New insights regarding the potential “exit tax” increase

Previously ALRUD reported that an increase of the “exit tax” up to 40% of the valuation was being discussed by the Russian Government. The new information provided by ALRUD’s sources suggests that the “exit tax” will be increased ****up to 35%**** total, with ****three separate payments within 2 years**** from closing of a transaction. Please note, however, that no official statements have been made by the authorities.

The new approach to the “exit tax”

Currently the “exit tax” is equal to ****15% of the valuation****. Payment of the “exit tax” to the Russian federal budget is one of key requirements to obtain approval of the Sub-Commission of the Government Commission for Control over Foreign Investments in the Russian Federation (the “Sub-Commission”).

The latest information received by ALRUD specialists from government officials suggests that it is planned to increase the “exit tax” ****up to 35% of the valuation**** of the relevant asset with the following payment terms:

• ****25%**** to be paid within ****2 months**** from closing;

• ****5%**** to be paid within ****12 months**** from closing;

• ****5%**** to be paid within ****24 months**** from closing.

Please note that it is not planned to introduce a requirement to submit new valuation reports in order to calculate 5% “exit tax” payments.

Possible implications of the “exit tax” increase

Implementation of the proposed changes to the payment structure of the “exit tax” may affect a ****subsequent acquirer in the event of resale**** of the relevant assets within two years from closing of the initial transaction. In other words, since in most cases the acquirer bears ****the obligation to pay**** the “exit tax”, in the event of resale, the obligation to pay the remaining parts of ****the “exit tax” may pass to the subsequent acquirer****.

In addition, as noted in the previous newsletter, an increase of the “exit tax” could apply to transactions that are ****already under consideration**** by the authorities, and may also result in the need to obtain a ****new OFAC**** / other foreign regulator’s ****license or amend the existing one**** (if such license is required for the transaction and has already been obtained prior to the issuance of the Sub-Commission’s decision).