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Western companies leaving Russia are being forced to donate to the country – and this is making it harder for them to do so

Western companies leaving Russia

In the wake of the Ukraine war, the Kremlin is still trying to penalize Western companies leaving the Russia – and now it is increasing the cost of leaving.

According to a document posted by the Russian finance ministry on Monday, investors from “unfriendly countries” — those that have imposed sanctions on Russia for its invasion of Ukraine — must donate at least 10% of their sales proceeds to the Russian government.

As part of the new ruling, such companies are required to make a voluntary cash contribution to the federal budget of at least 10% of their sales proceeds.

They must also bear a 50% cut on the sale of their assets, which was previously announced.

After the Russia invasion of Ukraine, many Western companies fled, but some stayed – either voluntarily or because leaving the Russian market was challenging.

Just two months after the Ukraine war began in February 2022, more than 1,000 companies voluntarily cut back on operations in Russia, but 520 of those companies have managed to make a clean break so far, according to a Yale School of Management professor named Jeffrey Sonnenfeld.

According to Yale’s list, there are still 550 foreign companies active in the country. They include companies from the US, Germany, France, and Italy.

Multinationals find it difficult to leave Russia

Saul Estrin, a professor at the London School of Economics, and Klaus E. Meyer, a professor at Ivey Business School, wrote in a blog post on Wednesday that multinational companies find it difficult to simply pull out of Russia.

The biggest challenge is complying with several Russian policies by foreign business subsidiaries.

“A sudden withdrawal by the subsidiary is likely to result in legal action by business partners, or by the authorities.”, wrote Estrin and Meyer.

However, some high-profile companies have left Russia, including McDonald’s, Starbucks, and Goldman Sachs.

Former employees of McDonald’s and Goldman Sachs bought assets from McDonald’s and Goldman Sachs, while a Russian Starbucks franchise was sold to a businessman, a rapper, and a Russian company.

The options aren’t available to every company, especially since there are fewer potential buyers due to sweeping sanctions against Russia.

An individual involved in an exit negotiation told the Financial Times on Tuesday that over 2,000 companies are seeking approval to exit the Russian market. Nevertheless, the authority that handles the applications meets only three times a month and considers up to seven applications each time, which lengthens the process.

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