Investing in Russian Federation

A Q&A guide to investing in Russian Federation.

This Q&A gives an overview of the key factors affecting inward investment, including information on the jurisdiction's legal system; key laws and regulatory authorities; investment restrictions; and details of international treaties, customs and monetary unions. The guide also provides information on investor individuals; visa permits; restrictions on foreign ownership; transfer pricing and thin capitalisation rules; imports and import duties; safety regulations and standards for commercial goods and services; structuring and tax incentives; investment guarantees; recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Investing in... Country Q&A tool.

This Q&A is part of the Investing in... Global Guide. For a full list of contents, please visit

Konstantin Dobrynin and Anton S. Imennov, Pen & Paper, Attorneys at Law (First Law International Russian Federation, Member Firm)
1. How does your jurisdiction compare internationally as a destination for inward investment?

Despite the political and economic challenges which Russia is currently facing, it continues to improve its investment climate using the whole range of extensive administrative, tax, customs and legal instruments.

These trends are reflected in the "Doing Business" ratings 2016 where it is noted that the Russian Federation is conducting a number of reforms making it easier to do business, to register property, to get credit, to get electricity, to pay taxes.

In 2016, the Russian Federation is ranked at number 51 which is 41 points more than in 2013 when Russia was ranked at number 92.

This increase in ranking may be explained by the following positive changes which are making Russia more attractive for investors:

  • Simplification of administrative procedures.

  • Revision of customs procedures.

  • Improvement of infrastructure.

  • Development of special economic zones (SEZs).

  • Development of tax incentive systems at federal and regional levels.

  • Focus on innovation economy.

The development of SEZs in the Russian Federation is worth noting as a large-scale federal project launched in 2005 and aimed at regions development by direct foreign and Russian investments attraction to the hi-tech economy industries, import-substituting production, shipbuilding and tourism.

SEZs are established for 49 years. An SEZ resident retains a right to buy a land plot ownership at a discounted rate after starting production activities. All the SEZs are endowed by the state with special legal status that provides a set of tax and custom preferences to the residents and also guarantees the access to ready-to-use engineering, logistical and business infrastructures. The costs of the project realised in SEZs are in average 30% to 40% less compared to Russia general practice. For foreign investors, SEZ provides the access opportunity to the Russian market.

In order to become the resident of an SEZ the foreign investor must register its Russian subsidiary.

There are currently 34 SEZs situated mostly in central-western and southern parts of the Russian Federation and include industrial, innovation, tourist, port and logistic zones.

During the period from 2006 to 2015 more than 400 investors have accessed SEZs from 29 countries and their number continues to increase. Among them are Yokohama, Itochu, Sojitz, Air Liquide, Bekaert, Rockwool, Novartis, 3M, General Motors, Nokia Siemens Networks, Ford, Arkray and others.

In relation to development in local legal and business culture, St. Petersburg is one of the traditionally leading investment fields.

One of the key mechanisms in supporting the investment work in St. Petersburg has been the granting of the status of "strategic investment project of St. Petersburg" to the city's socially and economically outstanding projects. Advantages of this status include the possibility of obtaining the city's assistance in implementing projects, including their direct support by specialists of the executive organs of state power in St. Petersburg.

To increase investments, a comprehensive "Programme to improve the investment environment in 2011 to 2015" is underway in St. Petersburg. In addition, the St. Petersburg administration is developing the city's long-term investment policy, as part of which the project "St. Petersburg investment strategy until 2020" is being mapped out.

Currently, with the support of the City of St. Petersburg, an automotive cluster was created in the city, which includes major multinational automobile manufacturers such as Nissan Toyota, General Motors and Hyundai, as well as companies supplying automotive components. The construction of the second stage of the Mariinsky Theatre and the building of the new sea passenger terminal Morskoy Fasad are also large implemented investment projects of the City of St. Petersburg. Among the ongoing investment projects are:

  • The creation of the Western High-Speed ​​Diameter highway.

  • The Pulkovo airport development.

  • Territory development projects (for example, the projects titled "Baltic Pearl" and "Neva Hall").

