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Foreign capital and investment control legislation in Russia

Russian Federation has a rather balanced legislation when it comes to foreign capital and investment control. Country’s legislation in general aims to protect capital and ownership as well as investments and the investors. As a result, Russia has a developed judicial system. A specific legislation has been adopted in some areas of the country by creating distinctive economic zones. Industrial clusters in a form of production zones has been developed which are equipped with the necessary networks and communication means. Therefore, a fundamental improvement has been made in the sphere of public and private partnerships.

A few years ago there was a drop in investments pursued and initiated by foreign investors in Russia as it was pointed out by the experts familiar with foreign investment inflows. According to the report summarizing the main findings from the survey conducted among foreign companies - members of the Foreign Investment Advisory Council in Russia (FIAC), 50% of surveyed foreign investors are planning to expand their business in the country. However, there has been criticism received from foreign investors regarding tax policies and practices as well as complex administrative procedures and inefficient state apparatus together with court system.

Overview of requirements and restrictions

There are certain property rights which are guaranteed to foreign investors according to Foreign Investment Law as well as the profits earned on the territory of Russian Federation. Both are regulated on two levels – regional and Federal. As the Federal Law on foreign investments (Federal Law No. 160-FZ On Foreign Investments in the Russian Federation) says, national investors don’t have an advantage over foreign investors when conducting business activities in Russia meaning that permission requirements and licenses can be applied on both sides.

However, country’s legislation limits the activities of foreign investors who are rather to participate in projects and activities which have a strategic value to it (Federal Law No. 57-FZ, Strategic Investment Law). This Law controls such categories as security and defense, activities related to the nuclear industry, monopolies, development and production, media, natural resources and works affecting geophysical and hydro-meteorological processes. All the limitations placed on foreign investors are due to the protection of social and constitutional guarantees.

There is a guaranty provided for foreign investors which gives them complete protection of their rights. A foreign investor’s losses caused by an unlawful action or omission by the Federal or regional state authorities can be recovered in accordance with Russian civil legislation.

4-6 laws controlling foreign capital

Today Russia acts as a party to 80 treaties on encouraging and mutual securing of capital investments as well as 80 double tax treaties. There are several important laws controlling foreign capital which must be taken into account when engaging in any business activity related to investments on the territory of Russian Federation.

  1. Strategic Investment Law, stating that a foreign investor or a group of persons must submit a petition for approval of establishing control in case if it gains control over a business entity of strategic importance.
  2. Federal Law on Banks and Banking Activities, stating that foreign capital amount which takes part in the total authorized capital of credit institutions involving the usage of banking licenses is calculated as a ratio of foreign investments by non-residents in the authorized capital of these institutions to the total authorized capital of these institutions.
  3. The Law of the Russian Federation on Organization of Insurance Business in Russia, stating the quota of 50% of foreign investment must be provided in the total authorized share capital of insurance companies.
  4. The Federal Law on Privatization of State and Municipal Property as well as the Federal Law on Joint-Stock Companies also referred to as golden share, stating that the Government’s representative appointed to the board of directors of joint-stock companies (JSC) has special right of the Russian Federation and Russian subjects to participate in their management for the sake of rights and interests of its citizens.

Activity of foreign investors

As it was stated in Entrepreneurial Behavior and Attitudes data (dated 2014), Russia had an entrepreneurial intentions rate of 2.1%, showing that 2.1% of country’s 18-64 population are latent entrepreneurs, intending to start a business within three years. Total early-stage Entrepreneurial Activity (TEA) Rate was 6.3%, Established Business Ownership Rate was 5.3%, motivational index 1.3%

Entrepreneurs in Russia

According to Alley Watch, modern Russia has some promising young entrepreneurs who are working on developing different fields of today’s technologies and services. For example, Dmitry Aksenov who is a 23-year old co-founder of Digital Genius, developing artificial intelligence platforms while himself being really attracted to robotics. One more example is Ilya Sachkov a CEO and Founder of Global Cyber Security Company who is 29 and who is owning the premier digital spy agency in Russia. These names can be easily found also by scanning business journals, such as Forbes, featuring many successful Russian corporate leaders and entrepreneurs. However, Russian entrepreneurs face national challenges which can be referred to as global opportunities which sometimes can be hidden because of the country’s citizens mentality.