Legal alerts / 2.02.2021

The most significant changes in corporate legislation during 2020

Following the end of 2020, we have produced an overview of the changes in corporate legislation. We have noted the following amendments as the most significant:

  • certain notarial actions may be performed remotely;
  • it has become possible to register new information with the Unified State Register of Legal Entities (the “Companies Register”), and the time period for reporting changes in the information contained in the Companies Register and the Unified State Register of Individual Entrepreneurs (the “Register of Individual Entrepreneurs”) has been increased;
  • the criteria have been changed for determining the transactions that are subject to control in relation to entities of strategic importance;
  • an additional obligation has been introduced for residents to report on the movement of financial assets in foreign bank accounts and accounts in other financial market organizations;
  • a regulation in respect of internal antimonopoly compliance within organizations has been introduced;
  • the fines for violations of currency legislation have been reduced;
  • the procedure for obtaining information about the pledging of movable property has been simplified;
  • information about a sole shareholder will become publicly available;
  • treaties on the avoidance of double taxation with Cyprus, Malta and Luxembourg have been revised.

 

Some notarial actions can be performed remotely

From 29 December 2019, amendments entered into force to the Fundamental Principles of the Legislation of the Russian Federation for Notarial Activities, allowing notaries to perform some notarial actions remotely[1]. In particular, it is possible remotely to notarize a translation, affix a writ of execution to a document, and transfer electronic documents for the storage or deposit of funds.

To do this, the applicant (or his representative) sends via the Internet to the Federal Notarial Chamber an application for the performance of a notarial action remotely, with the necessary documents attached in electronic form.

It has also become possible to notarize transactions with the involvement of several notaries if the parties to the transaction conclude it remotely. Each party has an opportunity to sign the transaction with their own notary.

 

It has become possible to register new information with the Companies Register, and the time period for reporting changes in the information contained in the Companies Register and the Register of Individual Entrepreneurs has been increased

On 25 November 2020, along with a change in the application forms of the registering authority, it has become possible to register with the Companies Register information about the existence of a corporate agreement in the company and about its content; about the usage of a standard charter by a limited liability company; about the joint or separate exercise of powers by the various single executive bodies of the legal entity; about the combination of various forms of reorganization; and about the extension of the term for the liquidation of a limited liability company[2].

In addition, from 26 April 2021, companies will be required to submit documents to the tax authorities for a change in the information contained in the Companies Register not within 3 working days, as is currently established, but within 7 working days from the date of the change in the information. Similar changes have been made in relation to the time limits for changes to the information contained in the Register of Individual Entrepreneurs[3].

 

The criteria for determining the transactions that are subject to control in relation to entities of strategic importance have been changed

In August 2020, amendments aimed at preventing possible abuses by foreign investors in relation to entities of strategic importance came into force[4]. The amendments relate to the rules for determining transactions made with respect to such entities, which are subject to prior approval.

Before the amendments entered into force, the share of a foreign investor in such an entity was determined through the right to have at his disposal the votes attributable to such share.  However, such a right might be transferred for a certain time to another person, for example, on the basis of a trust agreement, a pledge agreement, a repo agreement, a security deposit, or another agreement or transaction.

Now, considering transactions for the acquisition by a foreign investor of shares (an interest) in entities of strategic importance, all shares (interests) already acquired by him in the chapter capital of the entity will be taken into account, even if he does not actually temporarily have the right to vote at his disposal.

 

An additional obligation has been introduced for residents to report on the movement of financial assets in foreign bank accounts and accounts in other financial market organizations

From 1 January 2021, currency residents are obliged to report on the movement of financial assets in their foreign bank accounts and accounts in other financial market organizations[5]. Previously, currency residents were obliged to report only on cash flows.

Legal entities will need to comply with the new requirements by submitting a report for the first quarter of 2021, which is submitted before 30 April 2021.

Individuals will have to fulfill this obligation for the first time by submitting a report for 2021, which is to be submitted before 1 June 2022 (or within a month from the date of the account’s closing).

The list of financial assets that are subject to being reported is open. The new reporting form is filled in with information about securities, derivative financial instruments, shares in the chapter capital of a legal entity, shares in a foreign unincorporated structure, rights of claim arising out of an insurance contract, as well as other financial assets.

In addition, representative offices and branches of resident legal entities may transfer funds received from non-residents to foreign bank accounts, if these funds are paid:

  • under the procedure for the return of funds previously paid by a representative office or a branch of a resident legal entity for the rejection of previously purchased goods or services from a non-resident (except for transactions involving foreign trade activities);
  • as the return of a pledge under a lease agreement for premises previously paid by a representative office or a branch of a resident legal entity;
  • in connection with the sale of a vehicle and/or other property belonging to a branch (representative office) (except for transactions involving foreign trade activities);
  • in the form of insurance payments from non-resident insurers.

 

Internal antimonopoly compliance of organizations

From 12 March 2020, amendments to Federal Law No. 135-FZ dated 26 July 2006 “On the Protection of Competition” came into force, regulating the introduction of internal antimonopoly compliance in organizations[6].

For businesses, unlike government bodies, antimonopoly compliance is voluntary. If a company decides to introduce an antimonopoly compliance system, it will need to adopt an appropriate internal regulatory act, information about which must be posted on the company’s website in Russian.

The company’s internal regulatory acts governing antimonopoly compliance must reflect:

  • requirements regarding the assessment of the risks of a violation of antimonopoly legislation;
  • arrangements aimed at reducing risks;
  • arrangements to exercise control over the functioning of antimonopoly compliance;
  • the procedure for familiarizing employees with internal regulatory acts on antimonopoly compliance;
  • information about the officer who is responsible for antimonopoly compliance;
  • additional requirements stipulated by the organization.

