Rule 2a-7 and Russia: Difference between pages

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''Cash and liquidity management - money market funds - risk management - regulation.''
<skin>actskin</skin>


Abbreviation for Rule 2a-7 of the US Investment Companies Act of 1940 which specifically defines investment restrictions for money market funds.
{{Infobox
|name        =
|bodystyle    = width:400px;


|titlestyle  =
|abovestyle = background:#e9d7e0; padding:5px 0px;
|subheaderstyle =
|title        =
|above        = KEY COUNTRY FACTS
|subheader    =
|subheader2  =


== See also ==
|imagestyle  = padding:10px 0px;
* [[Accumulating net asset value]]
  |captionstyle =
* [[Constant net asset value]] (CNAV)
  |image        = [[File:Flag_russia.png|border|160px|alt=Flag of Russia]]
* [[Liquidity fee]]
  |caption      =
* [[Liquidity fund]]
* [[Low-volatility NAV]] (LVNAV)
* [[Money market fund]]
* [[Money market fund reform: a light at the end of the tunnel?]]
* [[Money Market Funds Regulation]]
* [[Redemption gate]]
* [[Regulation]]
* [[Reverse distribution mechanism]]
* [[Risk management]]
* [[Rule 144A]]
* [[Variable net asset value]] (VNAV)
* [[Weighted Average Life]]
* [[Weighted average maturity]]


|headerstyle  = background:#e9d7e0;
|labelstyle  = background:#e9d7e0;
|datastyle    =


==Other links==
|header1 =  
| label1 = System of government:
|  data1 = federal semi-presidential republic
|header2 =  
| label2 = Population:
|  data2 = 142.5 million
|header3 =
| label3 = Currency:
|  data3 = Russian rouble (RUB)
|header4 =
| label4 = FX regime:
|  data4 = floating
|header5 =
| label5 = GDP:
|  data5 = $2.11 trillion (2013 est)
|header6 =
| label6 = IGTA member:
|  data6 = no
|header7 =
| label7 = FATF member:
|  data7 = yes


* [https://www.treasurers.org/hub/treasurer-magazine/how-money-market-funds-are-passing-the-crisis-test How money market funds are passing the crisis test, The Treasurer, June/July 2020]
|header8 =
| label8 = Other professional financial/banking associations:
|  data8 = [http://www.aba.com American Bankers’ Association]
[http://www.corptreasury.ru/dummy/index_eng.htm The Russian Association of Corporate Treasurers was created in early 2013.]
|belowstyle = background:#ddf;
|below      =
}}


*[http://www.treasurers.org/ACTmedia/Fitch%20Question%20Responses%20MMFs.pdf MMF reform: how will it affect treasurers? Fitch-ACT]
==Financial regulatory framework==
===Bank supervision===
The Central Bank of Russia (CBR), Russia’s central bank, sets prudential standards for banks as their main licensing body.  
Since 2008, the accounting cycle has been brought closer to IAS requirements, but most local companies are still using local accounting standards – for tax purposes – and so such reporting cannot serve as a basis for managerial decision-making.
The banking system adopted the Basel II accord principles in 2009.
All investment companies are licensed and controlled by the FSFR, the Federal Financial Markets Service. All public limited companies should register their shares issues with the FSFR. The FSFR also requires all public companies to use and publish financial reporting made in accordance with IAS on a regular basis.


*[http://www.treasurers.org/node/9362 Lesson from America, The Treasurer, September 2013]
===Exchange controls===
Residents require authorisation from the FSFR before they can issue/sell securities abroad.


*[http://www.treasurers.org/node/8266 Credit matters, The Treasurer, October 2012]
CBR authorisation is required in order for non-resident entities to acquire more than 20% of a resident credit institution.  
Resident banks that acquire capital from Belarus must notify the CBR. Resident banks establishing subsidiaries abroad require CBR authorisation. Subsidiaries can only be established in countries that are members of the Financial Action Task Force (FATF).


*[http://www.treasurers.org/node/8103 Understanding MMF investments, The Treasurer, September 2012]
Most export proceeds must be credited to the residents’ foreign currency accounts.
All import contracts must be registered with the authorities. A local bank is the currency control agent.


