Expert Assessment of Normative and Legal Regulation for Foreign Investment into the Russian Economy
Scientific Secretary of the Parliamentary Center (PC) “HTIP” Expert Assessment of Normative and Legal Regulation for Foreign Investment into the Russian Economy
The most important factor in attracting investments is the creation of a favorable and uniform legal environment that ensures that the interests of all potential business partners are fairly observed. To this end, a non-profit partnership of experts, from the Federal Assembly of the Russian Federation’s “Parliamentary Center High Technologies, Intellectual Property” (PC “HTIP”), continuously monitors the current state, as well as future prospects, for the development of national legislation in this sphere.
The current model of Russian legislation has affected Russia’s accession to the World Trade Organisation (WTO), whereby the conduct of investment activities is regulated by the General Agreement on Trade in Services (GATS) and the Special Agreement on Trade-Related Investment Measures (TRIMs), as well as the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 1965. Russian legislators are guided by the agreements to harmonize national standards and legal frameworks with international law. For this purpose, a number of changes and additions to the most important legal acts have been made. In 1996, for example, a provision for the legal regulation of contracts with foreign legal entities with investments in Russia was included in Chapter II of the Civil Code of the Russian Federation.
Currently, investment activities in the Russian Federation are regulated by a total of 80 legal acts and standards that are administered by the authorities at various levels. A selection of the most important and relevant laws that have the most significant impact on potential foreign investors are listed below.
The federal law “On Foreign Investments in the Russian Federation” (№ 160-FZ, July 9, 1999, as amended and supplemented) is directly aimed at the attracting foreign material, financial resources, advanced equipment, and technology. The law provides for the adoption of a legal regime for foreign investment that complies with the norms of international law and to the international practice of investment cooperation. Requirements for foreign investors are documented and regulated (direct investments, in which a foreign investor acquires at least 10% of the capital of the commercial organization within the territory of Russia, are especially highlighted). The state grants priority status to projects that have a total investment of at least one billion Rubles, of which at least 10% comes from foreign investors. It is also stipulated that the foreign investment may include intellectual property that has a corresponding monetary value. Furthermore, the law provides guarantees to foreign investors in the privatization processes (including land and natural resources), as well as the establishment of procedures for resolving disputes with foreign investors.
The federal law “On Investment Activity in the Form of Capital Investments” (№ 39-FZ, July 15, 1998, as amended and supplemented) establishes guarantees for the equal protection of the rights of investment activities regardless of ownership; in particular, it is indicated that nationalization is possible only with the compensation of losses for investors, and the requisition can be carried out only in accordance with the requirements of the Civil Code. It also provides for the annual formation of a federal investment program (including projects of particular importance to Russia which receive priority status) and the protection against deliveries to Russia of harmful or obsolete technologies and equipment.
The federal law “On Investment Funds” (№156-FZ, November 29, 2001, as amended and supplemented) regulates the involvement of money and other assets through the placement of shares or by entering into trust management agreements (including the set responsibilities of the managing company). The maintenance of a register of investors is legally provided for, and the methods by which their activities are monitored is regulated.
It is important to note that federal laws (in particular, the above-mentioned 160-FZ) give citizens of the Russian Federation the right to make their own regional laws in the field of investment, which supplement and add to the development of federal laws. It allows for the creation of special favorable conditions that increase the attractiveness of investments, both domestic and foreign, in a number of administrative and territorial entities; for example, in the special economic zones.
For the practical implementation of Russian Federation governmental laws, a number of important decrees have been adopted, including: “On the Approval of Rules for the Formation and Implementation of Federal Targeted Investment Programs” (№ 716, September 13, 2010); “On the Rules of Selection and Implementation of Priority Investment Projects” (№ 648, August 3, 2011); “On Active Measures to Attract Foreign Investment into the Russian Economy” (№ 118, September 29, 1994).
In order to further develop, the Russian government has formed The Foreign Investment Advisory Council, which is chaired by the Minister for the Economic Development of the Russian Federation. The state guarantees the stability of the legal framework, which is important for participants in any investment activity and which may only be void in certain circumstances, as defined by the Russian law. This includes natural disasters, recognition of a foreign investor’s bankruptcy status, declaring a state of emergency, etc.
New legislative acts have been progressively enacted to align the interests of foreign investors with the requirements of the national economy as a whole. This has lead to the recent (July 13, 2015) signing of the Federal Law “On Public-private Partnerships” (№ 224-FZ) by President Vladimir Putin, which comes into effect from January 1, 2016. The law aims to create favorable conditions that attract private investors (including foreign) to the finance and property management sector, which are normally the preserve of the state. In this case, however, foreign investors have to create a subsidiary company within Russia. Public-private partnerships are issued for a period of not less than three years and are based on the pooling of resources and sharing of risks between the contracted parties. This law attaches a list of requirements to the private partners of the Russian state, and the selection of those partners should be carried out on a competitive basis. This leaves open the possibility for the privatization of the venture (after the expiry of the agreement) if the private investor has invested no less than 50% of the total capital into the venture; this also applies to Russian «daughters» of foreign subsidiary companies.
During the forthcoming fall session of 2015, the State Duma plans to make certain changes to the existing federal laws. Thus, in accordance with the principles of the indicative planning of economic development and in order to attract foreign investment into the exploration of mineral resources, the Duma may make specific provisions for favorable terms on issuing mining licenses to those foreign companies that invest in the relevant geological research. Consideration is also being given to concessions for investment activity in priority areas of the country, which would have access to finance at discounted interest rates through specially authorized banks. Provision will also be made for the Russian «Subsidiaries of the foreign Parent companies.
Summarizing these facts, the experts from the PC “HTIP” concluded that there is significant progress in the Russian legal framework that facilitated the formation of an investment environment that is favorable for foreign investors.