On January 1, 2020, amendments to Federal Law on Currency Regulation and Currency Control No. 173-FZ (hereinafter referred to as the Currency Law or the Law) came into force. Compared to the previous version of the Law, the amended legislation lowers the barriers for the repatriation of funds under foreign trade agreements and provides exemptions from submitting reports on the movement of funds to foreign bank accounts.
The lifting of the repatriation obligation
Chapter 3 of the Law stipulates the obligation on residents to timely receive or return funds under the supply contracts and service agreements with non-residents, as well as to return funds under loan agreements with non-residents. In practice, foreign supply contracts and foreign service agreements were obliged to include the concrete terms of the performance of the contract which foresees the liability of the resident under the administrative and criminal law.
The amendments to the regulations lifting the obligation to stipulate the repatriation of funds from certain categories of residents, namely, exporters of non-raw materials, service providers or residents who transfer intellectual property to non-residents. For residents specialized in the export of raw materials, the Law also provides for the lifting of the repatriation requirement, but prescribes for a progressive plan of its entry into force. Residents shall both specify the amount of obligations and effectuate the payments in rubbles in order to benefit.
The changes should contribute to the implementation of the target of the Russian Ministry of economic development for increasing of the ruble payments share in foreign trade to 30% by 2024, announced last November. According to the latest statistical information on the official website of the Central Bank, the share of the ruble in transfers of individuals for the 3rd quarter of 2019 was 26.3%, and the share of ruble receipts – 18.4%.
Cancellation of the obligation to submit reports on the movement of funds to foreign accounts
In addition, from January 1, 2020, residents are waived from the obligation of submitting regular reports on cash flows in foreign accounts to the tax authorities. However, the following conditions must be met:
- A foreign bank account must be opened in a foreign financial institution located within the territory of a member state of the Financial Action Task Force (FATF) or the Organization for Economic Cooperation and Development (OECD) participating in the automatic exchange of financial information with Russia; and
- The total amount of transactions to a foreign bank account must not exceed RUB 600,000 or its equivalent in a foreign currency (over USD 9,700). In cases where no transfers were made to a bank account within the reporting years, the Law imposes additional requirements for the Bank account balance, which shall also not exceed RUB 600,000.
The new amendments should have a positive affect for the share of rubles in foreign trade contracts, while the ease of currency regulation would facilitate the foreign trade activity of economic entities. Companies engaged in foreign trade activities are recommended to follow the subsequent development of provisions in law enforcement practice and find the best options to conclude international business contracts.