A special procedure for the payment of royalties to certain categories of right holders has been recently established in Russia. Subject to the special procedure are any payments made in favour of the particular right holders related to intellectual property.

Payment of royalties to foreign right holders if they are residents of so called “unfriendly countries” (EU countries, USA and other countries which imposed sanctions against Russia) or are under control of such residents, fall under the special procedure. However, exceptions are applied in the following cases:

  • Foreign right holders duly perform their obligations under contracts concluded with Russian licensees;
  • Payments are made under licensing agreements necessary for the purposes of importing or producing of medicines, medical devices, industrial production, agricultural, and food products in Russia;
  • Payments are made under licensing agreements for the provision of communication and data traffic services, creation and (or) use of software, databases, information systems, and data centres in Russia;
  • Intellectual property is used by a resident individual for needs not related to entrepreneurial activities, and the payment does not exceed RUB 100 thousand (its equivalent in foreign currency);
  • Right holders simultaneously meet two conditions:
  • They are controlled by Russian legal entities or individuals (the Russian Government, Russian legal entities or individuals are the ultimate beneficiaries);
  • Information on the control over such foreign right holders is disclosed by Russian legal entities or individuals to Russian tax authorities.

At the same time, the above-mentioned exceptions cannot apply to foreign right holders that are residents of “unfriendly countries” or under control of such residents, if:

  • They have publicly supported or called for sanctions against Russia or Russian individuals;
  • After 23 February 2022, they have prohibited the use of their intellectual property in Russia or called for the prohibition of such use by one or several persons, if it is not economically justified;
  • They have terminated, suspended or substantially limited their activities in Russia, unless it was economically justified to do so;
  • They have committed public actions to discredit the Russian Armed Forces outside of Russia, or have publicly disseminated, under the guise of reliable reports, deliberately false information about the Russian Armed Forces;
  • They have disseminated information in the Internet or other networks that openly disrespect society, the state and official state symbols of Russia, the Constitution of Russia, or state authorities.

Russian licensees should apply a special procedure if they were notified of the abovementioned circumstances, since the notification can be considered the publication of information about these circumstances in the media or on official websites of state bodies in the Internet.

According to the discussed special procedure, royalties must be transferred in RUB to type “O” account opened for a foreign right holder in a Russian bank.

Type “O” account can be opened without presence of a foreign right holder - the Russian licensee should send an application to an authorized bank. The authorized bank shall be any Russian bank with a credit rating of at least “A” or “ruA” on the national rating system of Russia, which confirms on their web-site that they can open type “O” account. At the time of writing this article, we found two banks opening type “O” account - Alfa Bank and Otkrytie Bank (both sanctioned).  

If foreign right holders do not agree on payments going to type “O” account or it is technically impossible, a Russian licensee cannot make payments at all until foreign right holders give their consent on the use of type “O” account and/or provide information about the requisites of type "O" account on web-sites together with technical possibility to make payments by a Russian licensee to type “O” account. In this case, a Russian licensee is not considered to violate their payment obligations.

Payments received on type “O” account, generally, may be transferred to other accounts of foreign right holders (including opened in banks outside Russia), when a permit is issued by the Governmental Commission on Monitoring Foreign Investment.

Following the mentioned above, payments to foreign right holders from Russian licensees are now significantly limited.

It is advisable to seek professional legal advice under Russian law for any issues involving payments for the use of intellectual property if they involve right holders from “unfriendly countries”.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.