Difficulties in approving transactions with foreigners

Since the introduction of the invalidity of transactions with foreign companies from unfriendly countries without obtaining the permission of the subcommision of the Ministry of Finance, the conditions for obtaining such permission are constantly updated, new conditions are introduced, or old ones are changed. Experts also note that when considering applications, the subcommission takes into account not only formal criteria, but also a number of informal aspects.

Recently, the commission’s experts have been paying more attention to additional requirements for the ways of financing transactions and the working conditions of new owners.

What is important to consider when approving transactions with foreigners

• Influence of relevant ministries

Formally, the decision to issue a permit for a transaction is made by a subcommission of the government commission for monitoring the implementation of foreign investments. As practice shows, decision-making is influenced not only by members of the subcommission, but also by other persons representing various authorities. Often such persons are the relevant ministries that are responsible for the sector in which the company operates. For example, some line ministries may recommend to the subcommission not to allow transactions with certain companies or jurisdictions, thus forming an informal ban on the part of ministries.

• Additional requirements for the seller or buyer

To obtain permission, additional requirements for sellers or buyers may be added to the transaction. According to the latest innovations, such requirements may be an installment payment for several years, a discount from the current market value of the business or a one-time contribution to the budget. The subcommission can also determine requirements for buyers if one of the requirements for approving a transaction is the establishment of key performance indicators (KPI) for business buyers. Indicators can be the provision of a certain level of employment, a certain profit and production volumes, as well as the amount of tax fees.

• Analysis of the company’s behavior

When considering an application for a permit, the subcommision carefully examines the issue of continuing the company’s activities on the territory of Russia. Therefore, if a company curtails its activities in Russia, this may be one of the reasons for refusing to issue a permit.

• Business purchase transactions by management

Recently, the subcommission has more often refused to approve transactions for the repurchase of the company’s assets by its management. Experts attribute this to the government’s desire to transfer foreign business to a real buyer, as well as to attract a bank as a party that will finance this transaction and take assets as collateral to secure the transaction.

It is important to note that not all of the above criteria are official, but over time the subcommission may issue some of them as official, based on existing practice.