2. What types of companies are attracting foreign investment into your jurisdiction and what are the most active sectors?

Low oil prices and some foreign policy issues have significantly influenced what were traditionally attractive for energy sector investors in Russia, especially oil and gas subsector.

However, even in this sector, the area of energy efficiency has a lot of potential.

At the same time, other traditionally attractive industry sectors still provide significant opportunities for foreign investors, including but not limited to aluminium industry, iron and steel industry, lead industry, precious metals industry and motor industry.

In addition, the following industry sectors continue to develop and currently gain significant support from the Russian government:

  • Innovation and technology, including IT technology and aerospace technology.

  • Agriculture and food.

  • Infrastructure.

  • Transportation industry.

  • Telecommunications.

  • Pharmaceutical and medical industry.

  • Hotels and entertainment services, including hybrid solutions (hostels, apartments for rent).

There are numerous ways of formalising the investment activity in Russian territory, for example:

  • Simply registering the affiliate of the foreign company or its subsidiary in Russia.

  • Entering into an existing registered business through the purchase of the share.

  • Entering into concessionary agreement or joint venture.

The choice each time depends on the specifics of investment field where investment activity is carried out, the scale and the goals of the investment.

In terms of the types of companies that attract foreign investment into Russia, for instance, joint ventures gained most popularity in the areas of information technology, telecommunications, nanotechnologies, energy efficiency and alternative energy sources, pharmaceutical, biotechnology and medicine, while concessionary agreements are common for infrastructure and transportation sectors.

Consequently, when choosing the form of investment in order to evaluate the benefits (including guarantees provided) and the risks that bring each particular option, the professional legal advice is not only highly recommended, but is indispensable.

3. What will be the main factors affecting the market and how do you expect the market to develop?

There have been several negative factors affecting the market in recent years, such as political tension between Russia and the West over the situation in Ukraine and Syria, sanctions imposed on Russia by the EU and the United States and the countersanctions. These have affected oil prices and resulted in lower domestic consumption rates and inflation. As a result of this, Russia is now focusing on strengthening domestic production resources to compensate the losses from the breakdown in economic relations with Europe, to decrease its dependency on imported goods from Europe, as well as focusing on further developing its economic relations with the Asia-Pacific region. Therefore, progressive development of domestic production is expected in most sectors with further encouragement of investor activities in Russia.

Russian domestic tourism is currently undergoing significant positive changes and offers ample opportunities for foreign investors interested, for instance, in HoReCa (hotel/restaurant/café), especially given the attractive foreign exchange rates.


Legal system

4. Please briefly outline the government and legal system.

The Constitution of the Russian Federation (1993) is the supreme Russian law and it establishes the bases of the political and legal systems. Russia is a democratic federal state with a republic form of government.

The Russian Federation comprises 85 constituent regions under the Constitution. Each constituent entity (region, territory, autonomous area, autonomous region, federal city or republic) has its own legislative and executive bodies.

State power in the Russian Federation is distributed between legislative, executive and judicial branches that are independent from each other. The President of the Russian Federation is the head of the state. The President is separate from all three branches of government and at the same time has broad authorities in all three of them under the Constitution, for example:

  • Guidance of external policy of the state and representing the Russian Federation as the head of the state in international relations.

  • Holding the position of Supreme Commander-in-Chief.

  • Scheduling the elections of the State Duma and its dissolving in certain cases.

  • Setting referendums.

  • Introducing draft laws.

  • Participating in appointing key state management figures and forming state bodies.

  • Issuing obligatory decrees.

The President is elected for six years through universal, equal and direct elections by ballot vote. The same person cannot hold the President's office for more than two terms successively which, however, does not impede such person being elected as a President after a six year break.

The legislative branch is a Federal Assembly (the Russian Parliament) consisting of the State Duma (the lower house) and the Federal Council (the upper house). The State Duma drafts laws while the Federal Council approves or rejects them.

The executive branch is represented by the Government of the Russian Federation chaired by the Prime Minister. The Prime Minister is appointed by the President of the Russian Federation in agreement with the State Duma.

