From 1 January 2020 Russia is abolishing all currency control restrictions on payment of funds by non-residents to bank accounts of Russian residents opened with banks in OECD or FATF member states, provided that such states participate in the automatic exchange of financial account information with Russia.
This will mark the end of the current restrictive regime under which residents are allowed to credit funds to declared accounts only in a limited number of cases outlined by the currency control law. As a result, from 2020 Russian residents will be able to freely use such declared personal foreign accounts for, among other things, savings and investment in wide range of financial products.
Furthermore, holders of accounts with a low balance or turnover (less than RUB 600,000) in such participating countries will be exempt from the requirement to submit annual cash flow reports on such accounts. That said, they would still be required to file one-off notifications when opening such accounts.
Softer regime for foreign bank accounts of Russian residents
On 2 August 2019 the President of the Russian Federation signed Federal Law No. 265-FZ amending Federal Law No. 173-FZ “On Currency Regulation and Currency Control” dated 10 December 2003.
According to the law, all restrictions on the payment of funds by non-residents into Russian resident individuals’ declared foreign bank accounts will be abolished from 1 January 2020, provided that:
- the account is opened with a bank in an OECD or FATF member state; and
- the state where the bank is located participates in the automatic exchange of financial account information (the list of such states is to be published on the web-site of the Russian Federal Tax Service).
The law also permits crediting of funds in the following cases to declared foreign bank accounts in all countries:
- payments from non-residents in Russian rubles under foreign trade agreements which are not subject to the repatriation requirements (see “Revenue repatriation” below);
- income paid to resident individuals by non-residents upon the sale of precious metals held in foreign bank accounts, if such payments bypass Russian banks due to the requirements of foreign law;
Furthermore, for bank accounts in OECD or FATF member states (regardless of whether they participate in automatic exchange of financial account information), the law permits return of funds previously transferred by an individual for fiduciary management. Under the previous regulations, it has only been expressly permitted to receive income from fiduciary management into foreign accounts.
No more cash flow reports on accounts with insignificant turnover or balance
There will be no need to submit annual cash flow reports on accounts, if:
- The turnover or balance of the account is insignificant, specifically:
- Total credits (debits) over the year do not exceed RUB 600,000 (or the equivalent in foreign currency); or
- The year-end balance does not exceed RUB 600,000 (or the equivalent in foreign currency) in the absence of any fund credits during the year;
- the account is in a bank located in an OECD or FATF member state;
- the state where the bank is located participates in the automatic exchange of financial account information.
New reporting requirements for accounts with other financial institutions
As of 1 January 2020 the requirements and restrictions will extend not only to foreign bank accounts but also to accounts with other financial institutions (financial market organizations).
These are defined as organizations entitled to raise funds or other financial assets from residents for depositing, management, investment and (or) carrying out other transactions (i) for the benefit of the residents or (ii) directly or indirectly at the expense of the residents.
Russian individuals who are residents for currency control purposes will be required to:
- file both notifications on opening (closing) or on a change of account details and cash flow reports for accounts with financial institutions (e.g., brokerage accounts with foreign brokers) as they do for accounts with foreign banks; and
- follow the restrictions on credit (debit) transactions to be imposed separately by the Russian Central Bank
There will be a gradual abolishment of the repatriation requirements for earnings under foreign trade agreements between residents and non-residents. This will take place over the period from 1 January 2020 to 1 January 2024.
The liberalization (i) will only cover those agreements the terms and conditions of which specify the amount of liability and that payments are effected in Russian rubles, and (ii) will not cover loan agreements.
Third round of the Russian voluntary disclosure program
The liberalization of currency control regulations takes effect as of 2020 and will not indemnify residents against the risks related to previous periods. Individuals can regularize such risks by participation in the voluntary disclosure program (i.e., “capital amnesty”) that takes place from 1 June 2019 until 29 February 20201. Detailed information on the terms of the third round of the voluntary disclosure program can be found in the information letter below2.
Actions to consider
Taking into account new and existing requirements of Russian legislation, together with the exchange of financial account information, Russian currency control residents with foreign accounts are recommended to:
- analyze the use of accounts with foreign banks and financial organizations from the perspective of both the current tax and currency control legislation and the amendments in effect as of 1 January 2020;
- regularize discovered violations, including by disclosing previously undisclosed accounts and submitting cash flow reports for such accounts;
- consider participating in the third round of the voluntary disclosure program in 2019;
- analyze potential options for restructuring the ownership of foreign assets and foreign accounts in order to comply with Russian tax and currency control regulations.
1. Federal Laws No. 110-FZ dated 29 May 2019, “On Amendments to Federal Law 140-FZ “On Voluntary Declaration by Individuals of Property and Bank Accounts (Deposits) and on Amending Certain Legislative Acts of the Russian Federation”; No. 111-FZ “On Amendments to Article 45 of Part One and Article 217 of Part Two of the Russian Tax Code”; and No. 112-FZ “On Amendments to Article 76-1 of the Russian Criminal Code”