Transfer of a Participation Interest by a Foreign National in a Russian Company

Note on terminology. Throughout this article, the following translations are used for Russian legal terms:

• ООО (obshchestvo s ogranichennoy otvetstvennost’yu) — limited liability company (LLC);
• ЕГРЮЛ (Yediny gosudarstvenny reestr yuridicheskikh lits) — Unified State Register of Legal Entities (EGRUL);
• НДФЛ — personal income tax (PIT);
• СРО — self-regulatory organization of appraisers (SRO).

Government bodies are referred to by their full English names on first mention and abbreviated thereafter.

Since 2022, the question of foreign participation in Russian companies has taken on an entirely different dimension. The geopolitical events of that period gave rise to a broad package of restrictive measures that affected, among other things, corporate transactions. Previously, a foreign national could sell their participation interest in a Russian limited liability company (LLC) in the ordinary way – through a notary and the subsequent registration of changes in the Unified State Register of Legal Entities (EGRUL). Today, the situation is fundamentally different.

A powerful additional incentive to undertake urgent restructuring came with recent amendments to the rules governing state accreditation in the technology sector. Government Resolution No. 1729, as amended on 28 November 2025, introduced a new requirement for obtaining state IT accreditation issued by the Ministry of Digital Development: foreign participation in a company must not exceed 50%. For IT companies with foreign co-founders, this represents a direct requirement to restructure their corporate arrangements.

Постановление Правительства Российской Федерации от 30.09.2022 г. № 1729

Правительство России

Правительство России

At first glance, the task seems straightforward. A foreign national wishes to sell their interest to a Russian partner or a third party. However, since 2022, any such transaction requires a special approval from the Government Commission for Control over Foreign Investment in the Russian Federation (hereinafter – the Government Commission). This article explains how this mechanism works and what to expect in practice.

Legal Basis for the Restrictions

The regime governing transactions involving foreign persons was introduced by a series of Presidential Decrees in the spring of 2022.

Presidential Decree No. 79 of 28 February 2022 applied special economic measures in response to the actions of certain foreign states.

Указ Президента Российской Федерации от 28.02.2022 г. № 79

О применении специальных экономических мер в связи с недружественными действиями Соединенных Штатов Америки и примкнувших к ним иностранных государств и международных организаций

Президент России

Presidential Decree No. 81 of 1 March 2022 established a special procedure for transactions involving foreign persons from unfriendly states.

Указ Президента Российской Федерации от 01.03.2022 г. № 81

О дополнительных временных мерах экономического характера по обеспечению финансовой стабильности Российской Федерации

Президент России

Presidential Decree No. 618 of 8 September 2022 extended the restrictions to a broader range of operations, including transactions involving participation interests in the charter capital of limited liability companies.

Указ Президента Российской Федерации от 08.09.2022 г. № 618

Об особом порядке осуществления (исполнения) отдельных видов сделок (операций) между некоторыми лицами

Президент России

The key concept that defines the scope of these restrictions is that of a 'foreign person connected with an unfriendly state'. The list of unfriendly states was approved by Government Directive No. 430-r of 5 March 2022. It includes the member states of the European Union, the United States, the United Kingdom, Canada, Japan, Australia, Norway, Switzerland, the Republic of Korea, Singapore, and a number of other countries.

Распоряжение Правительства Российской Федерации от 05.03.2022 № 430-р ∙ Официальное опубликование правовых актов

Распоряжение Правительства Российской Федерации от 05.03.2022 № 430-р

Официальное опубликование правовых актов

For a foreign national, this means the following. If a person holds the citizenship of a state on this list, permanently resides in such a state, or conducts business activities there, they are treated as a person connected with an unfriendly state. It is precisely this classification that activates the entire restriction regime described below.

Which Transactions Require Approval

Most business participants assume that the restrictions apply only to a direct sale of a participation interest. This is a widespread misconception that frequently leads to serious consequences. Presidential Decree No. 618 was intentionally drafted in broad terms and covers any transaction that directly or indirectly results in a change of rights to own, use, or dispose of participation interests in the charter capital of a limited liability company.

In practice, this means that the regime applies not only to a direct sale, but also to a member's exit from the company through the transfer of their interest to the company itself, an increase in charter capital by way of a new member's contribution, the conclusion of a shareholders' agreement or option agreement, a convertible loan agreement, the pledge of an interest, a gift, and any form of reorganisation of the company.

If a foreign national wishes to alter the structure of their participation in a Russian company through any of these mechanisms, approval from the Government Commission will in all likelihood be required. Any attempt to circumvent this requirement through alternative arrangements not only fails to achieve its purpose, but also creates the risk that the relevant transactions may be declared void.

