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. Last Updated: 07/27/2016

THE TAX ADVISER: Keep Up With Bank's Hard Currency Rules

During this past summer, I opened a Russian import business. I'm having trouble keeping up with all the new hard currency regulations. Can you explain the most recent Central Bank legislation?

Regulation of the Central Bank No. 383 of Oct. 20, 1998, became effective on Nov. 1, 1998. The regulation applies only to Russian legal entities and does not apply to nonresidents or individuals.

Regulation No. 383 stipulates that hard currency can only be purchased for business trip expenses or for making payments pursuant to a valid import contract. Legal entities purchasing hard currency will now be required to open a special transit account. Supporting documents, such as signed and valid contracts, must be provided to the bank in order to open the transit account. The regulation mandates that the bank strictly scrutinize all supporting documents.

Once hard currency is purchased, it will be credited to the special transit account of the legal entity. The hard currency must then be paid out of the transit account within seven days. If the funds remain in the transit account for more than seven days, they will be automatically sold back to the bank and the ruble equivalent will be transferred to the ruble account of the legal entity.

The regulation does not annul previous legislation on the mandatory sale of hard currency receipts or legislation governing the procedure for the purchase and distribution of hard currency for business trip expenses, with the exception of provisions that are inconsistent with 383.

This regulation will significantly impact those companies that wish to purchase hard currency in an effort to protect savings from inflation. Russian legal entities currently holding dollar accounts will continue to be able to do so. Moreover, the regulation does not prohibit companies from opening hard currency accounts for receiving payment from abroad, but only limits their ability to purchase hard currency on the territory of the Russian Federation.

The regulation is aimed at stabilizing the ruble as well as curbing abuse of the currency regulations by legal entities. The new rules will help to ensure the availability of hard currency for valid commercial contracts, as the higher level of investigation of deals required by banks will weed out sham import contracts created to export hard currency from Russia.

Glenn Geffner is a senior tax manager at Deloitte & Touche in Moscow. Fax any questions to: The Tax Adviser, Deloitte & Touche, 956-5001.