Refund of Advance Payments from EU Counterparties: Step-by-Step Guide for Russian Companies

Since 2022, Russian businesses have faced significant challenges in working with European partners, including difficulties in recovering advance payments for undelivered goods or services. However, in 2025, a new refund mechanism became available for Russian companies. This article provides a detailed explanation of how to recover advance payments from EU counterparties, required documentation, and potential pitfalls in the process.

Legal Basis for Refund of Advance Payments from the EU

According to Article 11 of EU Regulation 833/2014, European companies are not obligated to fulfill contractual obligations to Russian partners if contract execution violates sanctions restrictions. Moreover, until recently they could also withhold advance payments already received from Russian companies.

However, an important amendment was introduced to the Regulation in 2025: European counterparties can now obtain special permission to refund advance payments to Russian partners. To do this, they must submit an application to the regulatory authority of the country where the European counterparty is registered no later than December 31, 2025.

“This innovation allows European companies to legally return funds to Russian partners, but only under strict conditions,” explains an international payments expert.

Who Can Claim Refund of Advance Payments?

Russian legal entities are eligible for refunds if they:

1. Transferred advance payments to European counterparties before sanctions were imposed
2. Did not receive goods or services due to sanctions
3. Have documentary evidence of the fund transfer (contract, payment order, certificates)

It’s important to note that the new mechanism doesn’t apply when European companies simply refuse to fulfill obligations without citing sanctions. In such cases, chances of fund recovery are extremely low.

Step-by-Step Refund Procedure

Step 1. Document Preparation

The Russian company needs to compile a complete set of documents proving:

• Advance payment transfer (payment orders, statements)
• Existence of contractual relations (contract, supplementary agreements)
• Reason for non-fulfillment (official notice from European partner about inability to deliver due to sanctions)

Step 2. Contacting the European Counterparty

An official request should be sent to the European partner asking them to initiate the refund procedure through their national regulator. The request should specify:

• Account details for refund (preferably in a “friendly” jurisdiction)
• Justification that the refund is needed for “withdrawal of assets from Russia or termination of business in Russia” – this is a key requirement for application approval

Step 3. Submission of Application by European Counterparty

The European company must submit an application to the competent authority of their country (list of authorities by EU country is provided in Annex I to Regulation 833/2014). The application should include:

• Contract and account details
• Information about the Russian recipient
• Justification that the refund meets one of the two permitted purposes

Step 4. Regulatory Review of Application

Review time varies by EU country and may take from several weeks to months. The regulator checks:

• Compliance with sanctions regime
• Absence of recipient’s ties to sanctioned persons
• Application’s compliance with established form

Step 5. Fund Transfer

If approved, funds are transferred to the account specified by the Russian partner. Note that many European banks may refuse to process the payment even with regulatory approval – this is known as “overcompliance.”

Alternative Refund Methods

If the European counterparty refuses to cooperate or the regulator denies permission, consider these options:

1. Arbitration: In some cases, arbitration may order a European company to refund. However, enforcement of such decisions in the EU is currently extremely difficult.
2. Mutual Settlement: If the Russian company has counter-obligations to the European partner, mutual settlement can be attempted.
3. Using Intermediary Chains: Some companies successfully recover funds through third countries, though such schemes involve high risks and fees.

Challenges and Limitations of the Refund Mechanism

1. Timing: The process may take several months, with the final application deadline being December 31, 2025.
2. Bank Refusals: Even with regulatory approval, banks may block transfers due to secondary sanctions concerns.
3. Varying Approaches Across EU: Some countries interpret prohibitions broadly and often deny refunds, while others may be more lenient.
4. Limited Grounds: Refunds are only permitted for “withdrawal of assets from Russia or termination of business in Russia,” excluding many commercial situations.

Recommendations for Russian Companies

1. Act Quickly: With less than six months until the December 31, 2025 deadline, timely application submission is crucial.
2. Prepare Documents in Advance: More complete documentation increases chances of success.
3. Choose “Friendly” Accounts: For receiving funds, prefer accounts in jurisdictions not blocking Russian payments (China, UAE, Turkey, etc.).
4. Consult Specialists: Lawyers specializing in sanctions law can help properly prepare applications and improve chances of recovery.

“The most important thing now is not to miss the deadline. After December 31, 2025, this refund mechanism will cease to function, making advance payment recovery practically impossible,” experts note.

The new mechanism for refunding advance payments from European counterparties represents a real but time-limited opportunity for Russian companies to recover their funds. The procedure requires thorough document preparation, coordinated work with European partners, and understanding of sanctions risks. Companies in this situation should initiate the refund process as soon as possible to meet the “window of opportunity” before it closes at the end of 2025.