When Approval Is Not Required

The legislation provides for several exceptions under which approval from the Government Commission is not required.

The most important exception applies where a foreign person is in fact controlled by Russian beneficiaries. It operates when two conditions are satisfied simultaneously.

First, the actual control over the foreign person must be exercised by Russian legal entities or individuals.

Second, this control must have been disclosed to the tax authorities of the Russian Federation in the prescribed manner. It is critically important that the relevant information must have been disclosed before 1 March 2022. If the disclosure was made at a later date, the exception does not apply.

For a foreign national as an individual, this exception operates differently than it does for a foreign company. A foreign individual cannot in themselves be 'controlled' by Russian persons in the same sense as a corporate structure. In practice, therefore, this exception is most relevant where a foreign national holds an interest in a company that in turn forms part of a Russian corporate group with a properly disclosed ownership structure.

Approval is also not required for transactions carried out in execution of an enforceable court judgment, or in connection with a redomiciliation pursuant to Russian legislation on international companies. Where there are grounds to believe that a particular situation falls within one of these exceptions, a separate legal assessment is required before any practical steps are taken.

Specific Considerations for a Foreign National as Seller

Where the seller is a foreign national as an individual – rather than a foreign company – the engagement with the Government Commission has a number of distinctive features that deserve particular attention.

The documentary requirements are considerably more demanding than in the standard corporate context. A foreign national must produce documents confirming their identity and citizenship, the history of their acquisition of the interest and evidence of payment, and information about the source of the funds originally used to acquire the interest. All foreign documents must be legalised or apostilled and accompanied by a notarially certified Russian translation. These requirements apply in full both to identity documents and to any other materials issued by foreign authorities or organisations.

The question of the foreign national's tax residency is a separate issue that directly affects the tax burden on the transaction. If the foreign national has spent 183 days or more in Russia within the preceding 12 months, they are recognised as a tax resident of the Russian Federation and are subject to personal income tax (PIT) at the standard rates. Where this threshold has not been met, the individual is a non-resident and a higher rate applies. Tax residency status must be established before the transaction is concluded, not afterwards.

In practice, a foreign national almost always requires an authorised representative in Russia – an individual or organisation capable of communicating with government bodies, receiving formal enquiries, and submitting additional documents. The application review process involves active communication with several state agencies, and the presence of a representative on the ground substantially simplifies the process and reduces the overall timeline.

The Government Commission: Who Decides

The Government Commission is a standing body authorised to review applications for approvals under the regime described above. It operates under the chairmanship of the Minister of Finance of the Russian Federation and includes representatives of key federal agencies.

It is important to understand that the Government Commission exercises discretionary authority. There is no right to automatic approval, even where an applicant formally meets all declared criteria. A decision is issued once, and as of the present time it cannot be challenged before a court.

There is no publicly available and comprehensive procedural framework that describes the application review process in full detail. Requirements take shape through letters issued by the Ministry of Finance and through developing practice, which continues to evolve. This requires applicants to monitor current guidance closely and to prepare their application packages with particular care.

Conditions for Transaction Approval

Based on established practice, several consistent conditions can be identified that the Government Commission applies to transactions involving interests held by foreign members.

Discount to Market Value

The sale must be made at a discount of at least 60% to the market value determined in an independent appraiser's report. The original threshold was 50% and has been raised over time. In practical terms, a foreign national should expect to receive no more than 40% of the market value of their interest.

Voluntary Contribution to the Federal Budget

In addition to the discount, the transaction parties undertake to transfer to the federal budget at least 35% of the asset's market value as determined by the appraiser. The contribution is paid in instalments: 25% within one month of the transaction date, a further 5% within the first year, and the remaining 5% within the second year. When the regime was first introduced, this contribution stood at 10%; it was subsequently raised to 15% and now stands at 35%.

Market Valuation

The application must include a market valuation report prepared by an independent appraiser, accompanied by a positive expert opinion from a self-regulatory organisation of appraisers (SRO). Both the appraiser and the SRO must appear on the recommended lists published by the Ministry of Finance – an unwritten but firmly established condition for an application to proceed. An outdated valuation report is one of the most common grounds for a package being returned without review.

Requirements for the Acquirer and Large Transactions

The transaction conditions typically include performance targets for the new member: maintaining the company's line of business, preserving employee headcount, and honouring previously assumed obligations. Where the market value of the company's assets exceeds 50 billion roubles, the transaction additionally requires the consent of the President of the Russian Federation.

