Sale of a share in an LLC to foreign participants

Contents:

• Grounds for the sale of the LLC’s share to foreign companies and individuals
• What is important to know about the Government Commission?
• Taxation in case of sale of a share of an LLC by a non-resident
• Submission of a purchase/sale agreement in the Unified State Register of Legal Entities

The sale of shares in an LLC to foreigners or companies requires careful preparation. Any transaction related to the sale of a company or its parts involves a waste of time, careful preparation of documents and study of pricing and the market. In this article, we will take a detailed look at how to make a deal to sell assets to foreigners.

Grounds for the sale of the LLC’s share to foreign companies and individuals

Since 2022, LLC transactions with any non-residents of Russia are regulated by Presidential Decree No. 618. The document defines the requirements for the sale of shares to foreigners or foreign companies, dictates the rules for conducting transactions and explains which transactions can be carried out in a simplified manner. The main requirement of the decree states that in order to sell a share of the company, some non-residents need to obtain permission from the Government Commission. This body monitors the investments of foreigners in the territory of the Russian Federation.

When it is necessary to get permission:  

• In the case of a transaction for the sale of a share of an LLC between residents and “unfriendly” residents, as well as their controlled persons.
• In the case of a transaction between “unfriendly” residents.
• In the case of a transaction between “unfriendly” residents and other non-residents.
• In case of conclusion of a contract for the purchase and sale of shares.
• In the case of transactions that may entail the establishment, modification, termination of ownership rights or transactions involving changes in the use and division of shares.

When it is not necessary to get permission:

• If there are a number of transactions for the sale of shares in the financial sector.
• If there are a number of transactions for the sale of shares in the fuel and energy sector.

What is important to know about the Government Commission?

The Government Commission for the Control of Foreign Investments is a body established in Russia as a supervisory body. It is responsible for checking foreign investments in areas related to the defense and security of the state. The main task of the commission is to coordinate transactions and transactions by foreign companies that invest in Russian business or are going to buy out a share in it. The Commission establishes control over foreign investors or a group of persons who have a foreign investor among them.

However, most transactions are still carried out strictly with the permission of the Government Commission. Especially if the non-resident is a citizen of an “unfriendly” country. It is necessary to inform the commission about any transactions that involve the sale of a share of an LLC to foreigners from unfriendly and other countries. This also applies to the conclusion of corporate contracts, pledges, pledges of shares or options.

In addition to documents from the Government Commission, it is necessary to obtain permission to attract foreign capital into the country’s economy or obtain an appropriate license.

All transactions with non-residents of Russia have tax restrictions and consequences. The sale of shares in an LLC to foreign citizens or companies may lead to the emergence of tax obligations of the seller and the buyer. The buyer’s country of origin plays a very important role in taxation: it is necessary to know exactly the tax regime between Russia and the country of origin of a non-resident. In some cases, if there are any agreements between the countries, a simplified taxation system will operate.

Taxation in case of sale of a share of an LLC by a non-resident

There are several types of taxes that will be imposed depending on the nationality of the buyer of the share. First of all, it is necessary to consider the following conditions:

• Taxable income. If the seller is a tax non-resident of Russia and there is no agreement on the avoidance of double taxation between states, then the shares in the capital will be subject to personal income tax in accordance with the laws of the Russian Federation.
• Tax rate. If the shares were owned for less than 5 years, the tax rate is 30%. However, if entity own a share for more than 5 years, the income from the sale will not be subject to personal income tax.
• Special conditions. If there is an agreement between the countries on the avoidance of double taxation, then it is necessary to start from its conditions.

It should also be noted that there is currency control, which requires compliance with certain rules and requirements for some transactions. For example, if a Russian LLC sells a share, then a non-resident will be obliged to sell part of the proceeds from the sale of a share in the domestic market of the Russian Federation.

Submission of a purchase/sale agreement in the Unified State Register of Legal Entities

Any purchase/sale transaction in the authorized capital of an LLC requires notarization. Otherwise, it will be considered invalid. The certification procedure is carried out only by a lawyer of Russia since foreign notaries and consuls of the Russian Federation in another country do not have the authority to certify.

All founders need to sign a contract. All procedures for registering a new owner of a share are carried out at the request of a notary, the LLC itself does not do this. The certification of the transaction and the provision of documents can be made in one day. Entering data into the Unified State Register of Legal Entities takes five working days.

Results

As part of the sale of LLC shares to foreign residents and companies, in is important to carefully consider all possible legal requirements, as well as understand the risks. If it is necessary to sell a share in any LLC, it is necessary to seek the help of qualified lawyers. The specialists of the VALEN consulting company will help determine all the risks when buying and selling shares to foreign companies.

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