An organization has the right to send an internal regulatory act (or a draft of it) regulating antimonopoly compliance for verification by the Federal Antimonopoly Service of Russia (FAS).

In addition, the organization has the right to use, within the organization, the internal regulatory acts of another legal entity belonging to the same group of entities.

 

Fines for violations of currency legislation have been reduced

From 31 July 2020, new amendments to the Code of Administrative Offences of the Russian Federation reduced and differentiated the amount of the fine in relation to participants in foreign economic activity for violating the requirements for the repatriation of funds[7].

For example, if payment is made in rubles, then the amount of the fine will be from 3% to 10% of the overdue amount. If payment is provided in foreign currency, the fine is set at a rate of 5% to 30% of the amount in question. It should be recalled that the previously established range of the fine was from 75% to 100%.

Professional participants in foreign economic activity are subject to even lower liability. For instance, in the event of a violation of the above requirements, they may have a warning imposed on them or a fine imposed of 3% to 5% of the amount of the funds not returned on time.

 

The procedure for obtaining information about the pledging of movable property has been simplified

On 11 May 2020, amendments simplifying the search for information on the pledging of movable property came into force[8]. Currently, by using the Unified Portal of State and Municipal Services, you can find open information on:

  • a pledge of movable property;
  • the conclusion of a lease agreement;
  • the conclusion of a sale and purchase agreement with the retention of title by the seller.

Data will be taken from the register of notifications of the pledging of movable property and the Unified Federal Register of Legally Significant Information on the Facts of Legal Entities’ Activities.

 

Information about a sole shareholder will become publicly available

From 26 April 2021, it will be necessary to register information with the Companies Register that a joint-stock company (“JSC”) consists of a sole shareholder[9].

On practical grounds, this means that when executing transactions as a result of which, for example, a sole shareholder emerges as such or ceases to be such, along with amending the register of shareholders it will be required to register the changes with the Companies Register. At the same time, the change in question does not affect the JSC’s obligation to keep the shareholder register with the registrar.

Item 6, Article 98 of the Сivil Code of the Russian Federation also contains the obligation to indicate in the Companies Register that a JSC is the sole shareholder, but this obligation has actually not been fulfilled before.

 

Treaties on the avoidance of double taxation with Cyprus, Malta, and Luxembourg have been revised

The Russian Federation has agreed on amendments to treaties on the avoidance of double taxation with Cyprus, Malta and Luxembourg[10].

Under the new rules, the withholding tax on dividends has been increased to 15%. At the same time, a preferential tax rate, which must not exceed 5%, has been established for the following categories of entities:

  • insurance institutions and pension funds;
  • companies in which at least 15% of the voting shares have been listed on an exchange, provided that such company has owned at least 15% of the interests/shares of the company paying dividends for 365 days;
  • governments and other government agencies;
  • central banks.

The following regulation has been established with regard to interest. Interest may be taxed at source at a rate not exceeding 15%. There are two exceptions to this provision:

  • if the recipients of interest are certain categories of entities (insurance institutions and pension funds, governments and other government agencies, central banks or simply banks) or interest is paid on certain types of securities (government and corporate bonds, external bond loans), then such interest is taxed only in the country of the recipient of the interest[11];
  • if the recipient of the interest is a company in which at least 15% of the voting shares are listed on an exchange, provided that such company has owned at least 15% of the interests/shares of the company paying the dividend for 365 days, then such interest is subject to withholding tax; however, the rate of such tax may not exceed 5%.

 

[1] Federal Law No. 480-FZ dated 27 December 2019 “On Amendments to the Fundamental Principles of the Legislation of the Russian Federation for Notarial Activities and of Certain Legislative Acts of the Russian Federation”.
[2] Order No. ED-7-14/617@ of the Federal Tax Service of Russia dated 31 August 2020 “On the Approval of Forms and Requirements for the Registration of Documents Submitted to the Registration Authority for the State Registration of Legal Entities, Individual Entrepreneurs and Peasant (Farm) Enterprises”.
[3] Item 3, Article 1 of Federal Law No. 350-FZ dated 27 October 2020 “On Amendments to Article 5 of the Federal Law “On the State Registration of Legal Entities and Individual Entrepreneurs””.
[4] Federal Law No. 255-FZ dated 31 July 2020 “On Amendments to the Federal Law “On the Procedure for Accomplishing Foreign Investment in Entities of Strategic Importance for Procuring the Defence and Security of the State””.
[5] Federal Law No. 291-FZ dated 31 July 2020 “On Amendments to the Federal Law “On Currency Regulation and Currency Control””.
[6] Federal Law No. 33-FZ dated 1 March 2020 “On Amendments to the Federal Law “On the Protection of Competition””.
[7] Federal Law No. 218-FZ dated 20 July 2020 “On Amendments to Articles 3.5 and 15.25 of the Code of Administrative Offences of the Russian Federation”.
[8] Federal Law No. 370-FZ dated 12 November 2019 “On Amendments to Article 34.4 of the Fundamental Principles of the Legislation of the Russian Federation for Notarial Activities and Article 7.1 of the Federal Law “On the State Registration of Legal Entities and Individual Entrepreneurs””
[9] Federal Law No. 350-FZ dated 27 October 2020 “On Amendments to Article 5 of the Federal Law “On the State Registration of Legal Entities and Individual Entrepreneurs””.
[10] The amendments to the agreement for the avoidance of double taxation between the Russian Federation and the Grand Duchy of Luxembourg have not entered into force as at the beginning of January 2021.
[11] The amendments made to the tax treaty with Malta provide for the imposition of a 5% withholding tax on interest payments to such persons.

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