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Net Assets of Companies in Russia Under More Intense Control

Since 2015 net assets of commercial companies in Russia are under more intense control of the tax authorities

The Federal Tax Service of Russia distributed instructions to all local tax service departments on how to organize audits for companies’ net assets compliance. The core idea of the document is that the tax office should be able to analyze the current conditions of the net assets in joint-stock companies and limited liability companies and reveal those tax-payers who have net assets which are lower than the limits required by law. Companies matching these criteria (please see below) will receive official letters from the tax authorities with a reminder that such companies should take decisions on voluntary liquidation. 

The rationale of the tax authorities is based on the following rules:

If the value of net assets is less than its charter capital at the end of the fiscal year following the second fiscal year, or if on a subsequent fiscal year the value of net assets is less than the charter capital, then the company should resolve to do one of the following no later than six months after the end of the fiscal year:

1) reduce its charter capital to an amount not exceeding the value of the net assets;

2) liquidate the company” (par. 6 art. 35 of Act on JSCs, par. 4 art. 30 of Act on LLCs).

If after the end of the second or a subsequent fiscal year the value of the company’s net assets proves to be lower than the minimum allowed value for the charter capital amount, the company must adopt a resolution on voluntary liquidation within six months after the end of the fiscal year (par. 11 art. 35 of Act on JSCs).

Besides this, negative net assets affect procedures for taking decisions on payment of dividends (distribution of profit) and payment of declared dividends (net profit). A JSC is not entitled to take decisions (declare) on payment dividends if on the day of such a resolution the value of the net assets of the company is lower than its charter capital, reserve fund, and excess liquidation value of preferred shares over the nominal value under the company’s charter, or would be lower than the aforementioned value after the adoption of such a decision (par. 1 art. 43 of Act on JSCs). 

A similar prohibition is in force with regards to payment of declared dividends. A Joint stock company is not entitled to pay declared dividends on shares if on the day the value of the company’s net assets is lower than its charter capital, reserve fund, and excess liquidation value of preferred shares over the nominal value under the company’s charter, or would be lower than the aforementioned value after adoption of such a decision (par. 4 art. 43 of Act on JSCs).

Pursuant to par. 1 and 2 of art. 29 of Act on LLCs, a company is not entitled to take decisions on distribution of profit among its participants (to pay them net profit) if at the moment of taking such a decision (payment) the value of the net assets of the company is lower than its charter capital and reserve fund, or would be lower as a results of taking such a decision. 

Taking into account the above provisions our company offers the following services: 

  • calculation and analysis of the current net assets of the company
  • development of specific measures focused on an increase of net asset value
  • preparing concrete documents and implementing certain operations focused on increasing the company’s net asset value

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