On 21 December 2020, the US Department of Commerce announced having imposed new trade restrictions against 45 Russian organizations[1].

These new trade restrictions became effective on 23 December 2020. They result from the amendments introduced by the Bureau of Industry and Security to the Export Administration Regulations (EAR).

In the framework of these new trade restrictions, the Bureau of Industry and Security added 45 Russian and 58 Chinese entities to the “Military End User” (MEU) List. These companies are determined by the U.S. Government as military end users for the purposes of the control of exports, reexports, or transfers (in-country) of controlled items specified in Supplement No. 2 to Part 744 of the Export Administration Regulations[2]. Such control is intended to prevent listed entities from obtaining U.S. technologies that could be used by the end users to develop military capabilities that are contrary to U.S. national security interests.

Those technologies include certain materials and chemicals (e.g. depleted uranium), generators for nuclear power plants, electronic devices and their components, related software, communication testing equipment, sensors and lasers, specific equipment for marine vessels, acoustic equipment for detecting underwater objects, specific navigation equipment and avionics for aircraft (including parts and components).

A license will be required to export, reexport, or transfer (in-country) designated items to listed entities. The Bureau of Industry and Security will follow the policy of refusal, i.e., it will reject any application for such license.

Additional parties may be added or deleted from the MEU List pursuant to a determination made by the End-User Review Committee, the interagency body composed of Commerce, and the Departments of Defense, Energy, State, and, where appropriate, the Treasury.

Russian organizations targeted by new US trade restrictions, according to the final rule, published at the Federal Register on 22 December 2020[3], are as follows:

• Admiralty Shipyard JSC;
• Aleksandrov Scientific Research Technological Institute NITI;
• Argut OOO;
• Communication center of the Ministry of Defense;
• Federal Research Center Boreskov Institute of Catalysis;
• Federal State Budgetary Enterprise of the Administration of the President of Russia;
• Federal State Budgetary Enterprise Special Flight Unit Rossiya of the Administration of the President of Russia;
• Federal State Unitary Enterprise Dukhov Automatics Research Institute (VNIIA);
• Foreign Intelligence Service (SVR);
• Forensic Center of Nizhniy Novgorod Region Main Directorate of the Ministry of Interior Affairs;
• Irkut Co.;
• Irkut Research and Production Corporation Public Joint Stock Company;
• Joint Stock Company Scientific Research Institute of Computing Machinery;
• JSC Central Research Institute of Machine Building (JSC TsNIIMash);
• JSC Rocket and Space Centre – Progress;
• Kamensk-Uralsky Metallurgical Works J.S. Co.;
• Kazan Helicopter Plant PJSC;
• Komsomolsk-na-Amur Aviation Production Organization (KNAAPO);
• Korporatsiya Vsmpo Avisma OAO;
• Ministry of Defence RF;
• Molot Oruzhie;
• NPO High Precision Systems JSC;
• NPO Splav JSC;
• Oboronprom OJSC;
• PJSC Beriev Aircraft Company;
• PJSC Irkut Corporation;
• PJSC Kazan Helicopters;
• POLYUS Research Institute of M.F. Stelmakh Joint Stock Company;
• Promtech-Dubna, JSC;
• Public Joint Stock Company United Aircraft Corporation;
• Radiotechnical and Information Systems (RTI) Concern;
• Rapart Services LLC;
• Rosoboronexport OJSC (ROE);
• Rostec (Russian Technologies State Corporation);
• Rostekh – Azimuth;
• Russian Aircraft Corporation MiG;
• Russian Helicopters JSC;
• Sukhoi Aviation JSC;
• Sukhoi Civil Aircraft;
• Tactical Missiles Corporation JSC;
• Tupolev JSC;
• UEC-Saturn;
• United Aircraft Corporation;
• United Engine Corporation; and
• United Instrument Manufacturing Corporation.

[1] https://www.commerce.gov/news/press-releases/2020/12/commerce-department-will-publish-first-military-end-user-list-naming

[2] https://www.govinfo.gov/app/details/CFR-2017-title15-vol2/CFR-2017-title15-vol2-part744-appNo–id527

[3] https://www.federalregister.gov/documents/2020/12/22/2020-28031/addition-of-entities-to-the-entity-list-revision-of-entry-on-the-entity-list-and-removal-of-entities

Federal Law No. 407-FZ dated 8 December 2020 “On Amending the Labor Сode of the Russian Federation …” entered into force on 1 January 2021.

