Intercompany Loans: Financing a Russian Subsidiary

Can a foreign parent company lend money to its Russian subsidiary?

Yes. A foreign parent company can generally finance its Russian subsidiary through an intercompany loan. Before funding, the group should document the currency, amount, interest rate and repayment terms, complete the applicable bank currency-control procedures, and assess Russian tax and counter-sanctions rules, as well as foreign sanctions restrictions. These issues should be checked before signing because they may affect interest deductibility and the subsidiary’s ability to repay principal and interest abroad.

The loan within the subsidiary’s funding model

A loan can fund working capital, equipment or the launch period without changing share capital. However, it creates a repayment obligation. Intercompany financing should therefore be compared with equity against the subsidiary’s forecast cash flow.

Amount and currency

A parent company loan to a subsidiary may be denominated in roubles or another currency. The choice affects exchange exposure and repayment cost.

Maturity schedule

A parent-subsidiary loan should align payment dates with forecast cash flow. A bullet payment concentrates the obligation at maturity.

Interest calculation

The intercompany loan agreement should state whether the rate is fixed or floating, how interest accrues and when it is paid.

Payment route

The parties should confirm that the selected banks can receive the funds and identify the documents required.

Currency control and the servicing bank

A Russian borrower completes currency-control formalities through its authorised bank. A credit or loan agreement with a non-resident for at least the equivalent of RUB 3 million is generally placed on record with the authorised bank and receives a unique number.

The subsidiary should coordinate the process before the first transaction. The bank may request the agreement, schedules, amendments and supporting documents. Inconsistencies can delay receipt of funds or later debt service.

Intercompany loan tax implications

The tax result depends on the parties' relationship, the pricing of the debt and the subsidiary’s capital position.

The tax treatment of intercompany loan interest should be reviewed before the rate is approved. A rate accepted abroad does not automatically support a Russian deduction. Treaty relief depends on the treaty’s current status and the recipient’s entitlement.

Debt level and thin-capitalisation exposure

Article 269 may treat debt to certain foreign related parties as controlled. If it exceeds the borrower’s relevant equity by more than 3:1, the deduction may be restricted. Banks and leasing companies use a 12.5:1 ratio.

The portion of interest exceeding the limit is treated as dividends for Russian profit-tax purposes. Because the calculation uses reporting-period figures, losses, new debt or equity movements can change the result. The ratio should be monitored during the year.

Repayment restrictions and payment feasibility

Receipt and repayment present different risks. Before scheduling a payment abroad, the subsidiary should check three elements.

Creditor status

Payments to certain creditors connected with states designated by Russia as taking unfriendly actions may fall under Presidential Decree No. 95.
Monthly payment amount

Where the decree applies and aggregate obligations exceed RUB 10 million in a calendar month, the special repayment procedure must be considered.
Available payment route

Payment may have to be made through a type "C" account unless permission or an available exception applies. The ownership structure and the banks involved should also be checked before payment.

The parent must separately assess restrictions in its own jurisdiction: Russian permission does not oblige a foreign bank to execute the payment.

Accounting for intercompany loans and group reporting

The borrower records principal as a liability and borrowing costs separately. Special treatment may apply when costs relate to an investment asset. Foreign-currency liabilities require revaluation.

The presentation of intercompany loans on the balance sheet depends on maturity and the reporting framework. Headquarters should receive a reconciliation of principal, interest, payments, exchange differences and the current/non-current split.

Monthly reporting should compare balances and payments with the approved schedule and flag maturities, unpaid interest, currency exposure and required approvals.

How we support financing between group companies

Before funding a Russian subsidiary, we help the group assess the proposed loan from Russian tax, accounting and currency-control perspectives.

We identify terms that may complicate bank processing, interest deductibility or repayment and align the required documents with the parent’s reporting needs. This gives management a workable financing structure rather than an agreement that cannot be serviced as planned. Contact us before signing to discuss the loan terms and implementation steps.

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