Last month, Russian legislators adopted major changes to RF Law No. 173-FZ, ‘On currency regulations and currency control,’ of 10 December 2003 (the ˈCCLˈ), by adopting RF Law No. 218-FZ, ‘On amending various legislative acts of the RF’ of 21 July 2014 (ˈLaw 218-FZˈ). Law 218-FZ significantly expands the list of permitted income sources for Russian residents’ foreign bank accounts.
Readers will recall, a key distinction in the application of CCL rules lies with a person’s ‘residency’ status. Under 2011 amendments to the CCL1, the definition of a resident for currency purposes includes: i) Russian citizens (including those travelling as tourists or temporarily living abroad), with the exception of Russian citizens who live permanently abroad for at least a full year2; ii) foreign nationals or stateless persons who live continuously in Russia under a residency permit; iii) Russian legal entities and their foreign branches, representative offices and other subdivisions; and iv) the RF, its units, diplomatic missions and consulates.
The majority of changes under Law 218-FZ concern regulations on accounts (including deposit accounts) of Russian residents in foreign banks (ˈForeign Accountsˈ). Transactions permitted to be made with and funds permitted to be credited to Foreign Accounts are provided by the CCL in an exhaustive list. Any transaction not expressly on the list is deemed an illegal currency transaction. Because the performance of illegal currency transactions became punishable in 2013 with severe confiscatory fines (75% – 100% of the value of the illegal operation), the expansion of the list of permitted transactions is a welcome move. Needless to say, it was long awaited by those Russian residents receiving or wishing to receive certain types of regular payments into their Foreign Accounts.
Summary of the Most Significant Changes
Under amended Article 12 of the CCL, Russian individual currency residents may now credit income from the following sources, directly into their foreign bank accounts:
- salaries, other types of compensation for work performed under employment agreements with non-residents, as well as business travel allowance/reimbursement under such agreements;
- sums due under foreign court judgments (nb this does not apply to awards by international arbitration tribunals);
- pension payments, child support, stipends and other social benefits;
- insurance payments from non-resident insurers;
- repayments of sums transferred erroneously to non-residents as payment for works, goods or services;
- monetary gifts between spouses and close relatives;
- lease (or sublease) rental payments on property (movable or immovable) of a resident which is situated outside Russia and leased (or subleased) to a non-resident;
- grant monies; and
- accrued interest (coupon) revenue paid in accordance with the terms of issue of foreign securities belonging to the resident, as well as other payments due under foreign securities.
The latter three grounds (nos. 7 to 9 above) are available only if the Foreign Account is opened in a country which is an OECD or FATF member.
Other new, permitted grounds for crediting Foreign Accounts (irrespective of whether the owner of the account is an individual or a legal entity) are as follows:
- interest earnings on deposits/accounts;
- a nominal payment required for the opening of the account/deposit;
- cash payments into the account/deposit;
- amounts received as a result of FX transactions with funds on the Foreign Accounts.
Whilst this is all positive news, unfortunately one aspect of Law 218-FZ is not quite so welcome. Effective 1 January 2015, Russian resident individuals are no longer exempt from the obligation to report movement of funds on their Foreign Accounts. The RF Government (in consultation with the RF Central Bank) is meant to work out the peculiarities of reporting. If the Government takes a ‘cut-and-paste’ approach applying the current rules on legal entities, this would mean individuals may have to report quarterly on their Foreign Accounts.
Overall, Law 218-FZ introduces some major positive amendments. Russian lawmakers have acknowledged Russian residents may have various types of foreign income, and this is properly creditable to their foreign accounts. However, the introduction of reporting requirements for individuals (effective 1 January 2015) introduces a major compliance hurdle (and potential source of liability). We hope the Government provides at least a more simplified approach for individuals.