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Since March 2020, the Russian authorities have taken a number of measures to mitigate the effect of COVID-19 on the Russian economy.
The range of measures is very broad. Some measures are directed at wide categories of individuals or businesses, whereas others focus on narrower groups of persons (such as SMEs, systemically important companies, etc.) 1
The Russian federal authorities announced a number of measures designed to mitigate the impact of the COVID-19 crisis for businesses and individuals.
The range of measures is very broad and includes, amongst others, the deferral of tax and lease payments, suspension of field tax audits, prolongation of various state licenses and permits, credit holidays and bank loans at reduced rates.
Some measures are directed at wide categories of individuals or businesses, whereas others focus on narrower groups of persons, such as:
- Small- and medium-sized enterprises (SMEs), in particular those operating in the economic sectors most affected by COVID-19 crisis (the “most affected sectors”);
- Companies operating in the most affected sectors (the Government-approved list of most affected sectors includes air and auto transportation, culture and leisure, sports, tourism, hospitality, catering, non-food retail, education, etc.);2 and
- Systemically important companies operating in various sectors (as approved by the Governmental Commission on Sustainable Development of the Russian Economy) ("systemically important companies").3
In addition to the measures taken at the federal level, regional governments have also introduced a number of measures (we will not consider them in this alert). We will focus on financial and fiscal (including tax) measures.
Financial aid and financing
Key instruments of financial support are bank loans at reduced interest rates for SMEs and other borrowers. The state partially compensates banks against losses in interest via subsidies. State aids are also available.
The Central Bank ("CBR") has introduced regulatory reliefs for credit institutions in order to incentivise loan restructurings. The CBR has also suggested a number of measures to support credit institutions' capacity to provide funding to the Russian economy. In addition, it has expanded its refinancing programs for SME loans.
The key financial measures are described further and in Annex I.
Bank loans for systemically important companies at reduced rates
Working capital bank loans can be provided to systemically important companies for up to 12 months and for no more than RUB 3 billion per each borrower. The interest rate may not exceed 5%. The state would cover the banks' loss of interest through subsidies. Borrowers can also apply for state guarantees to secure the repayment of the loan.4
In addition, the Government plans to support systemically important companies on an individual basis (e.g. for those in the transportation, manufacturing and energy sectors). The Minister of Economic Development announced that the state would provide individual support to systematically important companies, if needed, provided that no dividends are paid by those companies and that their owners and banks first exhaust their own ability to support the company.5
Interest-free bank loans to cover wage payments
This measure covers entrepreneurs and companies regardless of size operating in the most affected sectors. Banks are entitled to state subsidies to compensate for the loss of interest on such loans for a six-month period. The amount of the loan depends on the minimum statutory monthly wage and the number of the employees. In order to qualify, borrowers (other than small and micro-enterprises) are required not to make redundant more than 10% of their employees during this six-month period.6 VEB.RF, the national development institution, issues guarantees to banks to partially cover these loans.7
State aids to SMEs
State aids are to be paid to SMEs operating in the most affected sectors to cover costs of wages and other immediate needs in April and May 2020. To be eligible for a grant, the relevant SME must retain employment at the level of not lesser than 90% of the level of March 2020. The amount of the aid is based on the minimum statutory monthly wage and the number of employees in March 2020.8 9
Credit holidays for individuals and SMEs
Borrowers being individuals and SMEs operating in the most affected sectors may, until 30 September 2020, request that lenders suspend payments under mortgages and other loans for up to six months. Entrepreneurs may, instead of a deferral, seek a reduction in the amount of loan payments during the grace period. Penalties will not accrue during credit holidays. In order to be eligible for a credit holiday, individuals must have suffered a decrease of more than 30% in their income as compared to their average monthly income in 2019. The Government has limited the principal amount of a single retail or mortgage loan that falls within the scope of this measure.10
"Mortgage holidays" for individuals that were envisaged by the law before the COVID-19 are still available.
Subsidies to banks to support grace periods to SMEs
The state provides subsidies to the banks that granted SMEs operating in the most affected sectors a grace period for up to six months (in relation to loans granted before 1 April 2020). The amount of subsidies is limited to one third of the interest payments due from an SME-borrower during the grace period. The borrower is to pay one third of interest payments due for the grace period and is released from payment of the remaining two thirds.11
Loans to SMEs
The scheme existed before the COVID-19 (so it is not a new measure, as opposed to those described above), but it has been amended to make access to those loans easier for SMEs in the current situation (the requirements to borrowers have been softened). Interest rates not to exceed 8.5%.
Bank loans to support construction sector
The state will subsidise interest rates under mortgage loans so that the banks could provide them at reduced rates.12 In addition, subsidised loans for developers are planned.
Programs against unemployment
Terminations are possible on general grounds under Russian law, but these do not specifically relate to the COVID-19 pandemic. However, the employment authorities are to come up with the suggestions aimed at preventing unauthorized employment terminations due to the COVID-19 pandemic and will put employers under additional scrutiny in this connection. Employers are required to promptly upload information about terminations due to liquidation, redundancy and other employment-related information into all-Russia employment vacancies database.
At the same time, the maximum amount of the unemployment allowance in 2020 has been increased to match the federal minimum wage amount (RUB 12,130). For those who have been terminated starting from 1 March 2020 (except for termination for cause) the unemployment allowance in April-June 2020 shall be established at the above maximum amount with one of the parent of a child under 18 receiving an additional payment of RUB 3,000. The regional may make additional payments to increase the unemployment allowance.
Measures to limit bankruptcies
The Government has introduced a moratorium on the filing of insolvency claims from 6 April through 6 October 2020 in relation to entrepreneurs and companies operating in the most affected sectors, systemically important companies and strategic enterprises. The debtor’s obligation to file an insolvency petition in certain statutory cases is suspended during the moratorium period.13 For more details please see Annex I.
