Rules for working with accounts (deposits) of residents held with foreign non-bank financial organizations defined

The Ministry of Justice of Russia registered Bank of Russia Directive No. 5371-U of December 24, 2019, on Crediting Funds to Accounts (to Deposits) of Residents held with Non-bank Financial Organizations Located Outside of the Russian Federation and Debiting Funds from Such Accounts (Deposits) (the “Directive”) on March 26, 2020.

The Directive states that Russian currency residents may credit and debit funds to and from accounts (deposits) held with non-bank financial organizations that are located outside of Russia (“Foreign Financial Organizations”) without limitation and in all cases.

We remind you that the regulation for working with accounts (deposits) held with Foreign Financial Organizations was introduced by Federal Law No. 265-FZ of August 2, 2019, on Amendments to the Federal Law on Currency Regulation and Currency Control Lifting Restrictions on Currency Transactions by Residents Using Accounts (Deposits) Held with Banks Located Outside of the Russian Federation and Repatriating Funds.

The amendments discussed here apply to Foreign Financial Organizations entitled by the laws of their countries to provide Russian currency residents with services to raise and place funds or other financial assets. The services must have the following purposes:

∙    Custody (and/or)

∙    Management (and/or)

∙    Investment (and/or)

∙    Other transactions on behalf of the Russian currency resident

As we understand, the regulation covers work with foreign brokers who do not hold a local banking license but provide the above listed services to Russian currency residents.

The Directive was published on the Bank of Russia’s official website on April 6, 2020, and went into effect on April 16, 2020.

However, there were no limits on working with accounts (deposits) with Foreign Financial Organizations even before the Bank of Russia Directive became effective, considering the Bank of Russia’s position (see Bank of Russia Letter No. 12-4-OE/ 3146 of March 24, 2020) and Article 5(2)(2) of the Federal Law on Currency Regulation and Currency Control.

Residents are required to file with the Russian tax authorities notices of opening (closing) accounts (deposits) and of changes in the details of those accounts (deposits), as well as cash flow reports on accounts (deposits) held with Foreign Financial Organizations.

A notice of opening accounts (deposits) with Foreign Financial Organizations opened after January 1, 2020, must be filed within one month. There is also an obligation to notify when accounts (deposits) opened before January 1, 2020, are closed.

Individual residents must file the cash flow reports for accounts (deposits) held with Foreign Financial Organizations by June 1, 2021 (i.e., the first such report must be for 2020 regardless of the account (deposit) opening date)) or within one month of closing when an account (deposit) is closed.

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

Dzhangar Dzhalchinov

About Dzhangar Dzhalchinov

Nikolai Roudomanov

Nikolai Roudomanov

Ivan Koreshkov

Ivan Koreshkov