On 28 December 2017 the President of the Russian Federation signed Federal Law No. 427-FZ (the "Law"), which eases certain Russian currency control restrictions for Russian citizens living abroad by amending Federal Law No. 173-FZ "On Currency Regulation and Currency Control" dated 10 December 2003.
Harmonization of "resident" definitions for tax and currency control purposes
As of 1 January 2018, all Russian citizens, without any exceptions, are deemed to be residents for the Russian currency control purposes ("RCC residents"). However, those Russian citizens who spend more than 183 days a calendar year abroad ("exempt residents") would be exempt from the following obligations:
- to notify the Russian tax authorities on the opening (closing) of accounts (deposits) and on change of the details of accounts (deposits) in foreign banks located outside the Russian Federation ("foreign banks");
- to submit annual cash flow statements for accounts (deposits) in foreign banks;
- to comply with restrictions on the crediting of funds to accounts in foreign banks; as well as
- to comply with the prohibition on performing foreign currency transactions with other residents, provided that such transactions are performed outside Russia with other exempt residents.
Therefore, as of 1 January 2018, the Law resolves the so-called "one day arrival" issue for Russian citizens living abroad who previously faced currency control risks when travelling to Russia.
The new favorable regime is subject to certain additional conditions. We recommend Russian citizens who permanently live abroad to analyze their current situation in order to determine whether they can benefit from the new regime.
As with confirmation of Russian tax resident status, the authorities have the right to request documents confirming the duration of stay outside Russia and the fact of crossing the Russian border (e.g. Russian (foreign travel) passport with border control stamps).
Extension of the list of permitted transactions using foreign accounts of RCC residents
As of 1 January 2018 all RCC residents can benefit from the extended list of permitted transactions, the funds from which can be credited to disclosed foreign accounts in banks located in FATF or OECD member countries.
Among other things, Russian residents are now permitted to credit the following directly to their foreign accounts:
- funds received from non-residents upon sale of foreign real estate, provided that such real estate is located in a country which is (i) an OECD or FATF member state and (ii) a party to the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Information dated 29 October 2014 (or has another treaty with Russia in place that provides for automatic exchange of financial information), and (iii) provided that a resident’s account is opened with a bank located in such foreign country; and
- funds received from non-residents upon sale of motor vehicles located outside Russia.
Furthermore, according to the amendments adopted earlier (Federal Law No. 350-FZ dated 28 November 2015) RCC residents are also permitted as of 1 January 2018 to credit funds from the sale of foreign securities that are listed on Russian or foreign stock exchanges approved by the Russian financial services authority directly to their foreign accounts in FATF or OECD member states.
The amendments should have a positive effect on (i) the structuring of foreign real estate sale transactions by RCC residents as well as (ii) the ability of RCC residents to trade listed securities that are held via foreign banks. We note, however, that the list of the approved foreign stock exchanges is rather limited and does not include the Luxembourg and Irish exchanges where many instruments used by RCC residents are listed.
Lighter regime for individuals' cash transfers from Russia
As of 1 January 2018 RCC residents are no longer required to present foreign account notifications filed with the Russian tax authorities to Russian banks upon the first transfers of funds to their own accounts opened with foreign banks
This amendment should make it easier for RCC residents to make fund transfers from their Russian bank accounts to their foreign bank accounts.
Lifting of the restriction on spending foreign funds in Russia
As of 1 January 2018 the Law lifts the previously existing restriction on the spending of funds held on foreign accounts in Russia for payment for goods and services.
Therefore, RCC residents are now allowed to carry out such operations in Russia, including using bank cards linked to foreign personal bank accounts without the need for prior transfer of such funds to their Russian bank accounts.
Automatic exchange of information
2018 is expected to bring further steps on implementation of automatic exchange of financial information ("AEOI") between Russia and foreign countries. The OECD has published a list of over 70 jurisdictions that have activated exchange relationships with Russia and confirmed their intention to annually exchange information on Russian residents' accounts with Russia.
This list includes jurisdictions such as Switzerland (exchange with which is expected to take place in 2019 for periods starting in 2018), the United Kingdom and Liechtenstein (exchange with which is expected already in 2018 for periods starting in 2017), as well as many others.
Actions to consider
Taking into account the new and existing requirements of Russian legislation and the expected AEOI the following recommendations apply to RCC residents with foreign bank accounts:
a) to analyze their use of foreign bank accounts from both the Russian tax and RCC compliance perspectives;
b) to regularize discovered violations, including by way of disclosing previously undisclosed accounts, submitting cash flow reports for such accounts and paying back taxes on previously unreported foreign source income;
c) to consider participating in the upcoming 2018 voluntary disclosure program announced by the Russian President (no details are available to date);
d) to analyze potential options for restructuring the ownership of foreign assets and foreign accounts in order to comply with Russian tax and RCC regulations.