Measures affecting corporates in general
A number of statutory changes were made that affect all companies. They relate to ways and dates for holding shareholders’ meetings, preparing and disclosing financial statements, etc.14 For more details please see Annex I.
Tax measures
Tax measures aimed at support of business
A number of tax measures were recently introduced for SMEs, including certain exemptions and reductions (see Annex I for more details).
Also, there are some other measures related to corporate profits tax which may be utilized by any taxpayers (irrespectively of whether they have the SME status), in particular:
- deductibility of costs incurred in implementing certain sanitation measures and purchasing medical devices related to COVID-19;15
- the base for calculation of monthly advance tax payment may be changed at any time during the year 2020 (under general rules – such change is possible only as of January) from (a) taxable profits as at the end of a previous quarter, to (b) taxable profits as at the end of the relevant current tax reporting period.16
Apart from that, with regard to almost all taxes (excluding VAT) for certain categories of taxpayers, specific deferrals have been granted for tax reporting and payments (e.g., certain SMEs17 taxes and social contributions for 2019 and first quarter 2020 are deferred for up to six months and for second quarter 2020 are deferred for up to four months).
In addition, property taxes for first and second quarters 2020 are deferred until 30 October 2020 and 30 December 2020 respectively.
Larger businesses operating in the most affected sectors are also eligible to tax payment deferrals for up to 12 months (or in some instances up to five years) which may be granted on application (if certain criteria are met).18
Regional governments have also introduced additional deferrals. For example, in Moscow, certain businesses are granted deferrals of advance payments in respect of property and land tax for first and second quarters 2020 and trade duty for first quarter until 31 December 2020. 19
The initiation and conduct of field tax audits have been suspended until 31 May 2020.20
Tax measures aimed at creating additional tax revenue
The President has instructed the Government to determine the list of double tax treaties to be amended by introducing a 15% withholding tax on dividends and interest, and to ensure that these treaties are amended or terminated.21 The Government is required to report on the implementation of this direction by 25 December 2020. The Ministry of Finance has already approached the Ministries of Finance of Cyprus, Luxembourg and Malta with proposals with respect to Russia’s double tax treaties with these countries (amending the “Dividends” and “Interest” articles, by setting a 15% withholding tax rate). At the same time, the Ministry of Finance notes that these changes will not affect interest income on Eurobonds-connected loans, Russian companies’ bonds and loans obtained from foreign banks.22
Conclusions
The Russian state authorities are continuously considering new measures to adapt to the rapidly changing situation, so more details may follow once the relevant laws and regulations are adopted.
We encourage our clients to consider the opportunities presented by the different measures and to consult us if any assistance is needed.
In addition, White & Case has carried out an analysis of global governmental responses to the COVID-19 crisis. These vary considerably from country to country and are being updated and amended regularly.
We have prepared an in-depth and nuanced analysis for various major jurisdictions and pulled together a global response team.
For useful information on COVID-19, please consult the coronavirus section.
Annex I
The Russian Government and market players have implemented urgent measures to deal with the impact of the COVID-19 outbreak. The applicable measures are described and compared here.
1 This summary of measures was prepared by Irina Dmitrieva, Ekaterina Palagina, Julia Lymar, Roman Kudryavtsev.
2 Government Resolution No. 434 dated 3 April 2020, as amended.
3 The criteria for inclusion in the lists of systemically important companies, approved on 10 April 2020, are available on the website of the Ministry of Economic Development here.
4 Government Resolution No. 582, dated 24 April 2020.
5 We note that there is no limitation for systemically important companies to be owned by foreign shareholders.
6 There is no such requirement for small and micro-enterprises for the purpose of these interest-free loans (as opposed to grants, as mentioned below).
7 Government Resolution No. 422 dated 2 April 2020, as amended.
8 Government Resolution No. 576 dated 24 April 2020.
9 For the purpose of this measure and other measures that apply to SMEs we note the following. SMEs are included in the register of SMEs. SMEs are either entrepreneurs or companies whose SME status is generally dependent on headcount (up to 250 employees) and annual income (up to RUB 2 billion).
As a rule, foreign companies cannot own more than 49% of an SME. There are few exceptions to this restriction. For example, it does not apply when those foreign companies could qualify as SMEs themselves as per the headcount and annual income criteria mentioned above (this exception does not apply to foreign companies with a permanent residence in offshore zones, as per the list approved by the Ministry of Finance).
10 Federal Law No. 106-FZ dated 3 April 2020.
11 Government Resolution No. 410 dated 2 April 2020, as amended.
12 Government Resolution No. 566, dated 23 April 2020.
13 Article 9.1 of the Insolvency Law; Government Resolution No. 428 dated 3 April 2020.
14 Federal Law No. 50-FZ dated 18 March 2020, Federal Law No. 115-FZ dated 7 April 2020.
15 Article 1 of Federal Law No. 121-FZ dated 22 April 2020.
16 Article 1 of Federal Law No. 121-FZ dated 22 April 2020.
17 Section 1 of Government Resolution No. 409 dated 2 April 2020. At the end of the mentioned deferrals, 1/12 part of the corresponding debt is to be paid on a monthly basis (see also Government Resolution No. 570 dated 24 April 2020).
18 Government Resolution No. 409 dated 2 April 2020.
19 Sections 1-2 of Moscow Government Resolution No. 212-PP dated 24 March 2020.
20 Section 4 of Government Resolution No. 409 dated 2 April 2020.
21 President’s address to the Russian nation dated 25 March 2020; President’s directions to the Government dated 28 March 2020.
22 See the official website of the Ministry of Finance
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