Investment Opportunities in Russia
Protection of Foreign Investment
- Bilateral Investment Conventions Signed By Russia
Russia inherited 14 bilateral treaties with most of the European countries, China and Canada.
Since then, Russia has signed 34 treaties of which 20 have been ratified (especially with Central European countries, Japan, India, Egypt and South Africa). On the other hand, it has not yet ratified the bilateral investment treaty signed with the United States in 1992.
It has recently asked to renegotiate these contracts, fearing that they may not be compatible with its joining the WTO.
To see the complete list of the countries, click here.
To see the treaties, click here.
- International Controversies Registered By UNCTAD
- In 2006, there were 9 complaints against Russia registered by the UNCTAD (6th global rank). They were concentrated in the energy sector (the Yukos case), in the building/real estate sector and telecommunications.
- Organizations Offering Their Assistance in Case of Disagreement
ICSID , International Center for settlement of Investment Disputes
ICCWBO , International court of arbitration, International chamber of commerce
SCCinstitute , Arbitration Institute of the Stockholm Chamber of Commerce
- Member of the Multilateral Investment Guarantee Agency
Country Comparison For the Protection of Investors
|Russia||Eastern Europe & Central Asia||United States||Germany|
|Index of Transaction Transparency*||6.0||6.3||7.0||5.0|
|Index of Manager’s Responsibility**||2.0||4.0||9.0||5.0|
|Index of Shareholders’ Power***||7.0||6.2||9.0||5.0|
|Index of Investor Protection****||5.0||5.5||8.3||5.0|
Source: Doing Business
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
Procedures Relative to Foreign Investment
- Freedom of Establishment
Investment in certain domains which might affect national security may be limited.
- Acquisition of Holdings
- The majority acquisition of holdings in the capital of a local company is authorized in Russia.
- Obligation to Declare
- No obligatory declaration, except for banks.
- Competent Organization For the Declaration
Bank of Russia
- Requests For Specific Authorizations
- Natural resources, energy, transport, communications, defense industry.
Office Real Estate and Land Ownership
- Possible Temporary Solutions
- Quite a few companies setting up in Russia begin by renting their premises.
- The Possibility of Buying Land and Industrial and Commercial Buildings
Foreign legal entities have the right to buy land, but with certain restrictions. In practice, private ownership of land is impossible in many regions, Moscow among them. A foreign company often obtains a 49 year lease.
Ownership of commercial or industrial buildings poses many fewer problems.
- Risk of Expropriation
The 1991 investment code prohibits nationalizations except in the case of legislation intended to protect the national interest. The company can appeal this decision and must receive compensation immediately.
At the regional level, the risk exists even so because of interference from the local government or non-application of certain judicial decisions.
- Forms of Aid
Some sectors can have reduced Customs duties or VAT.
It mainly takes the form of 6 Special Economic Areas with a defined sectoral aim set up in 2005. Companies setting up in these areas (described after) benefit from tax reductions: exemption from property tax and regional tax, rate of unified social tax at 14% instead of 26%, possibility of deducting more than 70% of research and development costs (in innovation areas), etc.
- Privileged Domains
In 2005 the government created special economic areas of technological innovation or industrial production.
Innovations: microelectronics, nuclear technology, new information technologies and materials, petroleum chemistry.
Industrial production: household appliances, automobile industry.
- Privileged Geographical Zones
- Dubna, Zelenograd, Strelma, Tomsk, Yelabuga, Lipetsk
- Free Zones
Kaliningrad, Nakhodka, Ingushetia, Magadan
Nearly all the products imported in these areas are exempt from Customs duties. In addition, if the products are processed in these areas and the added value goes over 30%, they can be sent to other parts of Russia without Customs duties.
- Organizations Which Finance
Ministry of Economic Development and Trade.
The European Bank for Reconstruction and Development finances investments in Russia, especially in the form of loans.
- The Key Sectors of the National Economy
- Mining sector, heavy industry, automobile industry, real estate.
- High Potential Sectors
- Transport and communications, information technologies (services in particular), automobile (spare parts and after sales service especially), aeronautics, distribution.
- Privatization Programs
- Tenders, Projects and Public Procurement
Globaltenders, Tenders & Projects from Russia
Tenders Info, Tenders in Russian Federation
DgMarket, Tenders Worldwide
Sectors Where Investment Opportunities Are Fewer
- Monopolistic Sectors
- Distribution of water and electricity, export and distribution of natural gas, rail transport, postal services to individuals, and long distance landline telephone.
- Sectors in Decline
- Textiles, machine tools
Finding Assistance For Further Information
- Investment Aid Agency
National agency for direct investment
European Bank for Reconstruction and Development
Federal agency for the Management of Special Economic Areas
- Other Useful Resources
Ministry of Economic Development and Trade
- Doing Business Guides
Deloitte International Tax and Business Guide
Russia Commercial Guide 2010 - Buy USA
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