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Home » Services » Legal regulation of foreign investments

Legal regulation of foreign investments

The Constitution of the Russian Federation, the Civil Code, the Federal law «On Foreign Investment in the Russian Federation» of July 9, 1999 and other legislation on joint stock and limited liability companies and their insolvency provide the general legal framework for trade and investment in Russia.

According to Federal law «On Foreign Investment in the Russian Federation» legal regime for foreign investors and investments may not be less favorable than for domestic investments, with some exceptions. Such exceptions may be introduced only to the extent required for the purposes of protecting the Russian constitutional system, the morality, health and rights of persons, or in order to ensure state security and defense.

Article 9.1 (Guarantees to Foreign Investors and Companies with Foreign Investment Against Unfavorable Changes in the Legislation of the Russian Federation)of this law sets the tax stabilization clause, also known as "the Grandfather Clause", applies to

  • Foreign investor which is implementing "priority investment projects";
  • Russian company with foreign investment which is implementing "priority investment projects";
  • Russian company with foreign investment if such foreign investors' interest composes more than 25% of the charter (joint stock) capital of such company,

 there being importing  the commodities to the customs territory of the Russian Federation for the purpose of implementing the "priority investment projects".

 Article 2 stipulates that"priority investment project" shall mean an investment project with a total amount of foreign investment of at least RUB 1 billion, or the foreign investors' interest in the charter (joint stock) capital of a company with foreign investment is at least RUB100 million, included in the list adopted by the Russian Government.

 Therefore Russian law protects foreign investors and companies with foreign investment mentioned above from changing the rate of import custom duties, federal taxes and obligatory payments to the state off-budget funds, or from changes that lead to increase of cumulative tax burden. This rule is limited to the extent of seven years from the date of the beginning of funding of the project by foreign investments; in addition this period may be extended by the Russian Government under certain conditions.

 The exceptions to the Grandfather Clause concern customs fees introduced by implementation of actions directed towards protecting the economic interests of the Russian Federation, excise tax, VAT and obligatory payments to the Pension Fund.

 The Federal Law "On Foreign Investments in Companies of Strategic Importance for National Defense and Security of the Russian Federation" (Law on Strategic Investments) defines provisions of control over foreign investments into strategic sectors of the economy. The Law provides an exhaustive list of the industries it shall apply to, thereby specifying all of the strategic sectors. The list contains 42 types of commercial activities which may be grouped to the following:

 a) national defense sector, including working with nuclear materials, weapons and other military equipment, aviation, space, coding and encryption equipment;

b) natural resources sector, which includes  exploitation of subsoil areas of federal importance, fishing;

c) activity of natural monopolies (including energy sector);

d) mass media sector, including television, radio broadcast and printed media covering a significant share of Russia's  audience;

e) telecommunications, including activities of the major telecom providers. 

 Under the Law on Strategic Industries, foreign investors acquiring direct or indirect control over Russian strategic enterprises shall obtain prior approval, or in certain cases post-transaction approval, of a special government commission (Government Commission for Control over Foreign Investments in the Russian Federation).

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