RUSSIA
region (seaport), as well as others. SEZs are specific areas in Russia that have a special regime in place for promoting entrepreneurial activity. In order to enjoy the benefits of a SEZ, a company must be a resident of such SEZ (that is, to be registered within the territory of the SEZ and to have concluded a special agreement with the SEZ managing bodies). Tax and customs privileges for SEZ residents include accelerated depreciation, reduced social contribution rates, long-term exemptions from asset taxes, and land taxes, and lowered profits tax rates.
4.4 Other than through the tax system, does the government provide any other financial support to FDI investors? Yes. For example, participants in the Skolkovo project and SEZ residents are entitled to be reimbursed for (or exempted from) customs duties for imported equipment, if they meet certain conditions.
Support may also be provided in accordance with regional laws, for example, the Law of Novosibirsk region On State Regulation of Capital Investments in the Novosibirsk Region 97-OZ of April 14 2007 ensures state support to investors if certain conditions are met. The state support in this case is the provision of money from the region in order to co-invest in projects, tax benefits, subsidisation of payments of interests for loans and leasing payments.
5. Operating locally
5.1 What is the most common governing law of contracts and local business language? The most common governing law of contracts is Russian law. However, where possible, it is very popular to adopt English law as the governing law for contracts due to its greater flexibility and certainty. New York law is also used in many cases.
The local business language is Russian (most common) and English.
Notwithstanding the popularity of English law (or other foreign laws), sometimes certain contracts must be governed by Russian law. For example, agreements for the transfer of shares in an OOO must be governed by Russian law because such documents must be notarised and notaries will only perform such function in respect of a Russian law contract.
5.2 Explain any local content or local participation requirements relevant to foreign investors. There are no local participation requirements relevant to foreign investors.
5.3 How difficult is it for foreign investors to secure expatriate visas for shareholder representatives and workers? Foreign workers must obtain individual work permits and work visas before starting work in Russia. Additionally, employers can only employ foreign workers if they have employment permits (permission to hire foreign people). Employment and work permits are generally issued for one year and require reapplication upon expiration (they cannot simply be renewed). Russian legislation provides for certain exceptions from requirements of work and employment permits for certain types of workers (for example, permanently residing in Russia, and involved in certain activities).
It is prohibited to work in Russia on the basis of a business visa (a visa for business trips, negotiations, and concluding contracts). Foreigners may stay in Russia on a business visa for more than 90 days out of a 180-day period. A business visa may be issued for the period up to one year as a general rule, and up to five years for a person representing a major foreign company with major investments in Russian projects (such as the Skolkovo project).
The Russian Government provides a quota for the number of foreigners that can be hired in a given year. In 2014 the quota is stipulated as 1,631,586 people. Once the quota is filled, no further work permits can be issued that year, save for certain exceptions.
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Companies intending to hire foreign workers must submit a request for a quota every year before May 1 for the following year. Failure to apply for a quota may result in significant difficulties in employing foreigners.
5.4 What foreign currency or exchange restrictions should foreign investors be aware of? All payments between natural persons and legal entities that are Russian residents must be in Russian rubles (although residents can use foreign currency to determine the contract price).
Between non-residents, payments in foreign currency are generally permitted. Payments between non-residents in Russian rubles are permitted through accounts opened in Russian banks only.
As for payments between residents and non-residents, they may be made in Russian rubles or foreign currency and are subject to certain requirements, such as documentation of a transaction with a transaction passport (a document to be made with assistance of a Russian bank).
5.5 Does the country prohibit domestic companies from doing business in any foreign jurisdictions? Companies established in Russia are generally free to do business in other countries subject to respective local regulation and international treaties. However, in certain cases restrictions may be imposed. For example, importing certain goods into Russia may be prohibited, as has happened several times in respect of chicken from the US, sweets from Ukraine, and mineral water from Georgia.
6. Legal and regulatory framework
6.1 Are there any other FDI-specific laws that foreign investors must be aware of? The most important FDI-related laws in Russia that foreign investors are recommended to be aware of are the Strategic Investments Law requiring preliminary approval or notification in case of acquiring or increasing control over strategic companies, and the Federal law on Foreign Investments in the Russian Federation 160-FZ July 9 1999 (the Foreign Investments Law). The Foreign Investments Law sets out general principles and guarantees according to which foreign investments are made in Russia. It stipulates, in particular, that the right of foreign investors to invest and use profits gained from investments in Russia must not be less favourable than the rights of Russian investors, save for some exceptions provided by federal laws. The law provides for protection of foreign investors from unfavourable changes in Russian legislation, and sets out rules of reimbursement in case of requisition or nationalisation of investor’s property in Russia.
6.2 What challenges if any do investors find in getting certainty around local law and regulation? The main challenge is Russian courts. Unfortunately, there is at times a significant difference between the literal meaning of the law and its interpretation as laid down by Russian courts. Sometimes, provisions of the law are relatively broad, or open to several different interpretations, so clarification is required from a court. However, in practice, courts do not always provide the necessary clarification.
This is the case with, for example, Russian rules relating to shareholders’ agreements (SHAs). Until 2009 (when new rules were adopted), SHAs were relatively frequently deemed void by Russian courts. However, even after the adoption of the new rules (which made SHAs broadly valid in Russia) the law surrounding SHAs remains somewhat unclear and unsatisfactory.
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