[[Category:Accounting,_tax_and_regulation]]
===Restrictions on foreign investment/ownership===
[[Category:The_business_context]]
There are no substantial restrictions. Foreign investors are usually only permitted to purchase up to 49% of a strategically important domestic company or project. Non-residents require CBR authorisation to acquire over 20% of a resident bank.
[[Category:Identify_and_assess_risks]]
However, to set up a bank with foreign capital requires higher charter capital; currently a minimum of €5,000,000. The proportion of foreign capital in the banking system as a whole cannot exceed 25%. Over recent years, the number of foreign banks has increased dramatically.
[[Category:Manage_risks]]
 
[[Category:Risk_frameworks]]
Recent legislation on non-government organisations (NGOs) has drastically limited the number of allowed activities. Currently it is very difficult to set up a NGO, and registration applications take many weeks to proceed.
[[Category:Risk_reporting]]
 
[[Category:Cash_management]]
==Taxation framework==
[[Category:Financial_products_and_markets]]
===Corporate income tax===
[[Category:Liquidity_management]]
The maximum general corporate profits tax rate is 20%. This comprises a federal tax of 2% and a regional tax of 18% that may be reduced to 13.5%.
 
A rate of 9% is applied to dividends received by Russian corporate shareholders from Russian and foreign companies (in certain cases a 0% rate applies).
 
A rate of 15% is applied to interest income received on governmental and municipal bonds. Specific tax rates are established for certain other types of income.
 
Certain income received by foreign companies from sources in Russia not associated with activity through a permanent establishment (PE) is subject to withholding tax at source at a rate of up to 20%. Tax exemptions or reductions may be available under a double tax treaty.
 
===Capital gains tax===
Taxed as income. In terms of securities and real estate, only realised gain is taxed.
 
===Taxation on dividends===
There is a withholding tax of 9% for dividends paid to resident companies and of 15% for dividends paid between resident and non-resident companies, subject to tax treaties.
 
===Taxation on interest===
There is a withholding tax of 20%, subject to tax treaties.
 
===Thin capitalisation===
The thin capitalisation rules restrict the deductibility of interest on loans to related legal entities and apply where the lender is: A foreign company that owns directly or indirectly more than 20% of the charter capital of a Russian company; or a Russian company that is an affiliate of such a foreign company; or any company to which such Russian-affiliated or foreign company itself undertakes to act as a guarantor or to secure in any other way the discharge of the loan by the Russian borrower. If the loan that is subject to control exceeds more than three times (12.5 times for banks and companies exclusively carrying out leasing activity) the capital of the Russian borrower, interest relating to the excess debt will not be deductible and will be treated as a dividend.
 
===Transfer pricing===
Transfer pricing rules substantially reflect the OECD model rules.
 
The rules apply to cross-border transactions with both related parties, to those with unrelated parties in relation to goods traded on commodity markets, and to transactions with residents of certain “low tax” jurisdictions if the transaction amount exceeds RUB 60m. The rules also apply to domestic transactions between two related parties which exceed RUB 1bn, as well as certain other domestic related party transactions.
 
The law specifies 11 categories of related party, with ownership of more than 25% being one of the main criteria, but a court can also recognise parties as being related on grounds other than those specified.
 
The law provides that the “comparable uncontrolled price” method is normally the primary method applicable, but the resale-minus, cost-plus, comparable profitability and profit-split methods are also recognised.
 
Controlled transactions must be notified to the tax authorities each year, and taxpayers must prepare detailed transfer pricing documentation. Advance pricing agreements are possible.
The new law does not provide specific rules that should be applied to a foreign legal entity’s PE in Russia or a Russian legal entity’s PE abroad, including the allocation of income and expenses between the PE and its head office. Taxable income is determined taking into account the specific functions performed, risks borne and assets used by the PE.
 
===Indirect taxes===
VAT is charged at the rate of 18% for most goods or services.
 
<sup>Tax information provided by Deloitte Touche Tohmatsu and Deloitte Highlight 2014 (www.deloitte.com).</sup>
 
===Banking service provision===
Major domestic banks include Sberbank, VTB Bank, Vnesheconomank, Gazprombank and the Russian Agricultural Bank. All are state-owned. Sberbank enjoys some 70% of the total deposits of private individuals in the country. The largest privately owned banks are Alfabank, UniCredit Bank, Rosbank (owned by France’s Société Générale) and Nomos Bank.
 
