Changes to currency regulation rules for individuals

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On August 2, 2019, the President of the Russian Federation signed Federal Law No. 265-FZ (the “Law”) amending the Federal Law on Currency Regulation and Currency Control (the “Currency Regulation Law”).

The Law lifts a number of restrictions that previously affected individuals defined by the Currency Regulation Law as residents (“residents”) when working with foreign bank accounts. It also clarifies certain aspects of how residents work with foreign non-bank financial market organizations.

The Law goes into effect as of January 1, 2020, save for certain provisions considered in this alert.

Restrictions on crediting funds to accounts in FATF/OECD member state banks lifted

The Currency Regulation Law sets forth an exhaustive list of grounds on which residents are entitled to credit funds to foreign bank accounts. The restrictions do not apply to residents who live outside of Russia more than 183 days in a calendar year.

The amendments introduced by the Law lift the restrictions on crediting funds received from nonresidents to residents’ accounts (deposits) opened at banks in FATF or OECD member states. The states must exchange information under the Multilateral Competent Authority Agreement Common Reporting Standard (MCAA CRS) or other agreement providing for automatic exchange of information. The list of states will be published on the website of Russia’s Federal Tax Service.

There will still be restrictions on crediting funds to accounts (deposits) at non-OECD or FATF member state banks, and banks on the Federal Tax Service’s future list of non-CRS countries. They include the United States, Cyprus, Monaco, Jersey, Montenegro and a number of other countries. The restrictions will also most likely remain in place for accounts (deposits) in the United Kingdom because the British competent authorities have announced that they have suspended automatic exchange of tax information with Russia.

There are now more transactions the income from which can be credited to foreign accounts. Added to the list of such transactions are: crediting of income from the sale of precious metals if the payment complies with the laws of the foreign state, and some foreign trade transactions the revenue from which does not have to be repatriated under the Law’s amendments. So, in order to reduce possible risks, one should make certain that the funds are credited as required by local law, not the foreign bank’s internal policy.

Treatment of accounts at non-bank financial market organizations

The Law introduces regulation for working with accounts at foreign non-bank financial organizations.

The amendments state that funds may be credited to accounts at such foreign financial market organizations in the cases specified by the Bank of Russia. However, the list of grounds had not been published by the time of this writing. Residents will also be required to file notices with the Russian tax authorities when they open, close or change the details of accounts, and to file cash flow reports for accounts at foreign non-bank financial market organizations.

Restrictions on currency transactions between residents residing outside of Russia lifted

The Currency Regulation Law has an exhaustive list of currency transactions that can be made between residents. It also specifies how such transactions should be made.

Russian citizens residing abroad and dual citizens often forget that they are still residents under the Currency Regulation Law.

For their part, in most cases foreign local tax authorities consider such Russian citizens local foreign tax residents. This essentially means that information about such Russian citizens is not reported to the Russian tax authorities as part of automatic exchange of financial information according to the Common Reporting Standard. In addition, individuals residing outside of Russia for more than 183 days are also not required to notify the Russian tax authorities of their participation in any foreign companies or of income from foreign securities transactions.

However, although there are no restrictions on crediting funds to foreign accounts, residents residing abroad more than 183 days during the calendar year could formally violate the Currency Regulation Law. For example, by buying or selling foreign securities with residents who are not relatives, or lending to individuals who are also not close relatives even though the crediting of such loan financing would not be a violation.

The Law has logically simplified currency regulation for residents residing outside of Russia more than 183 days. It has also lifted any restrictions on currency transactions between such residents no matter their new country of new residence.

Notably, this provision became effective as of August 2, 2019 and applies to relations that arose after August 1, 2016.

Receipt of funds by residents who are foreign sole proprietors

The list of currency transactions permitted between residents now includes the possibility for a resident to transfer funds from an authorized bank to another resident residing outside of Russia more than 183 days in a calendar year, as long as the recipient is a foreign sole proprietor. The transfers must be made to pay for goods delivered, work performed or services rendered, or for information and intellectual property delivered to the resident. Russian authorized banks are entitled to request that residents provide documents confirming that the recipient of the income is a foreign sole proprietor.

Cash flow reports

The Law specifies a number of situations where residents are not required to file cash flow reports for their accounts (deposits) at foreign banks or other financial market organizations with the Russian tax authorities.

To benefit from this exemption, such accounts (deposits) must have been opened in a foreign state that is a member of the OECD or FATF. Also, the foreign state must be on the list of CRS countries published on the website of Russia’s Federal Tax Service. A further condition is that the total amount of funds credited to or debited from the account (deposit) over the reporting year must not exceed the equivalent of RUB 600,000. Or the balance of funds on the account (deposit) must not exceed the equivalent of RUB 600,000 if no funds were credited to the account (deposit) during the reporting year. The thresholds are determined based on the Bank of Russia exchange rate as at December 31 of the reporting year.

Repatriation of foreign currency revenue

The Law is phasing out the requirements to repatriate foreign currency revenue under non-resource foreign trade contracts for which the amount of liability is in rubles.

However, the amendments do not abolish the requirement to repatriate funds under loans issued.

Dentons’ Tax practice has extensive experience advising individuals on working with foreign accounts (deposits) in light of Russian currency regulation and currency control restrictions and would be happy to provide you with comprehensive legal support.