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. Last Updated: 07/27/2016

Draft Law 'a Step Forward'

Draft legislation on foreign investment in Russia contains several important changes from existing laws that mark "a step forward" in attracting foreign investment, according to a Western attorney.


"The draft on the Law on Foreign Investments in the Russian Federation clarifies two important points," said Maryann Gashi-Butler, a partner at White and Case.


"These are issues that bothered me about the original law adopted in 1992 which are now clearly defined in the amendments," she said.


The draft is in committee in the State Duma, in a completely different form than when lawmakers first proposed amendments in 1992, Gashi-Butler said. She said the bill could become law within a few months


The first positive change involves repatriation of profits, she said.


"The draft law clarifies that the state guarantees the repatriation of not only hard currency proceeds, but ruble proceeds as well -- subject to their being exchanged for hard currency prior to repatriation," she said.


Under current legislation, the law protects only the export of hard currency profits.


"It seems subtle, but it would be a very important change to the law," Gashi-Butler said.


A second positive aspect of the draft law would grant foreigners the right to purchase Russian securities in either rubles or hard currency.


"The amendments would seem to allow foreigners to make strategic portfolio investments in securities sold during the privatization process in hard currency. If this law were adopted it would throw into further doubt the Central Bank's power to require licensing."


Reports last month that the Central Bank was planning to invoke Soviet-era legislation requiring foreigners investing in hard currency to obtain permission from the bank sent expatriates scurrying for clarification.


Other privileges under the draft law include protection of certain manufacturing ventures.


If the foreign investor's contribution is at least 30 percent of the charter capital and equals no less than $100,000, and the company is engaged in material production, legislation that worsens conditions for the firm's activities will not apply for five years. "Worsening of conditions," though, remains unclear.


Exemptions from import duties and value-added tax (except those subject to excise tax) are provided under the amendments for goods used in the material production of the company for five years, if the company is engaged in industries or territories prioritized by the government for investment.


Such industries and territories have previously included remote regions targeted for development or certain consumer products, said Gashi-Butler.








Recent Legislation


Protecting Securities Forms (Decision No. 78, Jan. 24).


"On Urgent Measures to Prevent the Forgery of Securities Forms Used in the Russian Federation" stipulates that securities forms produced in or imported to Russia must be submitted every month to the Finance Ministry and the Ministry of Internal Affairs. Forms not meeting the ministries' approval will be invalid.


New Control Over Government Acts (Government Order 68, Jan. 18). Forms interdepartmental commission that will analyze and have the power to halt federal laws, presidential decrees, government orders and other legal acts of the government which are found to lack a financial basis for realization. Chairman will be Finance Minister Vladimir Panskov.


Declaring Income (Letter of the State Tax Service and the Ministry of Finance No. VG-6-06/9 and 04/06/02 of Jan. 6). States that foreign judicial persons carrying out entrepreneurial activity in Russia through permanent representation must submit to taxation bodies a report on activity in Russia, an income declaration and findings of an auditor on the authenticity of the report. Accredited journalists need only provided authenticity of findings if tax bodies find grounds for considering their activities as forming business income.Recent Legislation


Protecting Securities Forms (Decision No. 78, Jan. 24).


"On Urgent Measures to Prevent the Forgery of Securities Forms Used in the Russian Federation" stipulates that securities forms produced in or imported to Russia must be submitted every month to the Finance Ministry and the Ministry of Internal Affairs. Forms not meeting the ministries' approval will be invalid.


New Control Over Government Acts (Government Order 68, Jan. 18). Forms interdepartmental commission that will analyze and have the power to halt federal laws, presidential decrees, government orders and other legal acts of the government which are found to lack a financial basis for realization. Chairman will be Finance Minister Vladimir Panskov.


Declaring Income (Letter of the State Tax Service and the Ministry of Finance No. VG-6-06/9 and 04/06/02 of Jan. 6). States that foreign judicial persons carrying out entrepreneurial activity in Russia through permanent representation must submit to taxation bodies a report on activity in Russia, an income declaration and findings of an auditor on the authenticity of the report. Accredited journalists need only provided authenticity of findings if tax bodies find grounds for considering their activities as forming business income.Recent Legislation


Protecting Securities Forms (Decision No. 78, Jan. 24).


"On Urgent Measures to Prevent the Forgery of Securities Forms Used in the Russian Federation" stipulates that securities forms produced in or imported to Russia must be submitted every month to the Finance Ministry and the Ministry of Internal Affairs. Forms not meeting the ministries' approval will be invalid.


New Control Over Government Acts (Government Order 68, Jan. 18). Forms interdepartmental commission that will analyze and have the power to halt federal laws, presidential decrees, government orders and other legal acts of the government which are found to lack a financial basis for realization. Chairman will be Finance Minister Vladimir Panskov.


Declaring Income (Letter of the State Tax Service and the Ministry of Finance No. VG-6-06/9 and 04/06/02 of Jan. 6). States that foreign judicial persons carrying out entrepreneurial activity in Russia through permanent representation must submit to taxation bodies a report on activity in Russia, an income declaration and findings of an auditor on the authenticity of the report. Accredited journalists need only provided authenticity of findings if tax bodies find grounds for considering their activities as forming business income.