Investments Into Crimea
Pursuant to a treaty of accession between the Russian Federation, Crimea and Sevastopol dated March 18, 2014 Crimea and Sevastopol became integral parts of the Russian Federation as two separate new Russian regions. As such, they fall under the jurisdiction of the Russian Federation. The treaty provides for the interim period that expires on January 1, 2015 during which the Russian laws apply on the territory of Crimea with certain restrictions required to softly replace Ukrainian regulation into Russian regulation. This is obviously something that shall be considered by a reasonable non-Russian investor contemplating business-activity in Crimea. Given the recent European and US sanctions against Crimea, the below shall be obviously reviewed by Eastern investors.
Acquisition of companies
Currently there are many companies operating in Crimea that have been incorporated under Ukrainian law. Most of them are incorporated as joint stock companies or limited liability companies. These corporate forms are very similar to the forms of legal entities available in Russia. However, this similarity shall not mislead a non-Russian investor. Russia recognizes companies incorporated under Ukrainian law as legal entities and does not specifically require that they are re-registered as companies incorporated under Russian laws. Given this, the Ukrainian companies operating in Crimea on the date of the treaty may continue their operations as Ukrainian companies. The only downside is that starting January 1, 2015 the Russian tax regulation shall be applicable in Crimea. This would require Ukrainian companies pay Russian taxes as a non-Russian taxpayer (in certain cases this may entail a higher rate) and register permanent residency in Russia.
An investor may acquire shares of the joint stock companies incorporated in Crimea without significant restrictions. If the joint stock company is a Ukrainian company – acquisition is available until January 1, 2016 pursuant to the specific procedure provided by the letter No 06-55/2941 of the Bank of Russia dated April 21, 2014. If the joint stock company is re-registered as a Russian company, general requirements provided by the Russian laws shall apply to such acquisition.
As regards the acquisition of the limited liability companies, there are not specific provisions in the treaty of accession that regulate the transfer of interests in the limited liability companies. The treaty of accession requires that a separate law shall be promulgated to address the transfer of interests of the LLCs incorporated under the Ukrainian law. Currently, there is no specific law that regulates the matter. However, this shall not be a show-stopper. The acquisition may be structured the following – the Ukrainian LLC incorporates a Russian LLC and contributes the target asset into the capital of the Russian LLC which in its tern may be the subject of a consequent acquisition.
Acquisition of real-estate
Another potential concern for a reasonable investor may be the acquisition of real estate located in Crimea, specifically, industrial premises and land plots. The Russian laws require that the proprietary rights for such real estate shall be registered with the Russian authorities. Given this to structure the acquisition of proprietary or lease rights the parties to the transaction shall undergo the initial registration of proprietary rights and following that register the rights that are the subject matter of the transaction. And although the agreement between the parties shall not require separate registration, registration of proprietary rights may be a concern for the parties.
Initial registration of the real estate item requires registration by the Russian cadastre authorities and the Russian Rosreestr authorities. Both have presence in Crimea. However, currently they are dealing with registration of residential premises only. Registration of proprietary and lease rights for industrial premises and land plots shall be commenced by January 1, 2015.
As a practical matter, the investor may enter into the sale and purchase or lease agreement even now as neither agreement requires registration by the Russian authorities. The obvious risk of inability to carry out a due-diligence of the target asset or rejection of further registration of proprietary/lease rights may be covered by the relevant agreement governed by the convenient law (e.g., English law) with the convenient forum (e.g., LCIA) and accounted against purchase price or reflected in indemnities section.
The court system is already operating in Crimea and Sevastopol and is as common as in the remaining part of Russia. Specifically, business-related disputed are resolved by the arbitration court -- http://crimea.arbitr.ru/ and disputes between private persons are resolved by the court of general jurisdiction -- http://www.sudrf.ru/index.php?id=300.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.