===Clearing and payment systems===
The CBR acts as the main settlement centre in Russia. All banks have correspondent accounts with the CBR.
The CBR operates the BESP RTGS system for large-value and urgent transfers and an automated net settlement system for non-urgent electronic funds transfers and paper-based items.
 
The CBR’s electronic net settlement system has 78 regional branches acting as processing centres across nine time zones. Payments processed on an intra-regional basis are usually settled the same day. Payments processed on an inter-regional basis are typically settled within two working days.
 
Commercial banks also have a comprehensive network of correspondent accounts with each other, which allows for faster settlement. The largest settlement bank is Sberbank, due to nationwide branch network.
 
The Russian post service is now a full member of the intra-country payment system for individuals, and many banks, utilities and catalogue shops use it to receive payments from individuals.
 
===Payment instruments===
Cash remains the most popular and widespread means of payment in Russia. Debit and credit cards are gaining in popularity.
The main cashless payment instrument is the credit transfer, which can be paper-based or automated. An increasing majority of credit transfers are electronic. There are a number of transfer systems for individuals, such as Western Union, Anelik, Unistream and others.
 
Lockboxes are popular between individuals as a means of payment for expensive items such as an apartment or a car; the asset transfer takes place within the bank. Lockboxes are widespread in major cities.
 
Personal or company cheques do not exist. Instead, firms and individuals use liquid promissory notes as a means of payment (eg notes on Sberbank). Some banks have tried to introduce their own cheques as a means of payment but they are not popular and are not widely accepted.
 
==Cash and bank account management==
===Account availability===
Residents and non-residents can open fully convertible domestic currency accounts as well as foreign currency accounts both within Russia and abroad. Residents must advise the relevant tax authority when opening a foreign currency account abroad.
 
===Money laundering===
Russia has implemented anti-money laundering legislation (Law RF 115-FZ on Combating Legalisation (Laundering) of Criminally Gained Income and Financing of Terrorism 2002 most recently amended in 2013, The Federal Law on the Introduction of Amendments and Addenda to the Federal Law on Counteracting the Legalisation (Laundering) of Income Obtained by Criminal Means 2003, last amended 2008, Federal Law 35 of 2006, Federal Laws 241-FZ and 121-FZ of 2009, and Article 174 of the Criminal Code).
 
A Financial Action Task Force (FATF) member, it observes most of the FATF-49 standards. Russia is also a member of the Council of Europe MONEYVAL Select Committee and the Eurasian Regional Group on Combating Money Laundering and Financing of Terrorism (EAG).
 
Russia has established a financial intelligence unit, the Federal Service for Financial Monitoring (FSFM), which is a member of the Egmont Group.
 
<sup>Supplied by BCL Burton Copeland (www.bcl.com). Data as at February 2014.</sup>
 
===Cash concentration and pooling===
There is some availability of cash concentration and notional pooling services, but only involving domestic currency accounts. Exchange controls make cross-border services very difficult. Cross-border notional cash pooling is not available.
As there is no clear legal framework, any cash management solution is risky.
 
==Liquidity management==
Short-term investments
* '''Interest''' can be earned on current and deposit accounts.
* Time deposits are a common method of short-term investment in Russia. Time deposits can be held in domestic currency or a major foreign currency and usually have maturities of one, three, six and 12 months.
* '''Certificates of deposit (CDs)''' are offered by Sberbank and Russia’s leading commercial banks but are little used. Maturities can range from one day to over a year. The majority of CDs have maturities of one to six months.
* '''GKOs''' are zero-coupon government bonds issued in units of RUB 1,000 via monthly auctions held by the CBR. GKOs have maturities ranging up to one year.
* '''Veksels''' are short-term, zero-coupon promissory notes offered by companies. Veksels usually have maturities of one, three and six months.
* '''Repurchase agreements (repos)''' are available on government bonds and corporate securities. Repos between dealers on government bonds usually have maturities of one, two, seven and 14 days. Direct repos on government bonds have maturities of one to seven days. Repos on corporate securities have maturities ranging up to three months.
 
