Russian Federation: Tax Alert 5/96 - New Currency Regulation

Last Updated: 7 June 1996
1. In this Tax Alert we consider Central Bank Regulation No. 39 of 24 April 1996 which amends the manner in which currency legislation is interpreted. The regulation enters into force from the day of its official publication, 1 June 1996, with the exception of certain provisions.

INTRODUCTION

2. Regulation 39 clarifies and amends to a certain extent the application of the Law "On Currency Regulation and Currency Control" of 9 October 1992, which limits foreign currency payments between residents of the Russian Federation and non-residents. 'Current transactions' can be carried out without any limitation, whereas 'transactions connected with the movement of capital' generally require prior approval of the Central Bank. Residents are defined as Russian enterprises or individuals living permanently in Russia, whereas non-residents are foreign enterprises, including branches or representative offices located in Russia and individuals permanently residing outside Russia.

3. Previously, all transactions connected with the movement of capital were subject to prior approval by the Central Bank of Russia. This affected in particular payment obligations outstanding longer than 180 days. Regulation 39 lists a number of exemptions from this requirement. If a transaction does not appear in the list and cannot be classified as a 'current transaction', approval of the Central Bank still generally has to be obtained for each transaction.

REPORTING REQUIREMENTS

4. If one of the exemptions listed in Regulation 39 applies, this has to be explicitly mentioned in the bank transfer order and 'individuals and legal entities' should provide banks with all documents which entitle them to such exemption. Banks are instructed to keep a record of such payments and to submit quarterly a report of all 'currency operations' to the Central Bank. The reporting obligation includes all foreign currency payments. Banks are likely to start becoming more restrictive in requiring Central Bank approval in cases where an exemption does not apply, or in unclear cases, as severe penalties are imposed for non, late or incorrect informing the Central Bank of currency operations. Banks face confiscation of the full amount of each transaction not properly reported by them.

IMPORT- EXPORT OPERATIONS

5. The new regulation particularly affects some types of foreign trade operations and also cases where goods and equipment are received by a Russian enterprise from abroad without being paid for within 180 days, and the general treatment of such transactions can be summarised as follows:

  • payment by Russian residents for imported goods, as well for works and services performed for Russian residents by non-residents, can now be deferred for over 180 days, with the exception of payments for the import of aircraft, sea and river vessels and spacecraft. This particularly affects supplier credit for a Russian enterprise receiving goods and equipment from abroad on an ongoing basis with payment outstanding longer than 180 days. Advance payments by Russian residents for imported goods and works or services are, as before, subject to the 180 day limitation;
  • advance payments received by Russian residents for goods to be exported or for services can now be paid without limitation. Once goods are cleared through customs for export or services have been performed for non-residents, the payment has to be made within 180 days.

INTERCOMPANY LOANS

6. The regulation explicitly states that currency loans outstanding longer than 180 days are not subject to prior Central Bank approval provided they are issued by 'authorised banks'. This means that currency loans made by other lenders require a Central Bank licence. This represents no change as compared to the old regime and means that intercompany loans still have to be routed through a bank registered in Russia, i.e. as a 'back-to-back bank loan'. It is also not yet clear whether 'authorised banks' will include foreign banks and credit institutions.

"OFF-SHORE" PAYMENTS

7. The new regulation confirms that foreign currency payments from non-residents to residents are not subject to Central Bank approval if the payment is credited to a foreign currency bank account with a Russian bank. This implies that, without Central Bank approval, payments made "off-shore" to Russian enterprises or individuals are in violation of the currency law, although there is no system in place to enforce this.

TRANSACTIONS NOT SUBJECT TO PRIOR APPROVAL

8. The regulation reconfirms some general principles regarding the application of the 180 day rule. The regulation contains a list of transactions which generally bear the character of an ongoing supply of goods or services, payment for which is not subject to Central Bank approval. It is not clear whether Central Bank approval should have been obtained (or still has to be obtained) for such transactions in the past. As the regulation does not contain transitional provisions for past transactions, it is likely that the regulation confirms the absence of a requirement for Central Bank approval rather than amending the regime that existed in the past. Payments not subject to Central Bank approval include:

  • payment of insurance premiums of any kind by residents;
  • receipt by residents of insurance payments;
  • lease payments by residents for aircraft and ships located outside the Russian Federation (and also spacecraft) and for any other movable property located outside Russia (except payments for the 'lease' of funds, securities or other debt obligations) on the condition that such property is physically transferred to the lessee within 180 days after the first lease payment has been made;
  • payment by residents of membership fees for non-resident, non-governmental international organisations;
  • payments by residents to non-residents for international seminars, conferences, expositions, sport or other cultural events taking place outside Russia;
  • receipt by residents from non-residents of payments for such events taking place inside Russia;
  • receipt by residents which are non-commercial organisations of charitable donations from non-residents;
  • payment by residents to non-residents for medical treatment or education of individuals. An entity or individual which did not receive the treatment or education may make such payments;
  • payments by residents to non-residents for subscriptions to foreign periodic publications;
  • payments by residents out of Russia of pensions, alimony, amounts paid to foreign states, stamp duties, or payments on the basis of court decisions, in accordance with the legislation of foreign states. This includes payment of taxes to foreign states. The same rule applies to reverse transfers to Russia by non-residents. Banks will no longer require Central Bank permission for payment of taxes abroad;
  • purchase or sale through authorised banks (by residents and non-residents) of one foreign currency for another, if a Central Bank rouble exchange rate is in place for both currencies. Although the Central Bank regularly quotes an exchange rate for all major currencies, trade in unusual currencies would require Central Bank approval;
  • purchase and consecutive sale of a 'veksel' (promissory note), if originally issued by an authorised bank licensed to perform security transactions. Payments may also be made in roubles.

LEASE PAYMENTS IN FOREIGN CURRENCY

9. It appears that payments under leases of movable or immovable property physically located in Russia require prior approval of the Central Bank if they are paid in foreign currency unless both the lessor and the lessee are non-resident. This does not apply to lease payments by non-residents to residents for aircraft, sea and river vessels and spacecraft. Such payments may be made in foreign currency, irrespective of where the property is located, on condition that at least one payment is made in each period of 180 days, the first period starting from when the property is transferred to the lessee.

REAL ESTATE HELD BY RUSSIAN RESIDENTS

10. A provision that has not yet entered into force concerns the purchase of real estate abroad by resident individuals. Such payments will have to be made from Russian bank accounts or from licensed bank accounts held outside Russia and reported to the Central Bank.

CONCLUSION

11. Regulation 39 provides some clarification regarding the application of the 180 day rule to the transactions described above and increases the options for in-kind financing from abroad. The regulation fails, however, to liberalise the treatment of intercompany loans in foreign currency to Russian enterprises. The reporting requirements now applicable to Russian banks are quite strict and, given the severe penalties for non-compliance, banks are likely to display a very conservative approach and the administrative burden connected with making foreign currency payments is likely to increase.

This publication is intended for public guidance only and should not form the basis for specific decisions.

For further information contact the firm on +007 503 232 5511 or enter a text search 'Coopers & Lybrand' and 'Business Monitor'.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions