Russia's new law on currency regulation and currency controls, adopted at the end of 2003, promises a liberalization of currency regulation in Russia. From June 2004, when most provisions of the law come into effect, residents and non-residents will enjoy a regime in which everything is permitted unless specifically prohibited. Business has long awaited such a law.
The new law will eliminate the need to obtain a Central Bank licence that is currently applicable to most currency operations. For some common types of currency transactions (mostly connected with deferred/advance payments, loans and transactions with securities), the law requires or allows the Central Bank to require covered parties to create reserves and/or use special accounts. Even these requirements will expire on January 1 2007, completing the liberalization process.
Unfortunately, the reserve requirements may negate much of the appeal of the new regime during the next three years. The law specifies three types of reserve requirements. Depending on the situation the party concerned might have to set aside either: 100% of the amount of the operation for up to 60 days; 20% for up to one year; or 50% for up to two years. Reserved funds must be placed in non-interest bearing accounts at Russian banks. In the event of large investments these reserve requirements may drastically impact cash flow.
From June 2005 residents will be allowed to open accounts in Financial Action Task Force and OECD countries and to freely conduct operations with money lawfully transferred to such accounts, subject to notifying the Russian tax authorities. Opening accounts in other countries requires preliminary registration. This requirement will also expire on January 1 2007.
In addition, precious metals and stones are now outside the scope of the Law.
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