===Benchmark rates===
The CBR only provides an indicative refinancing rate – its discount system is non-functioning. Therefore this rate is a weak indicator of the prevailing base interest rate on the market. However, the banks use it to adjust their base rates. As of 28 July 2014, the rate stands at 8%.
 
==Corporate finance==
A local debt capital market is developing enabling companies to fund themselves. However, its access remains limited to large companies for tenors up to five years. Russian SMEs continue to experience liquidity problems. Availability of short-term funding by the use of an overdraft is still low. Loan facilities are not easily obtainable due to the absence of credit ratings and require good collateral and other legal obligations. Many firms prefer to offer a substantive discount for an advance payment. Firms dealing in the Russian market should anticipate a longer settlement period than usually accepted in more developed economies.
 
==Websites==
'''Official Government Portal'''
* [http://www.usa.gov http://www.government.ru]
'''Bureau of Economic Analysis'''
* [http://www.bea.gov http://www.bea.gov]
'''Central Bank – Federal Reserve System'''
* [http://www.federalreserve.gov http://www.federalreserve.gov]
'''Internal Revenue Service (IRS)'''
* [http://www.irs.gov/index.html http://www.irs.gov/index.html]
'''SEC'''
* [http://www.sec.gov http://www.sec.gov]
'''FASB'''
* [http://www.fasb.org http://www.fasb.org]
'''New York Stock Exchange'''
* [http://www.nyse.com http://www.nyse.com]
'''Chicago Stock Exchange'''
* [http://www.chx.com http://www.chx.com]
'''National Stock Exchange'''
* [http://www.nsx.com http://www.nsx.com]
'''NASDAQ website'''
* [http://www.nasdaq.com http://www.nasdaq.com]
'''Chicago Mercantile Exchange Group'''
* [http://www.cmegroup.com http://www.cmegroup.com]
'''Chicago Board of Options Exchange'''
* [http://www.cboe.com http://www.cboe.com]
'''American institute of Certified Public Accountants'''
* [http://www.aicpa.org http://www.aicpa.org]
'''Financial Manager's Society'''
* [http://www.fmsinc.org http://www.fmsinc.org]
 
[[Category:Book_Export]]

Revision as of 18:06, 3 November 2014


KEY COUNTRY FACTS
Flag of Russia
System of government: federal semi-presidential republic
Population: 142.5 million
Currency: Russian rouble (RUB)
FX regime: floating
GDP: $2.11 trillion (2013 est)
IGTA member: no
FATF member: yes
Other professional financial/banking associations:

American Bankers’ Association

The Russian Association of Corporate Treasurers was created in early 2013.

Financial regulatory framework

Bank supervision

The Central Bank of Russia (CBR), Russia’s central bank, sets prudential standards for banks as their main licensing body. Since 2008, the accounting cycle has been brought closer to IAS requirements, but most local companies are still using local accounting standards – for tax purposes – and so such reporting cannot serve as a basis for managerial decision-making. The banking system adopted the Basel II accord principles in 2009. All investment companies are licensed and controlled by the FSFR, the Federal Financial Markets Service. All public limited companies should register their shares issues with the FSFR. The FSFR also requires all public companies to use and publish financial reporting made in accordance with IAS on a regular basis.

Exchange controls

Residents require authorisation from the FSFR before they can issue/sell securities abroad.

CBR authorisation is required in order for non-resident entities to acquire more than 20% of a resident credit institution. Resident banks that acquire capital from Belarus must notify the CBR. Resident banks establishing subsidiaries abroad require CBR authorisation. Subsidiaries can only be established in countries that are members of the Financial Action Task Force (FATF).

Most export proceeds must be credited to the residents’ foreign currency accounts. All import contracts must be registered with the authorities. A local bank is the currency control agent.

Restrictions on foreign investment/ownership

There are no substantial restrictions. Foreign investors are usually only permitted to purchase up to 49% of a strategically important domestic company or project. Non-residents require CBR authorisation to acquire over 20% of a resident bank. However, to set up a bank with foreign capital requires higher charter capital; currently a minimum of €5,000,000. The proportion of foreign capital in the banking system as a whole cannot exceed 25%. Over recent years, the number of foreign banks has increased dramatically.

