Regime Under the Decrees
a modification (decrease) of the purchase price, removing collateral and imposing key performance indicators. The Decrees regime sets out a list of requirements for transactions. Among others, parties are required to: (i) procure an appraisal report on the market value of the Russian target company from a listed appraiser, together with a certification of such report’s compliance with applicable Russian standards; (ii) accept a 60% discount on the deal price (based on the appraisal value of the business); (iii) pay an additional exit tax to the Russian government in the amount of 35% of the appraisal value; and (iv) comply with key performance indicators imposed by authorities on the buyer. The requirements imposed by the government, including the ultimate size of the discount and/or the exit tax, may vary. Classic Regime Russia’s two main instruments of its FDI regime, the FiL and SSL, apply to non-Russian investors who plan to acquire an equity interest in, or establish control over, a Russian entity. General oversight is carried out by the Federal Antimonopoly Service (FAS), which handles administrative preparatory work, and the Government Commission for Control over Foreign Investments (the Commission), which approves transactions under FiL and SSL. The Commission should not be confused with the Sub-Commission, which is also an ad hoc institution, but is technically a different body that deals with clearance of transactions under a different FDI regime established by Decrees and consists of some other authorities. The FiL does not specifically cover investments in domestic assets (property) of Russian entities, and it generally has no sector or industry focus. However, the December 2022 amendments added several new criteria that increase the chances of triggering the requirement of FiL review (for example, if the target company has a dominant position in a given market or operates in the energy or movable satellite radio sectors).
The Decrees apply to any transaction related to the establishment, change, termination or encumbrance (directly or indirectly) of rights with respect to equity interests (either shares or interests in limited liability companies) in Russian legal entities, if such transaction involves, directly or indirectly (by way of indirect control over the buyer or the seller), a non-Russian investor from an “unfriendly” country. This new clearance regime is composed of numerous presidential decrees that apply to non-specific Russian target companies (under a general regime requiring approval by the Sub-Commission, except for high-value companies requiring presidential approval), as well as to specific entities and/ or entities operating in specific sectors and/ or engaged in specific activities, such as credit organizations (banks, etc.), companies in the oil, gas and energy sectors and certain other subsoil users. Transactions in these sectors may require approval from the Russian President rather than the Sub-Commission. From late February 2024, the Sub-Commission has been required to provide its recommendation to the President regarding transactions falling under the presidential approval regime (subject to exceptions). The Decrees regime may also apply to the acquisition of equity interests through the establishment of a Russian entity. The restrictions outlined above apply to all citizens of “unfriendly” countries, entities with a principal place of business or registered in such countries, and those whose income is primarily derived from or generated in such countries. The list of “unfriendly” jurisdictions currently totals 49 countries and territories (over 70 jurisdictions in total), which comprises all major jurisdictions that have imposed sanctions against Russia, including the United States, Australia, Japan, Canada, Singapore, the United Kingdom (together with its overseas territories) and the European Union. The Sub-Commission and the Office of the President have broad powers to approve or modify transactions that fall within their respective jurisdictions, including by directing
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FDI and National Security Review
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