Transactions with Unfriendly Residents in 2023; Brief Overview
To conduct real estate transactions between Russian residents and non-residents from countries deemed "unfriendly" by Russia in 2023, certain restrictions set by the Russian Federation must be considered. If such a transaction requires notarization, a document of agreement must be presented to the notary, along with the contract draft.
These restrictions apply solely to transactions with foreign citizens and companies from the list of "unfriendly" countries. Transactions with foreigners and companies from other countries are not subject to these restrictions.
For registering property ownership transfer in Russia from transactions with foreign parties from "unfriendly" countries, approval from the Government Commission on Foreign Investments in the Russian Federation is required, or documents proving the disclosure of control over these entities by Russian legal or physical persons to Russian tax authorities, in accordance with Russian legislation, especially if the foreign party meets the criteria of paragraph 12 of the Presidential Decree No. 95 dated March 5, 2022.
Certain real estate transactions between individual persons, specifically between Russian residents and non-residents from "unfriendly" countries, don't require approval in 2023. The criteria for these transactions were defined by the Government Commission in a decision dated March 17, 2022, and apply only to transactions conducted by individuals. For transactions involving shares of joint-stock companies between a Russian resident and an "unfriendly" non-resident in 2023, it's necessary to assess whether the transaction falls under Presidential Decrees No. 81 of March 1, 2022, No. 737 of October 15, 2022, or No. 520 of August 5, 2022. If the transaction is covered by Decree No. 520 (related to raw material companies in the oil and gas sector), it can only be executed with the President of the Russian Federation's permission.
Transactions between Russian residents and non-residents from "friendly" states don't require Government Commission approval. However, if an "unfriendly" non-resident acquired securities after February 22, 2022, from an "unfriendly" person, approval is needed. The acquisition of additional shares and bonds of Russian issuers by non-residents is exempt from Government Commission approval under certain conditions. Relaxations do not apply to the placement of shares during the establishment of joint-stock companies.
Transactions by "unfriendly" persons with shares of financial organizations without the participation of Russian residents do not require Government Commission approval if the transaction involves "no more than one percent of the shares, stakes (contributions) constituting the charter capital of Russian credit organizations, insurance organizations, non-governmental pension funds, microfinance companies, or management companies of a joint-stock investment fund, mutual investment fund or non-governmental pension fund," or if the transaction is with shares of non-credit financial organizations not listed in point 1 of Decree No. 737.
Conducting transactions with shares in LLCs between a Russian resident and an "unfriendly" non-resident in 2023 may be limited. Since September 2022, the sale of a stake in an LLC by a non-resident from "unfriendly" countries requires requesting permission from the Government Commission. Additionally, transactions with shares within the same group of persons and additional agreements to previously concluded share transactions require approval. This mechanism (granting permissions) can block the exit of a foreign non-resident or lead to the requirement to conduct the transaction without harming the economy and on favorable terms for the Russian side.
Exceptions to these rules exist for transactions in the financial and fuel-energy sectors, but they do not affect most LLCs. If a non-resident belongs to the category of "unfriendly," the transaction is contestable without the Commission's permission. It does not matter whether the sale of a stake in an LLC is carried out by a non-resident to a resident or if a non-resident sells a stake in an LLC to another non-resident.
Moreover, the tax consequences of selling a stake by a non-resident have peculiarities, and each case requires separate analysis and calculations. Over the past year, Russia has suspended, amended, or terminated some international agreements on the avoidance of double taxation with "unfriendly" countries, so there is no uniform solution for determining the tax consequences of selling a stake in an LLC by a non-resident, and each case requires separate analysis and calculations.
