Russian residents switched to direct ownership of ESO to be able to receive dividends without using C accounts - Central Bank

MOSCOW. Feb 13 (Interfax) - Permission from the Russian government commission overseeing foreign investment in the country is not required to conduct transactions involving the transfer of direct ownership of economically significant organizations (ESO) by Russian residents, and the payment of dividends to them does not require the use of C accounts, the Central Bank of Russia said in an explanatory note.

Federal Law No. 470-FZ "On the Specifics of Regulating Corporate Relations in Business Entities That Are Economically Significant Organizations" was adopted in August 2023 and required Russian beneficiaries of ESOs to switch to direct ownership of them, from the ownership chain excluding foreign holding companies (FHC) located in unfriendly jurisdictions with an ownership share in a Russian "significant" company of at least 50%. For this purpose, A judicial procedure for suspending the corporate rights of FHCs is provided.

At the same time, presidential decrees No. 81, No. 95, and No. 737 from 2022 limit the possibility of conducting transactions with unfriendly foreigners, namely implementation requires permission from the government commission overseeing the implementation of foreign investments in Russia.

The CBR explains that this requirement does not apply to situations involving the transfer of ESO shares and stocks into direct ownership by Russian citizens and residents of the Russian Federation, since these transactions are carried out pursuant to the requirements of federal law No. 470-FZ and the court decision to suspend the exercise of a FHC's corporate rights in ESO.

Additionally, the requirements of the presidential decrees on the use of C accounts for the same reason do not apply to cases of dividend payments to residents of the Russian Federation and friendly non-residents who have received ESO shares into direct ownership.

There are currently 17 companies on the ESO list. The initial version of the document in March 2024 included legal entities participating in the ownership structure of Alfa-Bank, AlfaStrakhovanie , X5 Retail (MOEX: X5) Group, and Azbuka Vkusa networks, and the fertilizer producer Acron , JSC AB Holding, YUNS-Holding LLC, X-5 Corporate Center LLC, City Supermarket LLC, and JSC Acron Group. It also included Khakassia's Razrez Arshanovsky LLC. PJSC Rusagro Group and JSC Evraz NTMK were then particularly added to the list.