In June, the St. Petersburg International Economic Forum (SPIEF) hosted a session entitled “The Evolution of Legal Regulation of Corporate Relations in Modern Conditions”. In his address, EPAM Law Partner Dmitry Stepanov outlined the main stages in the development of the current corporate regulatory framework: from the 2012 systemic reform of the Civil Code of the Russian Federation and the adoption of the Law on International Companies in 2018, to the latest developments regarding Special Economic Zones (SEZs), re-domiciliation, and other initiatives currently under discussion. Below is a brief overview of the most business-relevant initiatives.

The SEZ Law (No. 470-FZ) as an Alternative to Voluntary Business Re-domiciliation

Adopted in August 2023, Federal Law No. 470-FZ On the Specifics of Regulating Corporate Relations in SEZs (“470-FZ”) introduced a mechanism for judicial suspension of corporate rights of foreign holding companies (FHCs) and for indirect participants in SEZs to acquire direct ownership of SEZ shares or interests, as well as direct payment of dividends (profits) from SEZs to Russian beneficiaries of FHCs. However, the law was adopted in haste and required refinement, leading to a series of amendments in December 2023.

In its current form, 470-FZ grants non-resident indirect participants in SEZs the right (but not the obligation) to obtain direct ownership of SEZ shares (interests). This effectively gives non-resident holders of Russian assets the same opportunities as residents. The law also allows for suspension of the corporate rights of such non-residents holding, in aggregate, at least 50% in an SEZ, to prevent the takeover of control over Russian businesses by non-residents. Corporate agreements previously concluded in respect of FHCs will continue to apply to those who have acquired SEZ shares (interests) in respect of the SEZ.

Recent amendments have also removed the requirement to obtain certain regulatory approvals for the transfer of ownership of SEZ shares (interests) under a number of special laws, including:

• On Protection of Competition (No. 135-FZ);
• On Foreign Investments (No. 160-FZ);
• On the Procedure for Investments in Business Entities of Strategic Importance (No. 57-FZ);
• On the Central Bank of the Russian Federation and On Banking Activities (Nos. 86-FZ and 395-1);
• On Joint-Stock Companies and On Limited Liability Companies (Nos. 208-FZ and 14-FZ).

However, the current wording of 470-FZ does not provide exemptions from the special procedure established by the President of the Russian Federation for the execution of certain transactions (operations) under Federal Law No. 127-FZ of 4 June 2018 and/or Federal Law No. 281-FZ of 30 December 2006, which continue to apply in full to relationships governed by 470-FZ. It is possible that partial exemptions for SEZs may be considered in the future, although the likelihood remains low.

Amendments have also been made to the Tax Code to ensure tax neutrality in the transfer of rights to SEZ shares (interests). Presidential Decree No. 73 of 27 January 2024 introduced an exemption for SEZs and related parties from the obligation to disclose and provide certain information, which also does not need to be published in state information systems or other sources.

Associated amendments are being made to the Code of Administrative Offences to establish liability for failure to comply with obligations under 470-FZ (Bill No. 475201-8, passed at second reading on 11 June 2024). The proposal is to assign the authority to hear such cases to Rosfinmonitoring.

The mechanism under 470-FZ may be used in cases where alternative means of removing a foreign «layer» in the corporate structure of an SEZ — such as:(i) changing the FHC’s personal law through re-domiciliation; or(ii) an application by a controlling person of a CFC holding more than 50% to the Federal Tax Service of Russia to exercise shareholder (participant) rights in respect of a Russian company in which the CFC holds shares — cannot be implemented in practice for any reason.

Amendments to the Law on International Companies (No. 290-FZ)

Federal Law No. 290-FZ of 3 August 2018 On International Companies and International Foundations (“290-FZ”) governs the re-domiciliation of foreign companies into Russia. Federal Law No. 636-FZ of 25 December 2023 (“636-FZ”) introduced amendments to 290-FZ aimed at addressing adverse consequences arising from the inability to remove foreign legal entities from foreign registers in unfriendly jurisdictions within the prescribed two-year period from the date of inclusion in the USRLE as an international company.

636-FZ grants the Government Commission on Monitoring Foreign Investment in the Russian Federation the authority to extend the period within which a foreign legal entity must be removed from a foreign register. The extension may not exceed one year. Such a decision may be made upon application by the international company, submitted no earlier than two months before expiry of the prescribed removal period, where:

• the foreign legal entity has been unreasonably refused removal from the register, or refused for reasons beyond its control, despite taking all necessary and timely actions; or
• three or more requests for removal have been sent to the relevant foreign authority without response.

Such applications may be submitted repeatedly to the Government Commission.

The changes aim to prevent the loss of tax benefits by international companies (loss of “IC” status under sub-paragraph 4, paragraph 2, Article 24.2 of the Tax Code), which would be disproportionate to the alleged breach, and to avoid reducing budget revenues and investment in socially significant projects.

In January 2024, Presidential Decree No. 1 approved a list of international companies for which the requirement to be removed from a foreign register is deemed satisfied, taking into account that these companies had been unreasonably refused such removal in foreign jurisdictions or refused for reasons beyond their control.

Thus, the most acute regulatory obstacles to re-domiciliation from unfriendly jurisdictions have been removed. However, challenges remain for re-domiciliation to Russia of trust-type and similar foreign holding structures without legal personality. The current framework for international foundations lacks sufficient flexibility and does not reflect many aspects of foreign regulation of such structures. There is a need to expand the framework for international foundations to allow, for example, the replacement of beneficiaries, the transfer of liability to creditors to a new person (the international foundation), the return of assets transferred by founders or third parties, and so forth.

Updated Mechanism for Acquiring Corporate Rights in CFC Subsidiaries

636-FZ effectively extends until 31 December 2025 the possibility for Russian tax residents to acquire corporate rights in Russian companies held through CFCs in unfriendly jurisdictions. The relevant mechanism requires:

• ownership of the CFC by the controlling person in excess of 50%;
• submission of an application by the controlling person to the Federal Tax Service of Russia;
• grounds for application: the CFC’s exercise of corporate rights in relation to Russian companies in a manner that infringes the rights of such companies and/or controlling persons;
• publication by the FTS of a public list of companies in which controlling persons exercise corporate rights, along with certain disclosures in the USRLE;
• restrictions on the corporate rights of controlling persons in Russian companies, including the inability to vote on amendments to the charter, reorganisation or liquidation, changes in charter capital, early termination of the board of directors or executive body, and disposal of shares (interests);
• suspension of dividend payments or profit distributions by the Russian company.

Those who formalised such rights before the end of 2023 may exercise them until the end of 2025 without the need to submit new applications.

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