On August 2, the Russian President signed Federal Law No. 265-FZ on the Liberalization in the Field of Currency Regulation. Our overview provides information on how the changes can affect your company and yourself.
The main changes concern the abolition of the obligation for legal entities to repatriate (return) foreign exchange earnings from foreign trade contracts and the procedure for the use of foreign accounts by individuals.
Abolition of the obligation to repatriate income from the export of goods
Until recently, suppliers of goods, works and services were obliged to ensure that 100% of foreign exchange receipts were credited to their accounts and that advances paid to suppliers of goods, works and services were reimbursed in the event of termination of the contract. If this requirement was not met, a fine of 75% up to 100% of the foreign exchange transaction was imposed and the company had to prove that necessary and sufficient measures had been taken to recover the money, which allowed the fine to be challenged in court.
As of now
The cancellation of this requirement only applies to contracts for the delivery of goods whose value is in rubles and for which payment is also made in rubles.
For exporters of raw materials (ores, minerals, oil, gas, precious metals, etc.), the obligation to repatriate will be gradually abolished, starting with 10% of the amount of the foreign trade contract in 2020 and ending with full abolition as of 2024.
As a result, exporters of non-raw materials are exempt from the obligation of repatriation as of 01.01.2020.
For all other situations, the requirement of compulsory repatriation remains.
Financial management aspects
When concluding foreign trade contracts in rubles, it is necessary to initially assess the expediency and currency risks.
When conversion of contracts to rubles may be relevant:
- When there is a high risk of non-compliance with payment conditions;
- Contract liabilities in foreign currencies have a significant impact on the financial result.
When conversion of contracts to rubles is arguable:
- If the liabilities are in a currency other than the Russian ruble.
Main aspects to be taken into account when assessing feasibility:
- Contract prices taking into account possible exchange rate fluctuations and changes
- Hedging of currency risks by contracting parties
- Possibility of an appropriate review of the obligations
- Correct planning of cash flows and calculation of economic benefits
How can SCHNEIDER GROUP support you?
The SCHNEIDER GROUP financial management team advises you on financial risk assessment and provides practical recommendations.
The list of permitted currency transactions enabling the crediting of funds to the accounts of residents of the Russian Federation at foreign banks has been extended.
The following new positions have been created:
1. Foreign exchange transactions between persons residing in the Russian Federation who spend more than 183 days a calendar year abroad
2. Individuals residing in the Russian Federation who are registered as sole proprietors without legal entity status in case they more than 183 days abroad, are allowed to receive funds as payment from accounts of Russian residents at Russian banks:
- work carried out or services provided;
- information transferred or results of intellectual activity, including the exclusive rights thereto.
3. Credits in Russian rubles to Russian residents under foreign trade contracts concluded with non-residents.
4. Credits of funds from the sale of precious metals, recorded in the accounts of residents of the Russian Federation at foreign banks.
5. Credits issued to a person resident in the Russian Federation upon return of funds previously transferred to the trustee of a non-resident.
6. Any credit by non-residents to the accounts of individuals residing in the Russian Federation at banks outside the territory of the Russian Federation, provided that the following conditions are met:
- An account is opened with OECD or FATF member banks;
These States exchange information in accordance with the Multilateral Agreement between the Competent Authorities on Automatic Exchange of Financial Information of 29 October 2014 or any other international treaty concluded with the Russian Federation. The list of these states will be published on the website of the Federal Tax Service of the Russian Federation.
Report on the cash flow on the account at a foreign bank
Until recently, the report on the cash flow on the foreign account had to be submitted by all natural persons / individuals who are residents of the Russian Federation. Persons who spent more than 183 days a year outside the territory of the Russian Federation were exempt from this obligation.
As of now
The reporting obligation no longer applies to persons whose accounts are held with a bank or other financial institution of OECD or FATF Member States that are simultaneously participating in the international exchange of information, provided that one of the following conditions is met:
- The total amount of funds credited to the account or deducted from the account for the year under review does not exceed 600,000 rubles (also applies to the amount in foreign currency equal to and not exceeding 600,000 rubles);
- The balance on the account at the end of the year under review does not exceed 600,000 rubles or the amount in foreign currency of 600,000 rubles if no funds were credited to it in the year under review
Entry into force
Most of the provisions of the bill will enter into force on January 1, 2020. This does not only concern the abolition of the repatriation of ruble amounts for the export of raw materials, for which a gradual abolition is planned.
How can SCHNEIDER GROUP support you?
The SCHNEIDER GROUP tax experts will gladly answer any questions you may have regarding the respective changes to the law.