Step-by-Step Procedure

Obtaining approval from the Government Commission is a multi-stage process that requires careful and systematic preparation.

Step 1. Legal Assessment

The first step is to confirm that the transaction genuinely requires approval, to assess whether any exception applies, and to determine the optimal structure for the transaction. This is where the decision on how to structure the transaction is made, since changing course after the application has been submitted is considerably more difficult.

Step 2. Market Valuation

A market valuation report for the interest is commissioned from an appraiser included in the Ministry of Finance's recommended list. A positive expert opinion from an SRO on the corresponding list is obtained simultaneously. The valuation process takes time, and the shelf life of a report is limited. Coordinating the valuation with the preparation of the rest of the document package in parallel is therefore essential.

Step 3. Assembling the Document Package

For a foreign national, the package includes notarially certified translations of identity documents, materials on the history of ownership of the interest, evidence of the source of funds, consent to the processing of personal data, and a number of other documents. The precise list is determined by the specific circumstances of the transaction.

Step 4. Submitting the Application and Communicating with Agencies

The application is submitted through the relevant federal agency – typically the Ministry of Finance. Once submitted, a waiting period begins during which the agencies conduct their reviews and may issue requests for additional documents. Responding to these requests promptly has a direct bearing on the overall duration of the process.

Step 5. Decision and Completion of the Transaction

Following its review, the Government Commission issues a decision either approving or refusing the transaction. The decision takes the form of an extract from the minutes of the Commission's meeting. If approval is granted, the transaction is certified by a notary, after which the change in the company's membership is registered in the Unified State Register of Legal Entities (EGRUL).

The average timeline for obtaining approval, where a complete and properly prepared document package has been submitted, is approximately five months. With active engagement with the relevant agencies, this period can be reduced to three to four months. There are, however, cases where the review takes more than a year. No statutory time limits are prescribed.

Tax Consequences

The tax aspects of the transaction require careful attention. The parties frequently underestimate the combined tax burden at the planning stage.

For the Seller — the Foreign National

The sale of a participation interest by a foreign national gives rise to income from its disposal. If the seller is a tax resident of the Russian Federation, personal income tax (PIT) applies at a rate of 13% on income up to 5 million roubles and 15% on the excess. If the foreign national is a non-resident, a flat rate of 30% applies to the full amount of income.

The period of ownership is also relevant: where an interest has been held for more than five years, tax residents may be entitled to a property deduction under Article 217.1 of the Tax Code of the Russian Federation; however, the availability of this deduction for non-residents is limited.

НК РФ Статья 217.1. Особенности освобождения от налогообложения доходов от продажи объектов недвижимого имущества \ КонсультантПлюс

НК РФ Статья 217.1. Особенности освобождения от налогообложения доходов от продажи объектов недвижимого имущества (введена Федеральным законом от 29.11.2014 N 382-ФЗ) Путеводитель по налогам. Вопросы применения ст. 217.1 НК РФ - Облагается ли НДФЛ…

For the Buyer

Since the interest is acquired at a discount to its market value, the buyer realises a taxable material benefit. Personal income tax is withheld on the amount of this benefit. For the purposes of calculating it, the Federal Tax Service (FTS) does not rely on the appraiser's report submitted with the application to the Government Commission, but instead on the actual value of the interest as determined from the company's balance sheet as of the latest reporting date. The difference between the appraiser's valuation and the balance sheet value frequently comes as a surprise to buyers who have not planned their tax exposure in advance.

Conclusion

The regime introduced in 2022 pursues several interconnected objectives. The first is to ensure that a participation interest passes to a predictable investor who will preserve jobs and continue the company's operations. The second is to protect the foreign exchange market from an uncontrolled outflow of capital to unfriendly jurisdictions. The third is to maintain control over technological and infrastructure assets of strategic importance. Finally, the substantial discount and the budget contribution together function as an economic exit tax that the State considers proportionate to the current circumstances.

There is a Russian saying: 'Entry costs one rouble, exit costs two.' Originally, this expression described not a financial arrangement between parties, but the unforgiving logic of taking on any obligation at all. The idea is that once a person has assumed a commitment or entered into an arrangement, getting out of it will cost far more than they originally calculated.

This logic captures the current position of a foreign member more precisely than any other description. The mandatory discount of 60 per cent and the budget contribution of 35 per cent of the asset's market value are not routine administrative costs. These demanding conditions represent a deliberate and intentionally established price for exit – one that the State regards as fully proportionate to the circumstances.

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