The law introduces the concept of temporary remote work, which is divided into continued (for a period of not more than six months) and periodic (alternating remote and work at the office).

The law also sets out rules for the document exchange. Namely, an enhanced qualified electronic signature is to be used by the employer, while the employee will use a similar or an enhanced unqualified electronic signature to conclude, modify or terminate the following documents in electronic form:

• Employment agreement;
• Addendum to an employment agreement;
• Financial liability contract;
• Traineeship agreement.

Otherwise, the parties will be able to interact in any way that allows to record the fact of receiving an electronic document. The method of such communication should be specified, for example, in the employment contract.

The law also allows to specify main remote work conditions in the employment agreement or an internal act. Such conditions include time schedule, the procedure of transmission of the employee’s work results and a report on these results at the request of the organization, as well as conditions and procedure for calling a temporary remote employee to office.

The time of interaction between the remote employee and the employer is to be included in the working time.

The employer will have to provide the employee with the necessary equipment, information security tools, etc. The remote employee is authorized to use their own or rented instruments with the consent or knowledge of the employer. In this case the employer will have to pay a compensation and reimburse expenses.

The law does not authorize establishing additional grounds for dismissal of remote employees in the employment contract. Nevertheless, in addition to the standard grounds for dismissal, remote employees can be dismissed if:

1. the remote worker has not contacted the employer without good reason for more than 2 consecutive days (the employer can set a longer term); and
2. the remote employee has moved to a different region where he will not be able to work on the same conditions.

The employer will be able to temporarily transfer its staff to remote work on its own initiative in case of emergency when the relevant decision has been made by the state or local government or if there is a threat to the life or normal living conditions of the population or part of it (for example, in an epidemic). It will not be necessary to get consent for such a transfer and make changes to the employment contract. If the specifics of the work do not allow to switch to remote work, then the time until the employee performs their duties will have to be paid as downtime for reasons beyond control of the parties – amounting to at least two-thirds of the salary.

The Ministry of Economic Development of the Russian Federation has reportedly developed draft legislation allowing foreign citizens to obtain a residence permit for investments in the Russian economy via a simplified procedure. To get the permit, one of the following conditions is to be fulfilled:

• The ownership of a Russian company with investments in its capital amounting to fifteen million rubles. When owning a foreign company operating in Russia, the amount of investment should equal at least fifty million rubles. In both scenarios the companies must operate in Russia for at least three years before its owner applies for residence permit.
• Investment amounting to fifteen million rubles in an existing Russian business, without having to buy a share in its charter capital or obtain the status of a shareholder. Equally, the company must also have existed for at least three years, paid at least six million rubles in taxes, and employed at least twenty-five people.
• Individual entrepreneurship subject to having invested ten million rubles in the business and having hired ten Russian nationals.
• Owning Russian bonds or real estate in Russia for at least three years before applying for a residence permit worth at least 30 million rubles.

The draft law currently undergoes public deliberations in the government. Afterwards it will be transferred for consideration to the State Duma.

Federal Law “On Amending Russian Fiscal Code…” dated 23 November 2020 No. 372-FZ became effective on 1 January 2021.

The amendment introduces a progressive tax rate equal to 15% for yearly income exceeding five million rubles. When the total taxable income exceeds 5 million, the tax to be paid will equal RUB 650 000 plus 15% off the outstanding amount.

The tax rate will remain at 13% for the income from the sale of property (except for securities), gifted property, as well as the insurance and pension payments.

The law also introduces the notion of combined taxable income (the ‘sovokupnost nalogovykh baz’). The progressive rate will apply to the combined taxable income which includes income from:

• Shareholding;
• Gambling gain;
• Operations with securities and derivatives, including those recorded on the individual investment account;
• Repo transactions with securities;
• Securities lending received by the investment partners in a partnership;
• Return on assets in a controlled foreign company;
• Other income considered as the main taxable income, including salary.

For the first quarter of 2021 if the tax agent makes a mistake, no fines will apply, but the agent will have to transfer an outstanding amount to the budget.

Draft Law “On Amending Certain Legislative Acts of the Russian Federation due to the Adoption of the Federal Law “On State and Municipal Control (Supervision) in the Russian Federation” No. 1051647-7 was adopted in the first reading by the Russian State Duma on 10 December 2020.

