After February 2022, the law became especially relevant due to the imposition of restrictive measures and countersanction regulation. Due to the dividend distribution and deal making restrictions that are being introduced now, as well as due to currency exchange restrictions, it is becoming more and more inconvenient for companies doing business in Russia to have holding structures outside Russia.
More and more reputable companies are making announcements of their planned redomiciliation to Russia. Among them are the TCS Group (the parent company of Tinkoff Bank), Rusagro, the X5 Group, HeadHunter, the Etalon Group, VK Company Limited and CIAN. The new seats of the redomiciled companies are specially created administrative districts (or SAR districts) which in the mass media are designated as “Russian offshores” and the companies that have moved to Russia are called “international companies.”
Principal reasons for and advantages of Redomiciliation
From a legal perspective, the redomiciliation of foreign companies to Russia is apparently advantageous.Among the key advantages are:
- the ability to pay dividends;
- optimisation of the tax burden;
- exemption from sanction and countersanction restrictions, including those affecting the holders of securities from unfriendly states; and
- refusal of notaries, auditors, legal advisors and depositories in foreign jurisdictions to co-operate with companies having “roots” in Russia.
Of no less importance is the exemption of companies from Russian countersanction regulation. For more details on this please see this articlе.
A critical advantage of the company’s “move” to Russia is that it maintains its identity (“legal personality” in legal terms). This is important for companies who have been on the market for long. They retain rights in relation to their assets no matter where they are based (there will be no need to launch procedures of assets transfers and restructuring, or incur expenses in connection therewith), they also retain their well-known trade name, contacts with contracting parties and reputation.
Part 1 of article 6 of Federal Law No. 290-FZ also suggests restrictions in relation to information on an international company that is entered on the EGRUL register, including information on the company shareholders and persons authorised to act on behalf of the company without a power of attorney. As with classical offshore companies, the advantage of an international company will be the increased confidentiality of the register.
In addition to this, a significant advantage of redomiciling a company to Russia is that it leads to a variety of tax “bonuses.” This matter will be looked at in more detail by our tax practice colleagues in our subsequent updates.
Pitfalls of Russian regulation
The chief and key disadvantage of redomiciliation is a change in the corporate relations that have been established under foreign law. As the company retains its legal personality and is not newly incorporated, it is necessary to transfer the company into a new legal system while maintaining the current governance structure, including, for example, a corporate agreement. To this end, the law (part 8 of article 4 of Federal Law No. 290-FZ) provides that company shareholders (members) may maintain the currently operative corporate agreement or enter into a new corporate agreement governed by the law of the foreign entity before the date of registration of the international company. It is, however, not always that Russian law makes it possible to regulate corporate relations with the help of a corporate agreement and memorandum of association as successfully as in some other countries, for example, countries of the common law system.Federal Law No. 290-FZ (clause 3 of part 3 of article 2) also establishes certain conditionsSuch regulation is not globally accepted practice. For example, to redomicile to Cyprus, you do not need to make any investment. The laws of Malta and Liechtenstein do not contain such requirements, either. for redomiciliation: the company must assume obligations to make investments in the Russian Federation. This may serve as a barrier for redomiciling such companies whose core assets and business operations are not connected with the Russian Federation.
Points to consider in foreign legal regulation
In other jurisdictions, there may also be certain problems with redomiciliation.In addition to the abovementioned difficulties connected with the refusal of notaries and legal advisers to cooperate, there are also additional red tape barriers. For instance, to redomicile a company from Cyprus, you will need to obtain the consent of the Companies’ Registrar in relation to a change of the place of the company’s registration and publish a notice of the resolution of the company’s shareholders on redomiciliation in public sources. The process of redomiciliation may also be hampered by tax authorities: in many countries redomiciliation requires the latest audited financial statements and tax clearance certificates. Therefore, you must be prepared that redomiciliation may take a significant amount of time.
In addition, the authorities of some countries from which companies relocate may be not interested in “letting them go” and may, therefore, introduce various restrictions. For example, after the redomiciliation of Shell from the Netherlands, the country introduced a so called “exit tax.” When “moving” into a non-EU country, the company must reimburse the entire difference in taxes received at the expense of tax benefits in the Netherlands.
There is also information that despite the completed registration of international companies in Russia, a number of countries still refuse to remove companies from their public registers, which may bring about additional difficulties for the companies due to their “dual” status. In December 2023, amendments were introduced to Federal Law No. 290-FZ to include the right of the Government Commission to extend the two-year period during which the company must be removed from the companies’ register in the country of its incorporation. On 31 January 2024, the Government of the Russian Federation brought a draft resolution for public review. The draft concerns the rules for the Government Commission to take decisions on the extension of time.
