by Sergei Orlov, Maria Shangina

Until recently, one of the important issues to be considered by the parties to a transaction of acquisition of stock or ownership interest in a Russian company was compliance with Russian currency– control legislation.

Russian currency-control law used to impose various restrictions on payments in roubles and foreign currency between residents and non-residents.

In particular, payments for stock or ownership interests in Russian companies could only be made in roubles, and triggered a requirement to use so-called “special accounts,” which a non-resident had to open in case of a sale or acquisition of shares or ownership interests in Russian companies to or from a Russian resident.

For the past several years, these and many other currency law restrictions have been gradually lifted.

• Residents and non-residents are no longer required to use special bank accounts for payments under certain transactions (such as obtaining loans or conducting operations with non-Russian and Russian securities, respectively). Non-residents were required to open such special bank accounts in roubles.

• Mandatory reserve requirements, i.e., the requirements to deposit a portion of the purchase price at a non-interest bearing account with a Russian bank, have been abolished. These requirements could be triggered in case of transactions with some non-Russian and Russian securities, export of goods, loans between residents and non-residents, foreign bank account operations, and in certain other cases.

• Non-residents are no longer required to secure due performance of their obligations in case of advance payments by residents or deferred payments by non-residents.

• Non-residents are no longer required to use accounts with authorized Russian banks to obtain rouble-denominated loans from residents.

• Residents and non-residents are no longer required to use only roubles as the currency of payment for Russian securities.

• Residents are no longer required to obtain prior registration with Russian tax authorities of their bank accounts with foreign banks.

• Residents are no longer required to sell part of their currency proceeds for roubles in the Russian domestic currency market.

  However, despite significant liberalization of currency regulation, certain currency law restrictions continue to exist. In the business context, the following restrictions are still applicable:

• With some exceptions, payments in foreign currency between residents are still prohibited;

• Residents are still required to notify tax authorities of opening foreign bank accounts and crediting funds to such accounts is still limited;

• Residents, except individuals and certain other categories of residents, are still required to provide to tax authorities updates on the status of their foreign bank accounts;

• Residents, with a limited number of exceptions, are still required to ensure that payments due to them from non-residents are credited to the residents’ bank accounts opened with authorized Russian banks, and that funds paid to non-residents for goods and services that have not been provided to residents are credited back to their bank accounts with authorized Russian banks;

• Residents are still required to prepare and file with their banks so-called “transaction passports” for certain transactions with non-residents, such as loans, international sales of goods and services, regardless of the currency of payment; and

• Payments between non-residents in Russia can be made only through accounts with authorized Russian banks.

• On the whole, a favorable economic situation in the country, including growth of gold and foreign exchange reserves, stability of the rouble and other macroeconomic indicators, allowed the Russian government to give up stringent currency regulations. Potential investors in Russian companies have benefited from the liberalization of the Russian currency regulation and currency control, and the importance of these developments in helping make Russia an attractive market cannot be overemphasized.

  For more information about the matters discussed in this article, please contact Vinson & Elkins LLP attorneys.

  Sergei Orlov, Maria Shangina,

  Vinson & Elkins LLP

   Novinsky Boulevard, 31, 6th floor

  123242 Moscow, Russia

  Tel.: 7.495.544.5800

  Fax: 7.495.544.5801