On May 04, 2022, Presidential Decree No.254 was published, under which Presidential Decree No.95 starts to apply to dividend payments from limited liability companies, partnerships and cooperatives to residents of non-friendly states and entities they control (unless they are registered in Russia).

As a reminder, Decree No.95 provides for dividends over RUB 10 million to be paid:

• only to a special C-type account opened for a non-resident by a resident in a Russian credit organization; and
• only in Russian rubles.

Considering that, in practice, dividends are usually paid in a lump sum, there is a risk of regulatory authorities setting a limit of RUB 10 million for the entire amount of dividends, despite the fact that there are no such direct instructions. At the same time, given the effective regulation, distributing monthly payments of dividends in the amount less than RUB 10 million seems risky, and, in our opinion, could lead to suspicions of schemes for the illegal withdrawal of funds from the Russian Federation.

At the same time, the requirement to transfer funds to a special C-type account actually precludes non-residents from using these funds.

Meanwhile, a different procedure for paying dividends may be provided by the Russian Central Bank (for residents being financial organizations) and the Russian Ministry of Finance (for other residents), including through granting specific permits. The procedure and justified criteria for granting residents the right to pay dividends in the normal course of things have not yet been clarified. For example, it is unclear whether the payment of retained earnings accumulated in previous periods can serve as a basis for obtaining a permit.

It should be noted that previously Decree No.95 applied only to payments in favor of non-friendly non-residents as to credits, loans and financial instruments (including JSC shares). Despite this procedure being called “temporary,” neither Decree No.95 nor Decree No.254 sets a validity period.

In addition to restrictions on dividend payments, Decree No.254 specifies cases when transactions are allowed involving the transfer of ownership title to real estate and securities without the Government Commission’s permit.