulates that persons failing to repatriate foreign currency over RUB 100m to accounts in Russia may, depending on the amount and circumstances, face imprisonment for a term of up to five years and/or a fine up to RUB 1m or in the amount of the offender's income for up to five years.
Also, illegal transfer of funds to non-residents in the amount of over RUB 13.5m is punishable with imprisonment (up to ten years depending on the amount and circumstances) and/or fine of up to RUB 1m or in the amount of the offender's income for up to five years.