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Legislative Updates

New Russian Currency Law


On 15 December the Russian President signed the new version of the Federal Law "On Currency Regulation and Currency Control" (the "Law"), which is to replace the existing version of the law. Most of the provisions of the Law will come into effect 6 months after its official publication.

The key provisions of the Law, in comparison with the existing version of the law, appear to be the following:

1. The Law now contains an exhaustive closed list of capital currency operations, the performance of which may be regulated by the Russian Government or the Central Bank. However, the scope of capital currency operations remains extensive.

2. The main principle of Russian currency control is changed from "everything which is not allowed is prohibited" to the opposite (liberal) one: "everything which is not prohibited is allowed".

3. The methods of regulation of capital currency operations are changed dramatically. Instead of individual permissions for performance of such operations, the Government or the Central Bank, in accordance with their authority granted by the Law, are entitled to introduce the following restrictions: performance of operations through so-called "special accounts"; depositing, for a certain period of time (up to 2 years) and on an interest free basis, a ruble equivalent of a certain percentage (up to 100%) of the amount of a currency operation with a Russian authorized bank (a so-called "reserve" requirement); prior registration of a currency operation; and passport of the deal with a Russian authorized bank.

4. The mandatory repatriation requirement in relation to foreign currency export proceeds of Russian residents will remain. However, the Law establishes exemptions from the mandatory repatriation requirement in relation to export proceeds (i) credited to offshore accounts of residents or non-residents and (ii) securing obligations of Russian residents under the following loans from "non-resident organizations agents of the governments of foreign states" and from "residents of states-members of OECD or FATF" for a term exceeding 2 years.

5. The mandatory conversion requirement in relation to foreign currency export proceeds will remain the same (the maximum level of 30% with the right of the Central Bank to establish a lower percentage).

6. Russian legal entities will be able to freely open offshore accounts in OECD/FATF countries. This provision of the Law will come into effect 1 year after the official publication.

7. Many of the currency control restrictions established by the Law are due to be abolished as of 1 January 2007.

To summarize, the Law liberalizes certain areas of Russian currency control. However, this is counter-balanced by the introduction of new methods of regulation. In particular, it seems that in practice the currency control regime in Russia will depend on the extent to which the Government and the Central Bank will utilize their powers to regulate capital currency operations.

See more:
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