Recent legislation on non-government organisations (NGOs) has drastically limited the number of allowed activities. Currently it is very difficult to set up a NGO, and registration applications take many weeks to proceed.

Taxation framework

Corporate income tax

The maximum general corporate profits tax rate is 20%. This comprises a federal tax of 2% and a regional tax of 18% that may be reduced to 13.5%.

A rate of 9% is applied to dividends received by Russian corporate shareholders from Russian and foreign companies (in certain cases a 0% rate applies).

A rate of 15% is applied to interest income received on governmental and municipal bonds. Specific tax rates are established for certain other types of income.

Certain income received by foreign companies from sources in Russia not associated with activity through a permanent establishment (PE) is subject to withholding tax at source at a rate of up to 20%. Tax exemptions or reductions may be available under a double tax treaty.

Capital gains tax

Taxed as income. In terms of securities and real estate, only realised gain is taxed.

Taxation on dividends

There is a withholding tax of 9% for dividends paid to resident companies and of 15% for dividends paid between resident and non-resident companies, subject to tax treaties.

Taxation on interest

There is a withholding tax of 20%, subject to tax treaties.

Thin capitalisation

The thin capitalisation rules restrict the deductibility of interest on loans to related legal entities and apply where the lender is: A foreign company that owns directly or indirectly more than 20% of the charter capital of a Russian company; or a Russian company that is an affiliate of such a foreign company; or any company to which such Russian-affiliated or foreign company itself undertakes to act as a guarantor or to secure in any other way the discharge of the loan by the Russian borrower. If the loan that is subject to control exceeds more than three times (12.5 times for banks and companies exclusively carrying out leasing activity) the capital of the Russian borrower, interest relating to the excess debt will not be deductible and will be treated as a dividend.

Transfer pricing

Transfer pricing rules substantially reflect the OECD model rules.

The rules apply to cross-border transactions with both related parties, to those with unrelated parties in relation to goods traded on commodity markets, and to transactions with residents of certain “low tax” jurisdictions if the transaction amount exceeds RUB 60m. The rules also apply to domestic transactions between two related parties which exceed RUB 1bn, as well as certain other domestic related party transactions.

The law specifies 11 categories of related party, with ownership of more than 25% being one of the main criteria, but a court can also recognise parties as being related on grounds other than those specified.

The law provides that the “comparable uncontrolled price” method is normally the primary method applicable, but the resale-minus, cost-plus, comparable profitability and profit-split methods are also recognised.

Controlled transactions must be notified to the tax authorities each year, and taxpayers must prepare detailed transfer pricing documentation. Advance pricing agreements are possible. The new law does not provide specific rules that should be applied to a foreign legal entity’s PE in Russia or a Russian legal entity’s PE abroad, including the allocation of income and expenses between the PE and its head office. Taxable income is determined taking into account the specific functions performed, risks borne and assets used by the PE.

Indirect taxes

VAT is charged at the rate of 18% for most goods or services.

Tax information provided by Deloitte Touche Tohmatsu and Deloitte Highlight 2014 (www.deloitte.com).

Banking service provision

Major domestic banks include Sberbank, VTB Bank, Vnesheconomank, Gazprombank and the Russian Agricultural Bank. All are state-owned. Sberbank enjoys some 70% of the total deposits of private individuals in the country. The largest privately owned banks are Alfabank, UniCredit Bank, Rosbank (owned by France’s Société Générale) and Nomos Bank.

Clearing and payment systems

The CBR acts as the main settlement centre in Russia. All banks have correspondent accounts with the CBR. The CBR operates the BESP RTGS system for large-value and urgent transfers and an automated net settlement system for non-urgent electronic funds transfers and paper-based items.

The CBR’s electronic net settlement system has 78 regional branches acting as processing centres across nine time zones. Payments processed on an intra-regional basis are usually settled the same day. Payments processed on an inter-regional basis are typically settled within two working days.

Commercial banks also have a comprehensive network of correspondent accounts with each other, which allows for faster settlement. The largest settlement bank is Sberbank, due to nationwide branch network.

The Russian post service is now a full member of the intra-country payment system for individuals, and many banks, utilities and catalogue shops use it to receive payments from individuals.

