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. Last Updated: 07/27/2016

Leases and Currency Law

Lease payments by Western companies to Russian entities are the latest victim of a recent Central Bank requirement that hard-currency transactions be licensed, according to one lawyer.

The Central Bank began implementing a licensing system for hard-currency investments last month, citing the 1992 law called On Currency Regulation and Currency Control.

But lawyers say the bank's interpretation of the law also encompasses any hard-currency transfer of capital between Russian and foreign entities and could put lease payments in jeopardy. "Any transaction between a resident [Russian entity] and nonresident [foreign entity] that constitutes a movement of capital is subject to this law," said Karen Handelsman, a lawyer at Baker & Mackenzie.

Consequences for not complying with the regulations can be severe. If a transaction is considered to be in violation of the law, the Central Bank has the right to confiscate the proceeds of the transaction, which would render the entire lease payment subject to confiscation, lawyers say.

For repeated violations, the bank reserves the right to impose fines on the violating party of up to five times the amount of the sum confiscated in an illegal transaction. Tenants should protect themselves from such penalties by obtaining an indemnity -- in the form of either a separate letter or in the lease itself -- from their landlord, Handelsman said.

The document should identify the landlord as the representative party responsible for obtaining any necessary licenses, and as the party indemnifying the tenant if any losses or obligations occur from failure to obtain said licenses.

"This is one solution that's prevented leases from falling apart," Handelsman said.

The bank is not presently offering a general clarification of its stance, but will respond to individual requests regarding specific transactions. The request must be made by the company itself or the company's lawyers, acting on a firm's behalf under legal power of attorney.

Executives of resident legal entities who have violated the regulations may also be subject to civil, administrative or criminal liabilities, lawyers say.

Among other concerns pertaining to commercial leasing is assessing the "lessor's" (landlord's) title to the property, attorneys say.

Since there is no common land or real estate registry in the country, the only source of information is the lessor himself, said Maxim Smyslov, an attorney at Baker & MacKenzie. He said the only proof of ownership may be sundry documentation of questionable authenticity.

"It is hard to verify the authenticity of the documents, the stamps and signatures of state officials on those documents," Smyslov said.

To avoid getting wrapped up in any shady leasing arrangement, companies should double check the lessor's authority to lease the property.

Payments Resolution (Letter of the Higher Arbitration Court, No. S1-7/OP-557, Aug. 10). Proposes that arbitration courts set a repayment schedule, pending a final settlement, when enterprises lack money to satisfy their creditors. The courts can decide to defer repayment or allow payment by installment. Banks that fail to comply with arbitration court decisions risk having their licenses revoked, and banking officials could face criminal charges.

Ingush Economic Zone (Finance Ministry and State Tax Service letters, No. 1-10/34-2931 and VG-6-14/420, Nov. 8). Demands enterprises registered in the Ingush free economic zone but operating outside the republic's territory must be reported and pay taxes and other duties under the laws of the Russian Federation.

Tin Taxes (Government Order No. 1439, Dec. 30). Sets new import tax of 20 ecus ($25) for every 1,000 kilograms of tin or tin products.

Corn Law (Government Order No. 1444, Dec. 30). Exempts corn from import taxes.