Since Russia’s invasion of Ukraine in 2022, hundreds of Western companies have withdrawn or suspended operations in the country. However, exiting the Russian market is not as simple as shutting down operations—businesses face legal hurdles, financial losses, and regulatory traps that require careful planning.
This guide outlines the key legal, financial, and operational challenges of leaving Russia and provides practical strategies to minimize risks and losses.
1. Why Exiting Russia Is Complicated
Russia has imposed strict exit rules to discourage foreign businesses from leaving, including:
- Mandatory government approval for asset sales.
- “Voluntary” donation requirements (10-50% of sale proceeds to the state).
- Arbitrary valuations, forcing fire-sale prices.
- Threats of nationalization (e.g., Danone, Carlsberg seizures).
Companies must navigate these obstacles while complying with sanctions, tax laws, and contractual obligations.
2. Key Steps for a Controlled Exit
A. Legal Considerations
✔ Review Contracts & Local Laws
- Check for termination clauses, force majeure provisions, and arbitration rights.
- Ensure compliance with Russian labor laws (severance pay, layoff procedures).
✔ Government Approval for Asset Sales
- Since 2022, presidential approval is required for deals involving companies from “unfriendly” countries.
- Some firms have sold assets at steep discounts (e.g., Renault sold its stake in AvtoVAZ for 1 ruble).
✔ Arbitration & Dispute Resolution
- If contracts include international arbitration clauses, pursue claims in neutral jurisdictions (e.g., Stockholm, Singapore).
- Russia may ignore rulings, but arbitration preserves legal leverage.
B. Financial & Tax Risks
✔ Currency Repatriation Challenges
- Russia restricts foreign currency transfers, making it hard to extract profits.
- Some companies reinvest locally or accept ruble conversions at unfavorable rates.
✔ Tax Liabilities & Audits
- Expect aggressive tax inspections before exit.
- Settle all VAT, payroll taxes, and customs duties to avoid frozen assets.
✔ Write-Downs & Loss Provisions
- Many firms (e.g., BP, Shell) have fully written off Russian assets.
- Account for impairment charges in financial reporting.
C. Operational Challenges
✔ Employee Severance & Liability
- Mass layoffs require 60-90 days’ notice and severance (often 2-3 months’ salary).
- Some companies transfer employees to local buyers to avoid legal risks.
✔ Intellectual Property Risks
- Trademarks and patents may be seized or invalidated after exit.
- Consider selling IP rights to a trusted local partner.
✔ Supply Chain & Contract Termination
- Notify suppliers, distributors, and landlords per contractual terms.
- Avoid breach-of-contract penalties by negotiating early exits.
3. Case Studies: How Companies Have Exited
✅ McDonald’s – Sold 850 restaurants to a local licensee (now rebranded as “Vkusno & Tochka”) with a buyback clause.
✅ BP – Abandoned its 20% stake in Rosneft, taking a $25 billion loss.
✅ Unilever – Sold its Russian tea business (Lipton) to a local investor at a steep discount.
❌ Danone & Carlsberg – Had assets seized by the Kremlin after announcing exit plans.
4. Alternative Exit Strategies
✔ Sell to a Local Partner (with Buyback Option)
- Some deals include repatriation clauses if sanctions lift.
✔ Transfer Management to Local Employees - Reduces layoffs but risks losing control.
✔ Liquidation (Last Resort) - Complex, with creditor claims and tax audits.
5. Future Outlook
- More forced sales at discounts as Russia tightens exit rules.
- Continued sanctions pressure, making re-entry unlikely for years.
- Legal battles over seized assets (though recovery prospects are low).
Conclusion
Exiting Russia requires careful legal planning, financial preparedness, and risk mitigation. Key steps include:
✔ Securing government approval for asset sales.
✔ Protecting intellectual property from seizure.
✔ Minimizing tax and legal exposure during withdrawal.
Companies must weigh losses against long-term risks—staying may invite reputational damage, while exiting could mean significant write-offs.