More than a year into the Ukraine war, the Kremlin is still thinking of ways to penalize foreign companies exiting the country — and it is now making the departure more expensive.
Investors who are selling their businesses and are from “unfriendly countries” — those that have imposed sanctions against Russia over its invasion of Ukraine — must donate at least 10% of the sale proceeds to the Russian budget, according to a document posted on Monday by the country’s finance ministry.
The new ruling states that such companies have “an obligation to make a voluntary cash contribution to the federal budget” that amounts to at least 10% of what they receive from the sale, according to a Reuters translation.
This donation is on top of a previously announced 50% cut on the sale of their assets, which has to be borne by these investors.
Russia witnessed an exodus of companies after it invaded Ukraine, but some have remained — either voluntarily or because of challenges in leaving the Russian market.
While over 1,000 companies quickly announced that they were voluntarily cutting back on operations in Russia just two months after the Ukraine war started in February 2022, just 520 companies have managed to make a clean break so far, according to an ongoing study led by Jeffrey Sonnenfeld, a professor at the Yale School of Management.
About 550 foreign companies are still actively operating in the country, according to Yale’s list. They include firms from the US, Germany, France, and Italy, among others.
It is difficult for multinationals to pack up and leave Russia
It’s challenging for multinationals to simply pack up and leave Russia, according to a Wednesday blog post from Saul Estrin, a professor at the London School of Economics, and Klaus E. Meyer, a professor at Ivey Business School.
Chief among the list of challenges is that foreign business subsidiaries need to comply with several Russian policies.
“The subsidiary would typically have many contractual and legal obligations from which it cannot simply walk away,” wrote Estrin and Meyer. “A sudden withdrawal is likely to result in legal action by business partners, or by the authorities.”
Even so, a few high-profile companies have left Russia — such as McDonald’s, Starbucks, and Goldman Sachs.
While the Russian Starbucks franchise was sold to a group comprising a businessman, a rapper, and a Russian company, assets from McDonald’s and Goldman Sachs were sold to former employees.
These options are not available to every company — especially since there would be fewer potential buyers because of sweeping sanctions against Russia, according to Estrin and Meyer.
Over 2,000 companies are seeking approval to exit the Russian market, the Financial Times reported on Tuesday, citing a person involved in an exit negotiation. But the authority handling the applications meets only three times monthly and considers up to seven applications each time, thus lengthening the exit process, per the FT.
The Russian finance ministry did not immediately respond to Insider’s request for comment.
