MOSCOW, January 1. /TASS/. Amendments to the law ‘On currency regulation and currency control’ relates to the liberalization of restrictions for international trade settlements, entered into force on January 1, 2020. The government of the Russian Federation spearheaded those amendments to legislation. Russian President Vladimir Putin signed the law in early August 2019.
The law lifts restrictions on currency transactions by residents using accounts (deposits) opened with banks located outside Russia, and the repatriation of funds. The document was drafted by the Finance Ministry in accordance with the federal project: ‘Systemic Measures to Develop International Cooperation and Exports’ within the National Project "International Cooperation and Export’.
The legislation removes the requirements for residents to repatriate export revenues in Russian currency regarding non-resource commodities and a gradual removal of that requirement regarding the export of raw commodities starting January 1, 2020. Meanwhile, the repatriation requirement has not been lifted on international trade agreements (contracts) concluded by residents and non-residents with the amount of liabilities denominated in Russian currency, which may also stipulate payment in rubles, envisioning the transfer of goods related to timber and wood products by a resident to a non-resident.
The repatriation requirement regarding international trade agreements concluded between residents, who are participants in the budget process at the federal level, federal state budget (autonomous) institutions, federal state unitary enterprises, and non-residents, has not been removed as well.
Senior Lawyer at Deloitte Legal in the CIS Elina Koskina said the removal of the repatriation requirement would enable currency residents to terminate their obligations on such contracts using any permitted method, even by offsetting counter claims, which is not possible under the majority of contracts now. "That amendment may particularly contribute to the expansion of the use of the Russian ruble in international trade settlements," she explained.
According to Senior Lawyer at KPMG Law Russia & CIS Anton Rudnev, by supporting the national currency, lawmakers virtually provided exporters with a reasonable commercial choice: either shift the risks of currency fluctuations to non-residents by obliging them to settle contracts in rubles, or continue incurring the repatriation obligation if payments for the exports are made in foreign currency.
"It is necessary to keep in mind that apart from international trade contracts, liberalization did not affect loan agreements, which provide for lending to non-residents. Under such agreements, residents are obliged to ensure the repayment of money to their accounts in authorized banks irrespective of the currency stipulated by the contract or the currency, in which the respective settlements are made," Rudnev said.
Opening accounts in brokerage firms
Moreover, the law confirms the right of residents to open accounts in foreign currency and rubles without restriction not only in banks, but also in other financial market organizations located outside of Russia. Elina Koskina believes that the regulation not so much expands the rights of residents as it increases the accounting burden of both individuals and legal entities.
"The amendment brings banking and brokerage accounts closer. However, if previously it was not required to submit notifications and reports about accounts in brokerage organizations, now that requirement will appear starting January 1, 2020. The fact that the law contains no closed list of financial market organizations and both insurance and pension organizations may potentially be defined as such makes that introduction even more challenging," she noted.
Importance of sharing financial information
Amendments to the law on currency control also envision the possibility of crediting funds received from non-residents without any restriction to accounts of individuals-residents opened in overseas banks, provided that such banks are located on the territory of the foreign state, which is a member of the Organization for Economic Cooperation and Development (OECD) or the Financial Action Task Force (FATF), and that the foreign state is involved in sharing financial information.
Deloitte’s Senior Lawyer in the CIS expects the rule to have positive impact because at present over 80 countries and territories are on the list of nations that share financial information with Russia. However, certain countries, which are OECD and/or FATF members do not share financial information with the Russian Federation (for example, the US). Consequently, the foreign account mechanism is substantially tightened as far as those countries are concerned.
That said, regarding accounts opened in banks of those countries, the list of permitted foreign currency transactions would be considerably reduced. For example, crediting dividends from a foreign company to an account opened in a US bank will become an illegal transaction and potentially can lead to an administrative penalty totaling 75%-100% of the amount of the currency transaction, Koskina emphasized.
According to Olga Zamesina, KPMG’s tax and legal department director in Russia and the CIS, lawmakers assume that the more transparent the country where the foreign account is opened, the higher degree of freedom may be provided to citizens to carry out currency transactions and simplify accounting obligations.
"Russia’s Federal Tax Service will receive the data about residents’ accounts within the automatic financial information exchange in any case. That means there is no need to restrict the list of permitted currency transactions," she noted.
Finance Ministry’s position
Russia’s First Deputy Prime Minister, Finance Minister Anton Siluanov said in mid-December that the currency control liberalization measures that are going to be enforced nationwide starting on January 1, 2020, would expand the use of the Russian currency by non-residents and back up the ruble on international markets.
"The measures that have already been taken and that are being discussed; they make it possible to use the currency of the Russian Federation in international settlements, ramp up the use of the Russian ruble by non-residents. The use of the ruble for payments in international trade contracts will help strengthen the position of the Russian ruble on international markets," Siluanov said.
He also noted that the law opens new doors for Russian businesses and the economy. The liberalization of currency control not only expands the possibilities of doing business by foreign counteragents with Russian partners, but also helps implement the National Project ‘International cooperation and export’, which requires special currency regulation.