Russia makes money transfers abroad more difficult

In response to the Western sanctions, Russia is making it more difficult to transfer foreign currency abroad.

While the disbursement of loans by Russian companies or natural persons (“residents”) to foreign borrowers (including within group structures) as well as the transfer of funds by residents to their own accounts abroad was already prohibited starting from 28 February 2022, the payment of dividends from Russian LLCs and the fulfilment of payment obligations from existing contracts for the supply of goods and services is currently (as of 1 March 2022) still permissible. However, it is likely that transferring such payments abroad, especially in the form of dividend distributions, will also soon be prohibited or will require approval.

Foreign investors in Russia should therefore use the window of opportunity that still exists to repatriate funds from Russia, especially from their Russian subsidiaries.

While the easiest way to repatriate funds is to settle outstanding contractual liabilities (e.g. by not utilising the periods allowed for deferred payment), this is often not sufficient to repatriate liquidity in the desired amount.

This normally requires distributing dividends.

For Russian LLCs (OOOs) dividend distribution resolutions can generally be made at any time by the shareholders’ meeting of the relevant Russian subsidiary, provided that all shareholders are present. They must, however, be made before a Russian notary public, unless this requirement has been effectively waived in the articles of association or by a prior resolution of the shareholders’ meeting. The notary public usually requests numerous documents from the company and the shareholders in preparation for the meeting. In addition to the notary, if one is involved, the account-holding banks of the Russian subsidiaries also require certain documents to be submitted before the dividend is paid out. As a rule, these are, in addition to the dividend distribution resolution: certified and apostilled powers of attorney for the representatives of the shareholders at the meeting, certified and apostilled excerpts from the commercial register of the shareholders, and, if applicable, tax residency certificates.

Schedule for distributing dividends from a Russian LLC

If companies are currently considering distributing dividends, we advise them to start the necessary preparatory actions immediately. In principle, the following schedule should be followed:

Step 1:

Check whether the shareholders’ meeting of the Russian subsidiary is to be held before a Russian notary public

Step 2:

Clarify the required package of documents and the formal requirements to be met with regard to the individual documents with the subsidiary’s account-holding bank (which should generally not be a bank subject to sanctions from the US or EU), as well as with the Russian notary, if one has to be involved

Step 3:

Obtain the required documents in the prescribed form and, at the same time, examine any implications under sanctions laws

Step 4:

Draft and execute the dividend distribution resolution (before a Russian notary if necessary)

Step 5:

Transfer the dividend