RUSSIA
Russia Jeff Browne and Alexey Kokorin, Chadbourne & Parke
1. Overview of FDI in the jurisdiction
1.1 Which countries are the principal sources of FDI into your jurisdiction? The main sources of FDI into Russia are Cyprus, the Netherlands, Luxemburg, China, the United Kingdom and Germany.
1.2 What are the key sectors in your jurisdiction which attract, or the government is seeking to attract, FDI? The key sectors in Russia that attract FDI are manufacturing, retail, wholesale, extraction of natural resources, real estate, transport, communication and the finance.
1.3 Is the government generally supportive of FDI? Which government, and regional, bodies are responsible for driving FDI in your jurisdiction? The Russian Government declared a goal to improve the investment climate in Russia by the end of this decade. The intention is to create an innovative economy, and to reduce the country’s reliance on the export of natural resources. The heads of federal agencies and governors are responsible for creating better investment conditions in Russia.
2. Investment vehicle
2.1 What are the most common legal entities and (pass-through) vehicles used for FDI in your jurisdiction, and how long do they take to become operational? The most common types of vehicles are the closed joint stock company (zakrytoe aktsyonernoe obshestvo or ZAO) and the limited liability company (obshestvo s ogranichennoi otvetstvennostyu or OOO). Of the two, the OOO is much more flexible and popular. However, unlike an OOO, a ZAO can issue shares.
An OOO typically takes three to four weeks to establish from the date of submission of documents to the registration authority. The registration of a ZAO may take one or two months, because the registration of its share issue is required.
2.2 What are the key requirements for establishment and operation of these vehicles which are relevant to FDI? Neither ZAO or OOO, nor other Russian companies can be owned 100% by another legal entity (wherever it is incorporated) if that shareholder is itself 100% owned by another person or entity. Thus, either the Russian company or its holding company must have more than one shareholder.
In some cases stipulated by the Federal Law on the Protection of Competition 135-FZ July 26 2006 (the Competition Law), when certain thresholds in terms of asset value or sales revenue of a Russian company’s founders are reached, the prior approval of the Federal Anti-monopoly Service of Russia (the FAS) may be required for the establishment of the Russian company.
In order to perform certain types of activities specified in law (for example, production of medical drugs) a company must obtain the relevant licence.
There is no requirement for a Russian company to have local directors.
WWW.IFLR.COM 3. Investment approval
3.1 For foreign investment approval (including national security review) explain the following: a) The regulators/s’ name, factors it must consider when making its decisions, and how much discretion it has; Certain actions (including establishing a company, and purchasing shares and other assets) are subject to anti-monopoly control carried out by the FAS and its regional offices. When the FAS is making a decision, it considers the possible effect on competition in that particular product’s market.
Approval may also be required from the Governmental Commission on Foreign Investments (the Governmental Commission) under the Federal Law on Foreign Investments to Companies with Strategic Significance for the Country’s Defence and the State’s Security 57-FZ of April 29 2008 (the Strategic Investments Law). The Governmental Commission considers the possible effect that the proposed action may have on the safety of the state and its defence.
Both of these authorities have the power to act in their sole discretion, and unfortunately their decisions cannot be easily predicted.
b) Any investment caps and other legislative restrictions; Generally, foreign investors may establish Russian companies and acquire the shares without limitations. However, Russian legislation provides for certain restrictions and caps in respect of shareholdings in companies involved in certain prescribed activities (briefly described in paragraph 3.2).
Investments involving mergers, acquisitions, the establishment of new companies, and the purchase of shares and assets are subject to anti- monopoly control by the FAS. In certain cases, preliminary approval of a transaction or establishing a company or its reorganisation or notification to the FAS of any such action may be required.
FDI involving acquiring control over a company carrying out one of 42 types of activities listed in law and briefly described under question 3.2 (the strategic companies) may require preliminary approval of the Governmental Commission or notification, which will be filed to the FAS. It is forbidden for foreign investors to acquire control over such companies exceeding certain limits (for example, by purchasing more than 50% of voting shares in a strategic company).
c) Which party must notify and when/if notification is mandatory or voluntary; Preliminary approval from the FAS must be obtained before the respective action, transaction or establishment of a company. Respective applications shall be submitted by, respectively, purchasers, founders (or one of them), companies performing the merger or reorganisation.
Notifications to the FAS must be made by a newly established company itself, the acquiring company (in case of reorganisation by way of acquisition), or the purchaser of the shares or other assets. The notification must be made within 45 days from the date of the relevant action, transaction or establishment of a company.
Applications for preliminary approval from the Governmental Commission will also be filed, and the approval obtained before acquiring control over a strategic company. If only a notification must be made, the notification
IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014 49
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