Payment instruments

Cash remains the most popular and widespread means of payment in Russia. Debit and credit cards are gaining in popularity. The main cashless payment instrument is the credit transfer, which can be paper-based or automated. An increasing majority of credit transfers are electronic. There are a number of transfer systems for individuals, such as Western Union, Anelik, Unistream and others.

Lockboxes are popular between individuals as a means of payment for expensive items such as an apartment or a car; the asset transfer takes place within the bank. Lockboxes are widespread in major cities.

Personal or company cheques do not exist. Instead, firms and individuals use liquid promissory notes as a means of payment (eg notes on Sberbank). Some banks have tried to introduce their own cheques as a means of payment but they are not popular and are not widely accepted.

Cash and bank account management

Account availability

Residents and non-residents can open fully convertible domestic currency accounts as well as foreign currency accounts both within Russia and abroad. Residents must advise the relevant tax authority when opening a foreign currency account abroad.

Money laundering

Russia has implemented anti-money laundering legislation (Law RF 115-FZ on Combating Legalisation (Laundering) of Criminally Gained Income and Financing of Terrorism 2002 most recently amended in 2013, The Federal Law on the Introduction of Amendments and Addenda to the Federal Law on Counteracting the Legalisation (Laundering) of Income Obtained by Criminal Means 2003, last amended 2008, Federal Law 35 of 2006, Federal Laws 241-FZ and 121-FZ of 2009, and Article 174 of the Criminal Code).

A Financial Action Task Force (FATF) member, it observes most of the FATF-49 standards. Russia is also a member of the Council of Europe MONEYVAL Select Committee and the Eurasian Regional Group on Combating Money Laundering and Financing of Terrorism (EAG).

Russia has established a financial intelligence unit, the Federal Service for Financial Monitoring (FSFM), which is a member of the Egmont Group.

Supplied by BCL Burton Copeland (www.bcl.com). Data as at February 2014.

Cash concentration and pooling

There is some availability of cash concentration and notional pooling services, but only involving domestic currency accounts. Exchange controls make cross-border services very difficult. Cross-border notional cash pooling is not available. As there is no clear legal framework, any cash management solution is risky.

Liquidity management

Short-term investments

  • Interest can be earned on current and deposit accounts.
  • Time deposits are a common method of short-term investment in Russia. Time deposits can be held in domestic currency or a major foreign currency and usually have maturities of one, three, six and 12 months.
  • Certificates of deposit (CDs) are offered by Sberbank and Russia’s leading commercial banks but are little used. Maturities can range from one day to over a year. The majority of CDs have maturities of one to six months.
  • GKOs are zero-coupon government bonds issued in units of RUB 1,000 via monthly auctions held by the CBR. GKOs have maturities ranging up to one year.
  • Veksels are short-term, zero-coupon promissory notes offered by companies. Veksels usually have maturities of one, three and six months.
  • Repurchase agreements (repos) are available on government bonds and corporate securities. Repos between dealers on government bonds usually have maturities of one, two, seven and 14 days. Direct repos on government bonds have maturities of one to seven days. Repos on corporate securities have maturities ranging up to three months.

Benchmark rates

The CBR only provides an indicative refinancing rate – its discount system is non-functioning. Therefore this rate is a weak indicator of the prevailing base interest rate on the market. However, the banks use it to adjust their base rates. As of 28 July 2014, the rate stands at 8%.

Corporate finance

A local debt capital market is developing enabling companies to fund themselves. However, its access remains limited to large companies for tenors up to five years. Russian SMEs continue to experience liquidity problems. Availability of short-term funding by the use of an overdraft is still low. Loan facilities are not easily obtainable due to the absence of credit ratings and require good collateral and other legal obligations. Many firms prefer to offer a substantive discount for an advance payment. Firms dealing in the Russian market should anticipate a longer settlement period than usually accepted in more developed economies.

Websites

Official Government Portal

Bureau of Economic Analysis

Central Bank – Federal Reserve System

Internal Revenue Service (IRS)

SEC

FASB

New York Stock Exchange

Chicago Stock Exchange

National Stock Exchange

NASDAQ website

Chicago Mercantile Exchange Group

Chicago Board of Options Exchange

American institute of Certified Public Accountants

Financial Manager's Society

Personal tools