Russia: What is the Investment Act in this country?

22 August 2020
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Investing in Russia can have many benefits for both parties. In this article you will get information about Investment Act in Russia, Russian Foreign Investment Council, the ways of investing in Russia, and the activities of the government of Russia in supporting investors.

Investing in Russia can have many benefits for both parties. Undoubtedly, it is impossible to have a successful investment without being aware of the laws of investment in that country. Russian government contrive to increase attracting foreign investments by for example granting special privileges. In this article of Sindbad we will have a review of the Investment Act in this country and also activities of the government of Russia in attracting investment. 

Law investment in Russia

Law investment in Russia

One of the main aim of economic policies of Russia is attracting foreign investors. After consolidation of market economy system, government prioritize implementing investment incentive policies. Ministry of Economic Development and Trade is responsible for coordinating government policies to attract foreign investment. To manage attracting foreign investment, the Foreign Investment Development Center has been established under the supervision of this ministry. This center has three offices in Frankfurt, Paris and Amsterdam.

The office has several goals, including encouraging foreign investment in the Russian economy, marketing for investment projects through their offices abroad, examining investment projects and coordination with potential partners, creating a standard structural framework for attracting foreign capital in the long run, presenting pre and post investment services to foreign investors, and administrative consulting and supporting foreign countries.

Russian Foreign Investment Council

Foreign Investment Advisory Council has been established in 1994 by the government and in cooperation with Western commercial companies to improve the investment situation. There are some of the big western commercial companies in this council such as Coca Cola, Renault, British Petroleum and Siemens. The main mission of the council is assessing investment situation in Russia and providing advisory opinions. The main duty of the council is showing a good image of Russia to foreign investors, and also identifying and examining and removing internal and external obstacles.

The ways of investment in Russia

The ways of investment in Russia

The Ministry of Economic Development and Trade is responsible for coordinating the affairs of the council. Russian Foreign Investment Act is Federal Foreign Investment Law which has been adopted on July 9, 1999. This federal law is based on the new economic policies of the country and replaced the Foreign Investment Act of 1991. The basic guarantees of foreign investors' rights in the field of investment and income, as well as the employment conditions of foreign investors in Russia are determined by this law.

The goal of this law is transferring funds, advanced technologies, and foreign management experience to national economy and also preparing proper condition for foreign investors’ activities and observance of equality of the legal regime of foreign investments with the standards of international law and international custom of cooperation in the field of investment. According to Investment Act, foreign investors can invest in Russian territory by the following methods:

  • Participating in the capital of institutions established by Russian natural and legal persons.
  • Establishing institutions with 100% ownership of foreign investors and establishing branches of foreign legal institutions
  • Acquisition of land, other natural resources, buildings, structures and other real estate
  • Purchase of shares and securities of Russian commercial organizations and government securities
  • Any kind of investment activity not prohibited by Russian law

Arbitration courts with the International Court of Arbitration are the reference for resolving disputes that occurs with the participation of a foreign investor in connection with an investment or employer.

Benefits and incentives for investors

The foreign investor who has implemented the investment project has priority in terms of taxes and duties, tax and customs privileges and incentives, in accordance with the customs laws of the Russian Federation and the laws of the Russian Federation. Territories of the Russian Federation and local self-government organizations can assign concessions to foreign investors and help their activities within their authority; or support foreign investors’ projects by location of the budget of the Russian Federation, local budget or other property. According to Investment Act, the following tasks are the responsibility of the federal government:

  • Foreign investment policy
  • Establishing bans and restrictions on the implementation of foreign investments
  • Monitoring the activities of foreign investors
  • Preparing a list of priority projects in investment
  • Designing and implementing federal programs to attract foreign investment
  • Getting investment loans from international financial organizations and foreign governments
  • Working with the regions of the Russian Federation in the field of cooperation in investment
  • Monitoring investment agreements with foreign investors regarding the implementation of big projects
  • Concluding international agreements of the Russian Federation on encouragement and mutual support of investment

What kind of people can invest in Russia?

What kind of people can invest in Russia?

According to the articles of the Russian Constitution regarding investment in this country, not all the companies and individuals and legal entities will be able to start investing in this country. Generally, the people and companies that can invest in Russia can be classified in the following classifications. The following individuals, companies and political units can act as foreign investors in Russia:

  • Foreign legal entities, including companies, institutions and organizations established based on the laws of their own country for investment.
  • Foreign citizens, the people without citizenship, non-resident Russian citizens
  • Foreign governments
  • International organizations

The purchase of at least ten percent of the shares of any commercial company established in the territory of the Russian Federation as a civil partnership or in accordance with the Civil Code of the Russian Federation is a foreign direct investment.

