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Russia

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In the last four weeks, the world has witnessed the widespread devastation and growing humanitarian crisis in the Ukraine caused by the Russian invasion. At the same time, multinational businesses have made significant decisions regarding the continuation of business in Russia and the Ukraine and regarding how best to protect their local employees. One aspect of those decisions relates to the operation of equity compensation plans in light of sanctions enacted in response to the…

For several years, it has been challenging to grant equity awards to employees in Russia. The tax treatment of options and ESPP is uncertain and it is possible that tax is due at grant and at exercise/purchase. The securities requirements are similarly unclear and there is a risk that equity awards are subject to an onerous securities registration requirement, unless all transactions related to the awards take place outside of Russia. And, since 2013, due to changes to the currency control laws, it has been questionable whether shares and cash payments related to equity awards could be issued into non-Russian accounts.

Notwithstanding, with appropriate structuring of grant terms and award administration, many companies have continued to grant equity awards in Russia.

Data Privacy Laws Add Another Level of Difficulty to Equity Awards in Russia

Now comes the latest threat from a somewhat unexpected corner: data privacy laws.  On July 21, 2014, Russia enacted a new data privacy law which requires that companies process all personal data related to Russian nationals in Russia.  This means that companies which collect and/or process the personal data of Russian nationals would have to ensure that the databases used for such purposes are located in Russia.  The effective date of the law was September 1, 2016, but has since been accelerated to September 1, 2015.