The Russian Government is discussing an increase of the “exit tax” from 15% to 40%

ALRUD has received information from various sources indicating that this increase is under consideration. Reports suggest that the exit tax could rise to as much as ****40% of the valuation**** of the relevant asset. Despite conflicting information circulating in public sources, our contacts within the authorities have stated that ****no official decisions have been made**** regarding this matter. Additionally, there have been no updates to the counter-sanctions regulations that would formalize this approach, which has typically occurred in past instances of similar changes.

Current Regulation of the “Exit Tax”

To obtain approval from the Sub-Commission of the Government Commission for Control over Foreign Investments in the Russian Federation (the “Sub-Commission”) for a transaction, it is required to provide a valuation report prepared by an authorized appraiser, which must be verified by an opinion from an authorized self-regulatory organization of appraisers. Two key requirements for receiving approval are based on the valuation figures: ****a discount**** for the asset ****of at least 50%**** from the valuation, and ****the “exit tax”****, which is currently set at ****15% of the valuation****.

While the “exit tax” is formally supposed to be 15% of the asset's value, ALRUD has encountered multiple instances where the Sub-Commission has adopted a ****case-by-case approach****, demanding an ****exit tax of up to 30%**** of the valuation. The risk of such elevated requests significantly increases if the Sub-Commission determines that the valuation has been ****understated**** for the purpose of minimizing the discount and the “exit tax.”

It is also possible that the Sub-Commission may apply a ****case-by-case approach**** based on the ****size and significance**** of the transaction, as well as the ****apparent intent**** of the owners ****to exit the Russian market****. Consequently, the more exceptional the transaction and the more pronounced the owners' desire to leave Russia, ****the greater the barriers**** the Sub-Commission may impose on the transaction.

Impact of the potential increase of the “Exit Tax”

An increase of the “exit tax” from 15% to 40% could significantly influence the decisions of foreign companies still operating in Russia regarding transactions to sell their Russian assets. Moreover, the increased “exit tax” could also apply to transactions that are ****already under consideration**** by the authorities. This change could not only affect ****the terms**** of these transactions but also complicate matters if ****a license**** for making the relevant payment has been obtained ****from OFAC or other foreign regulators****. In such cases, it may be necessary to amend the existing license or obtain a new one to facilitate the payment.

It is important to note that there have been ****no official decisions**** from the Sub-Commission concerning suggested increase of the “exit tax” as of now. According to information available to ALRUD, similar discussions have occurred several times in the past, leaving uncertainty about whether the “exit tax” will indeed be increased in the near future.

We will continue to monitor the situation and provide updates should any developments arise.