General rules for making a contract in Russia

1) What mandatory elements must a contract between two residents contain?

A contract between two residents is considered entered into if it identifies the parties and the subject matter, and if agreement has been reached on all its material terms. Such material terms may include a price, contract duration and other relevant conditions. Depending on the type of contract, material terms may be stipulated by law or included in the contract by agreement of the parties. Failure to comply with the content requirements may invalidate the contract.

2) Is notarization or state registration required for B2B contracts?

For B2B contracts between residents, a simple written form is generally sufficient. Notarization or state registration is required only in cases when expressly envisaged by law. The parties may also agree to notarize a contract by mutual consent, even if it is not required by law. State registration is usually necessary for real estate transactions, such as mortgage (pledge) agreements in relation to real estate.

3) What are the general requirements for the form and language of a contract between residents?

Contracts between residents are concluded in oral or simple written form, except where notarization or state registration is required by law. A simple written form is mandatory for contracts exceeding ten thousand Roubles, as well as for contracts with legal entities. The contract must be drawn up in Russian to ensure a clear understanding of its terms. Use of a foreign language in the contract does not invalidate it, but a translation into Russian may be required for submission to court and in other cases as set out by law. If the contract is drawn up in two languages, its Russian version generally prevails.

4) What are the consequences of non-compliance with the written form of a contract?

There are two types of written form: simple and qualified (notarized).

If the law requires a simple written form, as a rule, non-compliance does not render the transaction void; however, the parties are deprived of the right to refer to witness testimony to confirm the transaction and its terms (Article 162 of the Civil Code of the Russian Federation).

However, for certain agreements, the law stipulates a different consequence - invalidity. For example, this requirement is established for a penalty agreement (Article 331 of the Civil Code of the Russian Federation).

If the law requires a notarized form, then its non-compliance always renders the transaction void (Article 163 of the Civil Code of the Russian Federation).

5) What specific rules apply when contracting with public authorities or state customers?

When concluding contracts (procurement) with public authorities or state customers in the Russian Federation, a special regulatory framework applies. Its main features are the mandatory observance of competitive procedures and strict requirements for participants.

The conclusion of such contracts is governed by separate laws: Federal Law No. 44-FZ of April 5, 2013 "On the contract system in the procurement of goods, works, and services for state and municipal needs" and Federal Law No. 223-FZ of July 18, 2011 "On the procurement of goods, works, and services by certain types of legal entities."

Generally, contracts are concluded through tenders in the form of open auctions or competitions. In certain cases, it is possible to conclude a contract without a tender.

Special requirements are imposed on procurement participants, for example, the absence of tax arrears and the absence of offshore company status.

Most procurements are conducted exclusively for small and medium-sized businesses.

The contracts themselves also have specific features: they may have a different list of essential terms, stricter liability conditions, and mandatory performance security from the contractor.

6) What are the requirements for performance and modification of contracts?

Contracts must be performed properly, i.e., in accordance with their terms and the requirements of the law. It is necessary to adhere to the established timeframes, as well as to the material terms of the contract, as required by law or by agreement of the parties (Chapter 22 of the Civil Code of the Russian Federation).

The current legislation provides for several methods for amending a contract or its individual terms, including:

1. By agreement of the parties. An agreement to amend a contract must be made in the same form as the original contract, unless otherwise stipulated by law, other legal acts, the contract itself, or business customs.

2. Through judicial procedure (Clause 2, Article 450 of the Civil Code of the Russian Federation): in the event of a material breach of the contract by the other party, as well as in other cases stipulated by the current legislation or the contract.

It is important to understand that, upon the request of one party, a court may amend a contract only in the event of a material breach by the other party. A breach is considered material if it results in damage that substantially deprives the aggrieved party of what it was entitled to expect under the contract.

In some cases, a unilateral amendment of a contract out-of-court is possible. As a general rule, such an amendment is permissible when both parties are engaged in entrepreneurial activity.

Furthermore, it is necessary to bear in mind that, under the current legislation on public procurement (Federal Law No. 44-FZ of April 5, 2013), amending the material terms of a contract during its performance is not permitted. However, there are a number of conditions under which this is possible by agreement of the parties (Article 95 of Federal Law No. 44-FZ of April 5, 2013).

7) What are the requirements regarding currency and payments in contracts with non-residents?

Russian companies can freely conduct foreign currency transactions under contracts with non-residents (according to paragraph 1 of Article 6 of Federal Law No. 173-FZ dated December 10, 2003, "On Currency Regulation and Currency Control"). In other words, contracts with non-residents may be settled in either foreign currency or Russian rubles.

However, since March 2022 (following Presidential Decree No. 81 dated March 1, 2022, and Government Resolution No. 295 dated March 6, 2022), certain foreign exchange transactions and deals with non-residents require special approval. This approval is granted by a Government Commission. The transactions requiring such permission include:

• issuing loans and credits in rubles to non-residents from unfriendly countries;
• buying and selling securities and real estate from foreigners from unfriendly countries;
• payments under contracts for the purchase, lease, or leasing of aircraft, auxiliary power units, and aircraft engines to foreign creditors;
• acquiring securities and real estate from foreigners from friendly countries who obtained these assets from organizations or individuals from unfriendly countries after February 22, 2022;
• issuing loans to non-residents in foreign currency, as well as money transfers without opening a bank account using electronic payment systems operated by foreign payment providers.

For payments to non-residents from unfriendly countries, residents must use a designated special account known as type "C".

8) Can foreign law be chosen to govern a contract and what are the restrictions?

Under a contract, the parties may agree - either at the time of contract formation or subsequently - on the governing law applicable to their rights and obligations under the agreement (Article 1210 of the Civil Code of the Russian Federation). Such choice of law may pertain to the contract in its entirety or to specific provisions thereof. The parties’ selection of the applicable law must be expressly stated or clearly implied by the terms of the contract or by the surrounding circumstances.

Notwithstanding the parties’ choice, certain property and obligations are subject to mandatory application of Russian law. For instance, Russian law governs contracts relating to land plots, mineral resources, and other immovable property situated within the territory of the Russian Federation (paragraph 2, Article 1213 of the Civil Code of the Russian Federation).

9) What are the requirements for registration and reporting of cross-border contracts?

Nowadays international contracts are not subject to registration but must be accounted for under certain conditions.

Contracts are subject to accounting if the amount of obligations equals or exceeds the ruble equivalent at the Bank of Russia’s exchange rate on the date of conclusion or amendment of the contract:

• for import contracts and loan agreements - starting from RUB  3 mln;
• for export contracts - starting from 10 million rubles.

Contracts are accounted for with empowered banks rather than with state authorities.

Subsequently, the party is obliged to: notify the bank of any amendments to the contract; provide documents for the verification of currency transactions; submit documents confirming the performance of the contract; and ensure timely receipt of payment from the foreign counterparty or the return of any advance payment upon termination of the contract.

Authors: Alena Ivanova, Andrey Borovkov, Artem Kritsky, Maxim Zarechin, Vyacheslav Khorovskiy