Real estate transactions with those from “unfriendly” countries: key changes for April 2022

Real estate transactions with those from “unfriendly” countries: key changes for April 2022

1 March 2022 saw the entry into force of a decree of Russia’s president[1]?introducing a special procedure, effective 2 March 2022, for residents of Russia to consummate transactions with people or entities from “unfriendly” countries involving the transfer of title to real estate[2].

?

Bank of Russia guidance

The Bank of Russia then issued official guidance on 18 March 2022[3]. The guidance clarifies that the following cases, among others, are?not covered?by the?restrictions of the special procedure?for real estate transactions with those from “unfriendly” states:

• real estate, including construction in progress, that is outside of the Russian Federation, if the transactions for those properties are paid for using Russian residents’ bank accounts with foreign banks located outside of Russia, and if the residents disclose those transactions to the Russian tax authorities;
• transactions involving special foreign entities[4].

The Bank of Russia also clarifies in its guidance that the definition of “resident” contained in Federal Law No. 173-FZ of 10 December 2003 “On Currency Regulation and Currency Control” must be used to determine who is a resident of Russia. In that law, residents include:

• citizens of the Russian Federation[5];
• foreign citizens and stateless persons who permanently reside in Russia on the basis of a residence permit;
• legal entities set up under Russian laws (other than foreign legal entities registered under the Federal Law “On Foreign Companies”);
• branches, representative offices and other subdivisions of Russian residents set up under Russian laws and located outside of the Russian Federation;
• diplomatic missions and consular offices;
• the Russian Federation, Russian Federation constituent entities and municipalities.

Finance Ministry guidance

Russia’s Finance Ministry published official guidance on 22 March 2022[6]?stating that a subcommittee of the Governmental Commission for Control over Foreign Investment in the Russian Federation (the “Governmental Commission”) decided?to allow individual residents of Russia to do the following without permission from the Governmental Commission:

• sell real estate to non-residents from “unfriendly” countries;
• purchase real estate from non-residents from “unfriendly” countries, provided that the funds under the transactions are credited to a special type “S” bank account;
• enter into shared construction agreements with non-residents from “unfriendly” countries.

We also remind you that, according to Russian President’s Decree No. 95 of 5 March 2022,?legal entities from “unfriendly” countries?may make transactions?without permission from the Governmental Commission?if they meet all of the following criteria[7]:

• they are controlled by Russian legal entities or natural persons, including if they are controlled through legal entities from “unfriendly” countries;
• the Russian legal entities or natural persons controlling them have disclosed information about their control to the Russian tax authorities; this information must be duly documented when applying to Rosreestr[8].

Rosreestr guidance

In its guidance of 28 March 2022[9]?Rosreestr summarised the above and added that, for Russian citizens, including those who have permanent residency in an “unfriendly” country or dual citizenship:

• the title registration process has not changed if the transaction is with a person or entity not linked to an “unfriendly” person or entity;
• what is legally relevant for title registration is whether someone has Russian citizenship;
• Rosreestr does not have additional requirements to include wording about foreign entities in sale and purchase agreements;
• there is no change to the application procedure for cadastral registration of real estate and title registration, nor has the list of documents needed for registration changed.

?

[1]??Russian Federation President’s Decree No. 81 of 1 March 2022 “On Additional Temporary Measures of an Economic Nature to Ensure the Financial Stability of the Russian Federation”.

[2]??Pursuant to Russian Federation Government Order No. 430-r of 5 March 2022, the list of foreign countries taking unfriendly actions against Russia includes Australia, Albania, Andorra, the United Kingdom, the European Union member states, Iceland, Canada, Lichtenstein, Monaco, New Zealand, Norway, the United States and a number of other countries.

[3]??Bank of Russia official guidance No. 2-OR of 18 March 2022 “On the Application of Certain Provisions of the Russian Federation President’s Decree No. 79 of 28 February 2022 ‘On the Application of Special Economic Measures in Connection with the Unfriendly Actions of the United States of America, Other Foreign States and International Organisations That Have Joined Them’, the Russian Federation President’s Decree No. 81 of 1 March 2022 ‘On Additional Temporary Measures of an Economic Nature to Ensure the Financial Stability of the Russian Federation’, and the Russian Federation President’s Decree No. 95 of 5 March 2022 ‘On the Temporary Procedure for Performing Obligations to Certain Foreign Creditors’”.

[4]??Russian law does not currently define the term “special foreign entities”.

[5]??A citizen of Russia who also holds other citizenship is considered only as a citizen and resident of Russia.

[6]???https://minfin.gov.ru/ru/press-center/?id_4=37819-grazhdane_rossii_smogut_sovershat_sdelki_kupli-prodazhi_nedvizhimogo_imushchestva_s_nerezidentami.

[7]??Para. 12 of Russian Federation President’s Decree No. 95 of 5 March 2022 “On the Temporary Procedure for Performing Obligations to Certain Foreign Creditors”.

[8]??Such confirmation could be a Federal Tax Service of Russia receipt for an e-document, a note that the document has been accepted, or a mail receipt with a list of enclosures and note from the post office.

[9]???https://rosreestr.gov.ru/press/archive/rosreestr-kak-provesti-sdelku-s-uchastiem-lits-iz-nedruzhestvennykh-stran/.