Starting Your Business in Russia
Starting Your Business in Russia
The objective of foreign investment is to invest in an object of entrepreneurial activity in the territory of the Russian Federation
Investments refer to cash, securities and other property, including property rights with monetary value, which are contributed to objects of entrepreneurial activity in order to obtain a profit.
In accordance with the legislation of the Russian Federation, foreign investors can be represented by foreign legal entities, foreign organizations, foreign citizens (who are allowed to conduct investment activities in the territory of the Russian Federation by the legislation of their country), international organizations (which are entitled to investment activities in the territory of the Russian Federation under an international agreement) and foreign states.
A foreign investor can make any form of investment in the territory of the Russian Federation unless prohibited by Russian legislation. Generally, portfolio and direct investments are distinguished.
Portfolio investments refer to funds invested in securities. All activities related to making portfolio investments are governed by the federal laws On the Securities Market, On Protection of Investors' Rights and Legitimate Interests in the Securities Market, and On Investment Funds.
Direct investments refer to investments made directly into the manufacturing process. The law On Foreign Investments in the Russian Federation attached to this section provides a definition of direct foreign investment. This term refers to the following:
- Foreign investor's acquisition of at least a 10% interest, interests (contribution) in the share (equity) capital of a commercial organization (business partnership or entity) in the territory of the Russian Federation
- Investments into fixed assets of a foreign legal entity's branch set up in the territory of the Russian Federation
- Financial lease with customs value of at least RUB 1 million by a foreign investor in his/her capacity as a lessor.
Foreign investments can also take the form of capital investments in Russian organizations and agreements on activities in special economic zones. Capital investments are represented by investments into fixed capital (fixed assets). Fixed assets include buildings, facilities, working and power machinery and equipment, measurement and controlling tools, vehicles, tools, manufacturing and operational equipment, working and productive livestock, internal roads, land plots, capital investments in fundamental improvement of land and leased fixed assets.
As soon as a foreign investor acquires a share in a Russian commercial organization, this organization obtains the status of a commercial organization with foreign investments. From this moment on, it enjoys privileges and guarantees envisaged for foreign investors by legislation (see below).
The major part of investment activity is conducted under the agreement on activities in the territory of special economic zones. Foreign investors are attracted to the Russian market by means of privileges (customs and tax) and guarantees.
The most important guarantees include the following:
- Guarantee of legal protection - protection of the foreign investor's rights and interests, guarantee of the foreign investor's right to compensation of losses caused by illegal actions of state agencies, local authorities and their officials
- Guarantee of the foreign investor's use of various forms of investment in the territory of the Russian Federation unless prohibited by Russian legislation
- Guarantee of the transfer of rights and obligations to another person - a foreign investor is entitled to transfer his/her rights to another person
- Guarantee of compensation in the event of nationalization and requisition of the property of a foreign investor or a commercial organization with foreign investments
- Guarantee against a change in the legislation of the Russian Federation which would be unfavorable for a foreign investor or a commercial organization with foreign investments
- Guaranteed use of received income and profit in the territory of the Russian Federation and their transfer outside the Russian Federation
- Guarantee of the right to acquire securities - a foreign investor has the right to acquire securities of Russian commercial organizations and state securities.