Washington, D.C. (June 27, 2023) - On June 4, 2023, President Putin instructed the government of the Russian Federation to use proceeds from the "exit tax," which foreigners from "unfriendly" states pay when selling their Russia assets, for subsidies to the Industry Development Fund and for funding research and development projects to develop "priority industrial goods," including reverse engineering. President Putin had previously instructed the government of the Russian Federation to use some proceeds from the "exit tax" for funding tourist infrastructure in Crimea and Sevastopol.
The above update builds on a March 30, 2023 publication by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), whereby OFAC updated its FAQ 1118 regarding the payment and implementation of the Russian "exit tax" in connection with the divestment of assets from Russia and with respect to specific licenses required from OFAC for such transactions. See Lewis Brisbois' alert, "Exit Tax and Divestment from Russia," dated May 17, 2023.
Furthermore, foreigners from "unfriendly" states who sell their assets in Russia are required to pay the exit tax as a condition of obtaining required permission for the sale from a special sub-commission of the Government Commission for Control of Foreign Investment. The tax amounts to 5% of the asset's market value for assets that are sold at a discount of 90% or less, and to 10% for assets sold at a greater discount.
Such transactions potentially may require involvement and transactions with the Central Bank of the Russian Federation or with the Ministry of Finance of the Russian Federation. OFAC's guidance presents questions and a further assessment of the transaction for U.S. persons seeking to divest their assets from Russia, drawing more scrutiny on the party taking responsibility to pay the "exit tax."
Therefore, U.S. persons whose divestment of assets in the Russian Federation will involve a payment of a Russian "exit tax" should seek a specific license from OFAC and support for establishing the market value for assets being sold. A request for a specific license with OFAC's Licensing Division can be submitted online here.
Lewis Brisbois' attorneys are actively engaged in the wide range of legal issues in this area, and are advising clients on managing legal and business risk as events continue to develop at an accelerated pace. For more information, contact the author or editors of this alert. Visit our Ukraine Conflict Response Practice page for additional alerts in this area.
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