Russian government actions to support investors

The Russian government has obligations regarding foreign investment under the Federal Investment Act of 1999. Some of these activities and laws are as follows:

  • Observing the principle of equal treatment of foreign investors and Russian investors
  • Legal support for the reinvestment process Profit from foreign investment
  • Full and unconditional support for the rights and benefits of foreign investor in Russian federal territory
  • Lack of forced confiscation and nationalization or asset seizure of foreign investor, except in certain cases and for reasons specified by federal law or international treaty of the Russian Federation. In the case of confiscation of assets, the cost is paid to the foreign investor. In case of nationalization, the cost of assets and other losses will be compensated for the foreign investor. Disputes over damages are settled by Russian arbitral tribunals or the International Court of Arbitration.
  • Ensuring the transfer of income from investment profits and interest, intellectual property and amounts related to the liquidation of foreign companies or confiscation of invested assets or compensatory payments to outside the Russian Federation
  • hassle-free exit (without quotas), obtaining licenses and other methods of non-tariff regulation of foreign trade assets, or documented information or on electronic devices which has entered the territory of the Russian Federation as a foreign investment
  • Participation in the industrial privatization process
  • No changes in customs duties and federal taxes that may have a negative impact on foreign investors.This includes companies with 25% of their capital being foreign or investing in priority projects. Stability in the legal conditions governing companies is valid for seven years from the beginning of the activity of the foreign investor.

Free Trade Zones in Russia

Free Trade Zones in Russia

According to the fact that Russia has a large area and wide land and water borders with neighboring countries, considered many free trade zones in order to facilitating and encouraging domestic and foreign investors to invest in Russia. Russia has also provided special benefits and advantages for investors in these areas.

In 2005, the Russian government passed a law establishing special economic zones for a period of 12 years. This law monitors the construction of industrial production areas and areas focused on research and development and advanced technologies. The Agency for Management of Special Economic Zones of the Russian Federation is responsible for the implementation of regional development policies.

In November 2005, the government announced the results of a tender for the construction of microelectronics special economic zones in the Moscow region, nuclear technology in Selenograd and Dubna, information technology in Saint Petersburg, new materials in Tomsk, electronics in Lipetsk, and petrochemicals in Plyuga.

Advantages of working in free trade zones

Active enterprises in the industrial production areas pay less taxes. Industrial production areas and the areas focused on research and development and advanced technologies benefit from the reduction of land and property taxes and forgiveness of import and export duties.

The imports to this areas are exempted from paying customs duties and VAT. If imported commodities are consumed in the Special Economic Zone, they will be exempted from paying customs duties and VAT but at the time of leaving they will be subjected to export duties. Re-exporting of imported commodities to this area without processing is exempted from paying export duties.

The imports to this areas are exempted from paying customs duties and VAT. If imported commodities are consumed in the Special Economic Zone, they will be exempted from paying customs duties and VAT but at the time of leaving they will be subjected to export duties. Re-exporting of imported commodities to this area without processing is exempted from paying export duties.

Special Economic Zones Management Agency announced the plans of creating technology parks in Novosibirsk, Tuman, Kazan, Nizhny Novgorod and Obelisk. In December 2006, the tender for the creation of seven special economic and tourism zones was held in Krasnoyarsk, Snavar and Pol, Altai, Kaliningrad and Irkutsk.

If it is possible to get residence by investing in Russian?

The answer is yes. Establishing a company is one of the best ways to get the residence of a country. Among different companies, the most suitable type of company in Russia for Iranian citizens is a limited liability company. One of the most crucial reasons of it is the lack of need for a Russian partner. It is needed to be considered that Russia is very powerful in registering companies.

To register a company, at first, the contract and necessary documents should be prepared accurately. Real shareholder and legal shareholder should be specified in the list of needed document. The original passport for real share holder and all the registered documents are needed for legal shareholders. Consider that an important step in this regard is to choose the type of tax system and this stage takes about less than one week.

Next stage is in registering company. The presence of all real shareholders is necessary in this part. For legal shareholders, the presence of the shareholder's representative is generally sufficient. The important step in this part is to be present in Moscow and confirm the signature in registry office. This stage takes about less than two weeks.

In third stage, a bank account should be opened and the initial capital transferred to the account. Obtaining a one-year work permit generally requires the presence of an Iranian CEO in Moscow to take a Russian language test. Obtaining a three-year work permit needs no test.

In the last stage Iranian CEO who has received a license can be announced as the main chairman of the company. He/she can be present to do administrative works. Russian investment residence by registering a company is a multipurpose way. In this way, in addition to use your capital in appropriate way, you can attract many people in the field of your work.

Residence in Russia and its important points

If you are identified as a citizen in Russia, you should pay taxes, but the amount of your taxes is less. One of the other ways of Russian investment residence is buying a part of a big business. By annual investment of about ten million rubles you can dedicate ten percent of a profitable business to yourself.

Russia is the sixth largest economy in the world. Thus, Russian investment residence is one of the easiest ways that leads people to get permanent residence. Until your career is considered as a profitable job, you should pay three-year taxes. This tax is not charged at once.

To enhance company's reputation, it is better for initial investment not to be announced less than 500 dollars. Consider that the amount is not going to be blocked. After registering the company, the Iranian CEO must obtain a work permit, otherwise he will not be allowed to operate. The work visa of Russia can be extended indefinitely; which means there is no need to leave Russia for extending visa. Investment residence is considered as a safe and secure way for migration.

The last word

Investing in the Russian government follows its specific rules. Like any other country, Russian government is trying to simplify the process of attracting foreign investment. Hence, it consider many advantages and benefits for domestic and foreign investors which have been discussed earlier. We will be glad, if you share your comments and asks your questions about investing in this country.

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