Exit Tax and Divestment From Russia
Washington, D.C. (May 17, 2023) – On March 30, 2023, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) updated its FAQ 1118 regarding the payment and implementation of the Russian “exit tax” in connection with the divestment of assets from Russia and with respect to specific licenses required from OFAC for such transactions. Such transactions may potentially require dealings with the Central Bank of the Russian Federation or the Ministry of Finance of the Russian Federation, so closer scrutiny is warranted.
OFAC’s new commitment to expedited processing for the Russian “exit tax” related OFAC license applications is a positive development, but the guidance still presents questions for U.S. persons seeking to divest their assets from Russia, particularly in cases where the Russian buyer has committed to pay the “exit tax.”
The updated FAQ 1118 outlines three changes to its previous guidance:
- OFAC now specifies the type of information that specific license applications should include for payment of the Russian “exit tax.” Specifically, a request for a specific license should include “the amount of the exit tax, the amount of ongoing taxes that would otherwise be paid to the Government of the Russian Federation should divestment not occur, the impact of a failure to pay the tax on the employees of the exiting company, the specific economic activity in Russia of the exiting company, and the impact on the Russian Federation of the divestment”;
- OFAC is now committing to “expedite the review” of such specific license requests connected to the Russian “exit tax” payments; and
- OFAC notes that “U.S. persons do not need to seek authorization from OFAC for their Russian buyers to submit an application to the Commission regarding a divestment transaction.”
Accordingly, U.S. persons whose divestment of assets in the Russian Federation will involve a payment of a Russian “exit tax” should seek a specific license from OFAC. Such persons may submit a request for a specific license with OFAC’s Licensing Division online here.
Lewis Brisbois’s attorneys are actively engaged in the wide range of legal issues in this area, and are advising clients on managing legal and business risk as events continue to develop at an accelerated pace. For more information, contact the author or editors of this alert. Visit our Ukraine Conflict Response Practice page for additional alerts in this area.
Michael Gnesin, Partner
Jane C. Luxton, Managing Partner - Washington, D.C.
Andrew Pidgirsky, Partner
Jane LuxtonManaging Partner
Fort Lauderdale, FL
New York, NY