Sanctions restrictions for IT business in Russia: what you need to know by March 11, 2022

The Versus.Legal law firm has collected up-to-date information as of March 11 about the current restrictions that IT companies operating in Russia may face.

This is the second material about sanctions. The first one, from March 1, is here.

Alina Davletshina, Senior Lawyer of VERSUS.legal

Foreign sanctions. Finance

The European Union (hereinafter the EU) has been disconnecting seven Russian banks from SWIFT since March 12: VTB, Rossiya, Otkritie, Novikombank, Promsvyazbank, Sovcombank and VEB.RF.
The EU has banned the sale, supply, transfer and export of euro banknotes to Russia. The ban applies to individuals or legal entities, organizations and bodies in Russia, including the Russian Government and the Central Bank of Russia.
Visa, Mastercard, American Express have decided to leave Russia.

The Central Bank of the Russian Federation (hereinafter CB) commented on the latest news as follows:

“All cards of the Visa and Mastercard international payment systems issued by Russian banks will continue to operate in Russia as usual until their expiration date. At the same time, cross-border transactions on Visa and Mastercard cards will not be available. This applies both to paying for purchases in foreign online stores and using these cards abroad.”

The biggest difficulties and inability to make a payment were faced by Russians abroad, using cards of Russian banks, and users of foreign services.

UnionPay and Mir are now an alternative to the departed payment systems, but these systems are not supported by all services, in particular Jira and Hetzner do not accept payments through these systems.

Almost no foreign service accepts payment through the Mir system. An overview of the countries and services that accept it can be found in the telegram channel of the Central Bank of the Russian Federation.

Russian restrictions. Currency

Now the following rules for buying and withdrawing currency are in effect in parallel:

For individuals, a restriction is introduced from March 9: customers can withdraw up to $ 10 thousand in cash, and the rest of the funds — in rubles at the market rate on the day of issue. The currency will be issued in US dollars regardless of the currency of the account. The conversion of other currencies into the US dollar will take place at the market rate on the day of issue.
For legal entities and sole proprietors, from March 10, a restriction is introduced on receiving cash US dollars, yen, pounds and euros only within $ 5 thousand, and only to pay for expenses on foreign business trips. All other currencies can be received in cash without restrictions at the market rate on the day of issue.

Thus, it is possible for individuals to receive cash currency only in dollars, for legal entities and sole proprietors the list of currencies is unlimited, but a limit of $5,000 has been introduced for certain currencies and a certain purpose.

Russian restrictions. Loan execution

Additionally, restrictions have been introduced on the fulfillment of obligations on loans and loans received from non-residents. Since March 5, a temporary procedure has been established for the fulfillment of obligations over 10 million rubles per month to foreign creditors (they are supposed to be executed in rubles), and special restrictions on transactions previously imposed on CFC have been lifted.

According to the Decree, obligations to these foreign creditors are “considered to be duly fulfilled” if they are fulfilled in rubles, even if the obligation itself was originally expressed in foreign currency.

As we understand it, this rule gives the right to an alternative to execution in rubles, and we do not see from this Decree a direct restriction on the performance of obligations in foreign currency, as agreed in the original contract.

But at the same time, it is worth considering that by choosing the option with execution in rubles, this is unlikely to affect the understanding of the “proper execution” of the obligation in a foreign country, the resident of which issued this loan.

Russian restrictions. Restrictions on transactions

The Government of the Russian Federation has imposed restrictions on the following types of actions:

transactions concluded with residents of countries “unfriendly” to Russia for the provision of loans and loans to non-residents (in rubles) and transactions (operations) entailing the emergence of ownership rights to securities and real estate;
crediting of foreign currency by residents to their accounts (deposits) opened in banks and other financial market organizations located outside the Russian Federation;
making money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers.

These actions require the permission of a special commission. The company must apply for permission for the transaction. Based on the analysis of the received documents and the nature of the future agreement, a decision will be made on approval or refusal of implementation.

Russian restrictions. Export of products

Since March 8, a ban (restriction) has been imposed on the export outside the territory of the Russian Federation and the import into the territory of the Russian Federation of products and (or) raw materials according to the lists determined by the Government of the Russian Federation. On March 9, the Government of the Russian Federation decided on the list of goods prohibited for export. It included, in particular:

computing machines and their blocks;
magnetic or optical readers, machines for transferring data to data carriers in encoded form and machines for processing such information;
telephone devices, including smartphones and other telephone devices for cellular communication networks.

Please note that these measures do not apply to the export of goods for personal use.

The situation with services and app stores

Google and Apple have disabled purchases and subscription payments in their stores. This measure is primarily related to the suspension of Visa and Mastercard. Previously purchased apps and free apps are still available to users.
Epic Games has confirmed that they will not block their software for users from Russia.
On March 10, YouTube completely suspended monetization for authors.
A large number of game development studios have reported limited sales of their games in Russia. Among them: Electronic Arts, Activision Blizzard, Rockstar Games, Ubisoft, Supercell.

Government support measures

Small businesses from the affected industries, as well as citizens and sole proprietors can apply to the bank to suspend payment of a loan received before March 2022. The procedure and conditions for postponement will be the same as in the pandemic. If the company has already used credit holidays during the coronavirus pandemic, this is not a reason to refuse – you can apply to the bank again. You need to apply by September 30, 2022.
Concessional lending to businesses will continue. Over 6.2 billion rubles will be allocated to finance the program of preferential business lending “FOT 3.0”. Under this program, companies from affected industries can receive loans at a rate of 3% per annum if a number of conditions are met, including if they retain at least 90% of the number of employees.
Small and medium-sized businesses will be able to compensate for the costs of using the Russian system of fast payments.
By the end of 2022, scheduled inspections of companies from the Unified Register of Small and Medium-sized Businesses are canceled. Scheduled inspections were canceled for accredited IT companies until the end of 2024.

Benefits for the IT sector

The government should take the following measures for accredited IT companies:

allocate budget money for grant support of promising developments of domestic IT solutions;
to ensure the receipt of preferential loans at a rate of no more than 3%;
ensure a 0% income tax rate until December 31, 2024;
simplify the employment of foreign citizens attracted to work in accredited organizations and obtain a residence permit;
provide exemption from tax, currency control and other types of control for up to three years;
to grant citizens of the Russian Federation the right to a deferral from conscription until the age of 27 for the period of work in accredited IT companies, as well as a preferential mortgage;
to provide incentives for the procurement of critical domestic developments in the field of IT, conducted to ensure public procurement.

Interestingly, the final list of benefits did not include a measure to introduce 0% personal income tax for employees of IT companies, which was proposed earlier.

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We are monitoring developments and will periodically update the list of restrictions.

Take care of each other!