Easing dividend payments to "unfriendly" investors

At a meeting of the Government Commission held on 9 August[1], a new approach of the Ministry of Finance and the Bank of Russia to the issuance of permits for dividend payments (profit distributions) by residents to "unfriendly" shareholders (participants) was announced. On certain conditions, it will now be possible to obtain permits to pay dividends (distribute profit) without meeting the previously established requirements for their size, KPIs, etc.

Default requirements

As a reminder, restrictions on dividend payments (profit distributions) to "unfriendly" shareholders (participants) were prescribed by Presidential Edicts No. 95 and No. 254. Profit distributions/dividend payments exceeding RUB 10 million per month can be made only to a type C account. Otherwise, payments can be made only if the Bank of Russia grants a permit for financial institutions or the Russian Ministry of Finance grants a permit for other entities.

Permits are issued under the following conditions:

• Dividends may not exceed 50% of net profit from the previous year;
• The results of a retrospective analysis of dividend payments for prior periods should be taken into account;
• Participants/shareholders (foreign creditors) must be willing to continue doing business in the Russian Federation;
• The opinion of federal executive authorities and the Bank of Russia should be taken into account in assessing the significance of the entity’s business and its impact on the development of the Russian Federation;
• KPIs established by federal executive authorities must be met;
• Dividends can be paid on a quarterly basis, provided that KPIs are met.

Conditions for easing requirements

Even if the above requirements are not met, permits for dividend payments (profit distributions) may be issued if:

• "Unfriendly" shareholders (participants) have invested in the Russian economy after 1 April 2023, including in the expansion of production in Russia and the development of new technologies;
• Dividends (profit) do not exceed the amount of such investments.

Currently, it is unclear what will be regarded as investment, what form it will take and how it can be verified for purposes of applying the adopted exemptions.

It seems that if the planned amount of dividends (profit) exceeds the investments made, permits for dividend payments (profit distributions) will be issued on a mixed basis: (1) for dividends below the amount of investments, on the basis of confirmation of such investments and (2) for dividends higher than this amount, if the previously adopted requirements are met.