New amendments to foreign currency legislation

Pepeliaev Group advises that on 11 August 2020 amendments to the Federal Law “On currency regulation and currency control” will come into effect. The amendments extend possibilities to utilise foreign accounts of foreign branches and representative offices of Russian entities. They also introduce the obligation to submit statements on the flows of financial assets in foreign accounts, and provide various other clarifications[1].

1. Changes relating to foreign branches and representative offices

Article 12 of the Federal Law “On currency regulation and currency control” (the “Law”) has been supplemented with the following new grounds for making payments to foreign accounts of foreign representative offices or branches of resident entities:

  • the refund of a previously made payment for goods to be returned, a service which was not performed (or was performed improperly) under a transaction related to the activities of the representative office of the branch, except for foreign trade;
  • the refund of a pledge under a lease agreement for premises (the law probably refers to a security deposit);
  • the receipt of revenue from the sale of property owned by the representative office or the branch, except for revenue from foreign trade; and
  • insurance payouts from insurers who are non-residents.


Law enforcement practice has witnessed many cases when tax authorities identify that the foreign sub-divisions of Russian entities receive funds in the bank accounts in countries where the relevant sub-division is located, and impose, pursuant to article 15.25(1) of the Code of Administrative Offences, a confiscatory fine (which is between 75% and 100% of the amount of the transaction). The adopted amendments make it possible to recognise a small part of such payments as lawful; however, they fail to solve the major problem of receiving revenue from activities in the country in which the sub-division was opened.

Moreover, the fact that the law mentions twice that payments to such sub-divisions from foreign trade are disallowed, implies that those who initiated the draft law believe that it is normal when the revenue from the activities in another country (e.g. from the provision of services) is to be remitted to Russian bank accounts. The amendments to the draft law which aimed at permitting any transactions of foreign sub-divisions connected with their activities were dismissed during the preparation for the second reading.

2. Clarifications in the list of exceptions from the repatriation obligation

2.1. The new version sets out an exception which concerns non-resident customers paying residents’ local expenses during the period when facilities are constructed in foreign states (article 19(2)(2) of the Law).

It has been specified that not only payment and construction are referred to but also costs being reimbursed and facilities being modernised, and that funds may as well be received from third parties who are non-residents. In addition, it is stipulated that the residents' costs should be incurred under agreements with non-residents, whereas previously, the rule did not refer to such agreements.

2.2. For transport companies, the possibility of counterclaims being set off (article 19(2)(4) of the Law) is now extended to situations when settlements are performed in compliance with the rules accepted by international organisations in the sphere of international transport.

3. Statements on flows of financial assets

Wherever article 12 of the Law mentions cash flow statements for foreign accounts, now, the wording has changed to “statements on flows of cash and other financial assets”.

This means that statements must be filed not only in relation to account balances but also with respect to securities, among other things. Now, the forms of the statements approved by the Russian Government make room only for indicating cash; therefore, they should be expected to change as well.

The obligations for residents to submit statements in relation to accounts (deposits) in organisations of the financial market other than banks will apply starting from 1 January 2021.

4. Payments relating to credits and loans to a foreign account

Part 5.1 of article 12 of the Law is amended to allow paying to foreign accounts not only amounts relating to foreign currency credits and loans but also cash in general which was received under credit and loan agreements (provided that the previous terms and conditions concerning the list of countries and contractual terms are complied with).

comment.jpgA literal interpretation of this rule could imply that interest amounts may be paid to foreign accounts and that the principal debt under such agreements may be repaid. However, these actions would contravene the repatriation obligation according to which such amounts should be paid to an account with an authorised bank (article 19(1)(3) of the Law). Therefore, this possibility only covers agreements to which the repatriation obligation does not apply owing to the transitional provisions established for such obligation to come into effect (article 3(2) of Federal Law No. 64-FZ dated 3 April 2018).

What to think about and what to do

When liability is imposed, a law that improves the position of an offender has retroactive effect, i.e. it applies to parties who have committed an offence before such law came into force as well as to parties with regard to whom a resolution to impose a fine has not been executed (article 1.7(2) of the Code of Administrative Offences).

This approach is also applicable when rules are eased, a violation of which entails liability (Ruling No. 2017-О of the Russian Constitutional Court dated 27 September 2016, Ruling No. 306-KG17-22270 of the Russian Supreme Court dated 15 May 2018, and Resolution No. 34 of the Plenum of the Russian Supreme Commercial (‘Arbitration’) Court dated 22 June 2012).

Thus, the above law coming into effect may enable residents to refer to its retroactive effect in situations when the fines have not been collected from them yet.

Help from your adviser

Pepeliaev Group’s specialists have successful experience of representing entities and their employees before currency control authorities and courts. Our lawyers are ready to provide comprehensive legal support with regard to issues relating to the application of new rules of currency legislation.

[1] Federal Law No. 291-FZ “On amending the Federal Law ‘On currency regulation and currency control’” dated 31 July 2020.

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