The Ministry of Finance Has Softened the Conditions for Paying Dividends to “Unfriendly” Non-Residents

On 23 August 2023, the Ministry of Finance of the Russian Federation has published on its website an extract from the minutes of the meeting of the Subcommittee of the Government Commission for the Control of Foreign Investment in the Russian Federation No. 182/5 dated 9 August 2023 (“Extract”). This Extract allows residents to pay dividends to foreign “unfriendly” creditors without complying with the conditions specified in paragraph 2 of the minutes of the meeting of the Subcommittee No. 171/5 dated 14 June 2023(«Conditions»). These conditions were described earlier in our review.

According to the terms of the Extract, the payment of dividends to foreign creditors from “unfriendly” countries without restrictions is possible under the following conditions:

  • implementation of investments in the Russian economy by foreign creditors after 01 April 2023, including the expansion of production in the Russian Federation, the development of new technologies;
  • the amount of dividends should not exceed the volume of such investments.

It is noteworthy that the Extract does not contain a list of investments, the implementation of which exempts foreign creditors from complying with the Conditions.

At the same time, according to Federal Law No. 39-FZ dated 25 February 1999 “On Investment Activities in the Russian Federation carried out in the form of capital investments”, investments are cash, securities, other property, including property rights, other rights having a monetary value, invested in objects of entrepreneurial and (or) other activities for the purpose of making a profit and (or) achieving another beneficial effect.

It is unknown what exactly will be considered investments for the application of the Extract’s provisions. We believe that additional clarifications from the Ministry of Finance of the Russian Federation will be published soon.