The amendments are proposed due to a massive reform on state and municipal control and supervision[1] and provide for a simplified procedure for the obtainment of a license. Namely, the term for consideration of the application for the license can be reduced (now the license application is considered within 45 business days). Moreover, the license can be provided in part in case the applicant meets the requirement only in part of the works and services subject to licensing.

Additionally, in case of changes they are proposed to be introduced directly into the register without the necessity to reissue the license.

Moreover, the draft law proposes a new procedure of periodic assessment of license compliance in respect of the following licensed activities:

• Manufacture of medicines;
• Fire extinguishing;
• Assembling, repair and maintenance of the instruments for fire safety of buildings and constructions;
• Activities relating to the exploitation of agents in infectious diseases in humans and animals as well as modified organisms of III and IV levels of potential danger, used in closed-loop system;
• Activities relating to the exploitation of ionizing radiation source (except for sources used in medical purposes).

This procedure will be held every three years upon the request of the licensee. It will become a substitute for scheduled control activities in part relating to verification of license compliance.

The draft law is next to be considered in the second reading. The exact date is still unavailable.

^[1] As a reminder the law enforcing the reform was signed by the President on 31 July 2020. The reform mainly aims at shifting the perspective from inspections to prevention of possible violations and providing companies with more guarantees when interacting with the state and municipal authorities. The reform will become fully effective starting 1 July 2021.

Federal Law on “Pre-Installation of Russian Software” No.460-FZ was signed by the president on the 22 December 2020. According to the law all the electronics retailers will have to install Russian software on gadgets starting from 1 April 2021.

As a reminder, according to the first version of the draft law compulsory pre-installation of Russian software on gadgets was scheduled on 1 July 2020, but the deadline was extended due to the COVID-19 pandemic.

The government has determined in its Decree No. 1867 dated 18 November 2020 which devices need to pre-install Russian programs. These include smartphones, tablets, desktop computers, laptops, TVs with the “smart TV” function, etc.

Such pre-installation shall be done by the manufacturers or their authorized persons, such as distributors. Consumers cannot be charged for pre-installation.

A list of 16 types of programs is also defined: browsers, search engines, maps, messengers, social networks, audio-visual services, office software, antivirus software, etc.

Compulsory pre-installation does not apply if the program is not compatible with the device or its operating system. Breach of the pre-installation rule will be fined from RUB 50 000 up to RUB 200 000 for legal entities and from RUB 30 000 to RUB 50 000 for designated officials.

Federal Law “On Amending Part Two of the Tax Code” No. 265-FZ dated 31 July 2020 entered into force on 1 January 2021. This Law is a part of the so-called “tax maneuver” for software developers and provides for reduction of the insurance premiums from 14% to 7,6% and of the income tax rate from 20% to 3%.

The reduced taxation will not apply to software distributors and companies whose revenue from the software production is less than 90% of the total revenue. Before applying for tax relief IT companies that meet the above-mentioned criteria should get accredited with the Ministry of Digital Development, Communications and Mass Media.

• Review of the court practice in relation to the disputes on termination of employees at the initiative of the employer issued by the Supreme Court Presidium dated 9 December 2020:

– The employer is not entitled to choose employees to be offered vacancies in case of staff reduction. The employee is free to choose any suitable vacant position from those available from the moment of notification of the staff reduction to the day of dismissal. If several employees apply for the same position, the choice should be made considering the preference for remaining employed as provided by the Russian labor legislation. When reducing a position at a branch, all vacancies in other separate structural divisions of the organization in this area should be offered.

– The employer cannot demand an explanation from an employee during the period of their temporary disability and dismiss them on the last day of the sick leave. The Russian Labor Code specifically excludes the time of illness from the period of application of a disciplinary penalty.

– In case of absence without leave the employer must check whether the employee had a reasonable excuse (an example provided in the document is having to accompany one’s minor nephew to a hospital).

– In case a separate structural division was closed, and the employee refused to move to a different area to work in a head office, the contract will be terminated due to the liquidation, and not the employee’s refusal to transfer.

• Review of the court practice issued by the Supreme Court No. 3 dated 25 November 2020:

– The bank cannot provide for limitation of liability in a guarantee in case of a wrongful act.

– Agreement on assignment of a contract will suppose automatic transfer of all rights and obligations of the original party, unless otherwise specified in the agreement.

The limited liability company’s charter cannot contain provisions that ban the shareholder from selling its share or exiting the company with the possibility of recovery of investment.