1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. The Russian Direct Investment Fund (RDIF) was established in 2011 to facilitate FDI in Russia and has already attracted over $40 billion of foreign capital into the Russian economy through long-term strategic partnerships. In 2013, Russia’s Agency for Strategic Initiatives (ASI) launched an “Invest in Russian Regions” project to promote FDI on a regional basis. Since 2014, ASI has released an annual ranking of Russia’s regions in terms of the relative competitiveness of their investment climates, and provides potential investors with information about regions most open to foreign investment. In 2019, 69 Russian regions improved their Regional Investment Climate Index scores (https://asi.ru/investclimate/rating). The Foreign Investment Advisory Council (FIAC), established in 1994, is chaired by the prime minister and currently includes 53 international company members and four companies as observers. The FIAC allows select foreign investors to directly present their views on improving the investment climate in Russia and advises the government on regulatory policy.
Russia’s basic legal framework governing investment includes 1) Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation;” 2) Law No. 39-FZ, February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment;” 3) Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense;” and 4) the Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR).” This framework of laws nominally attempts to guarantee equal rights for foreign and local investors in Russia. However, exemptions are permitted when it is deemed necessary to protect the Russian constitution, morality, health, human rights, national security, or defense, and to promote its socioeconomic development. Foreign investors may freely use the profits obtained from Russia-based investments for any purpose, provided they do not violate Russian law.
Limits on Foreign Control and Right to Private Ownership and Establishment
Russian law places two primary restrictions on land ownership by foreigners. The first is on the foreign ownership of land located in border areas or other sensitive territories in terms of national security. The second restricts foreign ownership of agricultural land, restricting foreign individuals and companies, persons without citizenship, and agricultural companies more than 50-percent foreign-owned from owning land. These entities may, however, hold agricultural land through leasehold rights. As an alternative to agricultural land ownership, foreign companies typically lease land for up to 49 years, the maximum term allowed.
A law “On Mass Media,” took effect in 2015 which restricts foreign ownership of any Russian media company to 20 percent (the previous law applied a 50 percent limit to Russia’s broadcast sector). In December 2018, the State Duma approved in its first reading a draft bill introducing new restrictions on online news aggregation services. If adopted, foreign companies, including international organizations and individuals, would be limited to a maximum of 20 percent ownership in Russian news aggregator websites. The second, final hearing was planned for February 2019 but was postponed. To date, this proposed law has not been passed.
U.S. stakeholders have raised concerns about similar limits on FDI in the mining and mineral extraction sectors, and describe the licensing regime as non-transparent and unpredictable.
Russia’s Commission on Control of Foreign Investment (Commission) was established in 2008 to monitor foreign investment in strategic sectors in accordance with the SSL. Between 2008 and 2019, the Commission received 621 applications for foreign investment, 282 of which were reviewed, according to the Federal Antimonopoly Service (FAS). Of those 282, the Commission granted preliminary approval for 259 (92 percent approval rate) and rejected 23 (https://fas.gov.ru/news/29330). International organizations, foreign states, and the companies they control are treated as distinct entities under the Commission. They are subject to restrictions applicable to a single foreign entity if they participate in a strategic business.
Other Investment Policy Reviews
The United Nations Conference on Trade and Development (UNCTAD) issues an annual World Investment Report covering different investment policy topics. In 2019, the focus of this report was on special economic zones ( ). UNCTAD also issues an investment policy monitor ( ).
The Federal Tax Service (FTS) operates Russia’s business registration website: . Per law (Article 13 of Law 129-FZ of 2001), a company must register with a local FTS office, and the registration process typically takes no more than three days. Foreign companies may be required to notarize the originals of incorporation documents included in the application package. To establish a business in Russia, a company must register with FTS and pay a registration fee of RUB 4,000. Since January 1, 2019, the registration fee is waived for online submission of incorporation documents.
In 2020, Russia moved up three notches to the 28th position in the World Bank’s Doing Business 2020 Index. The ranking acknowledged several reforms that helped Russia improve its position. Russia has improved the process for establishing connection to electricity by setting new deadlines and establishing specialized departments for connection. Russia has also strengthened minority investor protections by requiring greater corporate transparency, and facilitated the payment of taxes by reducing the tax authority review period of applications for VAT cash refunds, as well as enhancing the software used for tax and payroll preparation.
The Russian government does not restrict Russian investors from investing abroad. Since 2015, Russia’s “De-offshorization Law” (376-FZ) requires that Russian tax residents disclose to the government their overseas assets, potentially subjecting these assets to Russian taxes.
While there are no restrictions on the distribution of profits to a nonresident entity, some foreign currency control restrictions apply to Russian residents (both companies and individuals) and to foreign currency transactions. As of January 1, 2018, all Russian citizens and foreign holders of Russian residence permits are considered Russian “currency control residents.” These “residents” are required to notify the tax authorities when a foreign bank account is opened, changed, or closed and when funds are moved in a foreign bank account. Individuals who have spent less than 183 days in Russia during the reporting period are exempt from the reporting requirements and restrictions using foreign bank accounts. On January 1, 2020, Russia abolished all currency control restrictions on payments of funds by non-residents to bank accounts of Russian residents opened with banks in OECD or FATF member states. This is provided that such states participate in the automatic exchange of financial account information with Russia. As a result, from 2020 onward, Russian residents will be able to freely use declared personal foreign accounts for savings and investment in a wide range of financial products.