New rules on debt relief

The above regulation was extended in 2022 with tax incentives anticipating tax exemptions for Russian debtor entities in cases of debt relief arising from loan (credit) agreements with foreign counterparties. The aforementioned exemption applies to loan agreements entered prior to 01 March 2022 and is effective with respect to debts (principal loan amounts and loan interest) relieved between 01 January 2022 and 31 December 2022. The exemption does not apply to loan interest amounts already deducted as expenses for profits tax purposes of the relevant Russian company. The exemption may be applied by partial debt relief and also when the debt incurred from such a loan has been assigned to a Russian entity or individual.

The above exemption also applies to obligations to pay the actual value of equity shares (net assets multiplied by share size) in a Russian company upon withdrawal of a foreign shareholder during 2022. Therefore, if the foreign shareholder forgives the debt, this would not constitute taxable income for its former subsidiary.

This new exemption is a welcome change for foreign companies operating in Russia. The amendment comes in light of a downturn in Russia’s economy when a debt relief or a withdrawal from a company may be required for a variety of reasons, including the restructuring or closure of business in Russia or of supporting subsidiaries. The extension of this incentive to other contracts (e.g. supplies or service agreements) is not intended, although much sought after, by businesses.

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