The judicial branch in Russia currently comprises the Constitutional Court, the Supreme Court, constitutional (charter) courts of constituent entities of the Russian Federation, state commercial courts and courts of general jurisdiction of several levels. There is also a specialised court (the Intellectual Property Rights Court) within the system of commercial courts.

Courts of general jurisdiction resolve the disputes of non-commercial nature (both civil and criminal) leaving majority of commercial disputes for state commercial courts (arbitrazh). After the abolition of the Supreme Arbitrazh Court in 2014 as the highest instance for commercial disputes, the Supreme Court has become the highest instance for both commercial and non-commercial disputes.

The Constitutional Court can review legislative acts for compliance with the Constitution. Constitutional (charter) courts of constituent entities of the Russian Federation check the adherence of the normative legal acts of the constituent entities of the Russian Federation to their constitutions (charters).

Historically, the Russian Federation has adopted Romano-Germanic legal system where the law is the main source of regulation, there are certain branches of law, separation between public and private law, codification of rules. Therefore, Russia has a civil law system.

Federal legislation in the Russian Federation consists of the following types of laws and regulations in the hierarchy:

  • Constitution.

  • Constitutional federal laws.

  • International treaties ratified by the Russian Federation.

  • Federal laws.

  • Acts of the President.

  • Government acts.

  • Acts of other federal executive bodies.

Apart from federal legislation there is also legislation at the constituent-entity level which must not contradict federal legislation. These consist of the following types of regulations in hierarchical order:

  • Constitution (Charter) of constituent entity.

  • Laws of constituent entity.

  • Acts of constituent entity's executive bodies.

  • Acts of local self-government bodies.

Most Federal laws are combined in special codes, for instance:

  • Civil Code.

  • Labour Code.

  • Code of Administrative Offences.

  • Criminal Code.

  • Civil Procedural Code.

  • Criminal Procedural Code.

Other federal laws have been designed in to regulate certain legal concepts, institutions or spheres of business, for instance:

  • Foreign Investment Law.

  • Bankruptcy Law.

  • Mortgage Law.

  • Limited Liability Companies Law.

  • Joint Stock Companies Law.

  • Stock Market Law.

  • Russian Citizenship Law.

5. What are the key laws and regulatory authorities governing foreign investment in your jurisdiction?

Russian Federal legislation devoted to foreign investments in Russian Federation includes among others the following key acts:

  • The Federal law on Foreign Investments in Russian Federation No. 160-FZ.

  • The Federal law on investment Activity in Russian Federation in the Form of Capital Investments No. 39-FZ.

  • The Federal law on Special Economic Zones No. 116-FZ.

  • The Federal law on Concessionary Agreements No. 115-FZ.

  • The Federal law on Financial Lease No. 164-FZ.

  • The Federal law on Investment Partnership No. 335-FZ.

  • The Federal law on Procedure of Foreign Investments in Companies of Strategic Importance for National Defence and State Security No. 57-FZ.

  • Government act on Governmental Commission Accomplishing Control Over Foreign Investments in Russian Federation No. 510.

  • Government act on Registration and Activity of Entities with Foreign Investments on the Territory of Closed Administrative-Territorial Unit No. 302.

In general, Russian legislation in relation to foreign investments has significantly developed during the last 15 years and continues to develop. However, certain restrictions still exist (for example, in the mass media, national defence and state security, agricultural lands, mineral resources, banking and insurance sectors).

Under the Federal law on foreign investments in Russian Federation, the legal regime for foreign investors and the use of profit derived from their investments cannot be less favourable to the regime established for Russian investors. Any exemptions (limiting or stimulating foreign investments) can only be provided by federal laws.

The Federal law on foreign investments in Russian Federation also mentions certain legal guarantees, as well as tax and customs incentives provided for foreign investors.

The main federal authority responsible for realisation of state investment policy is the Ministry of Economic Development of the Russian Federation. For these purposes the Department of investment policy and private-public partnership within the Ministry has been created. Among functions of this Department are the following:

  • Co-ordinating the activity of other federal executive bodies aimed at attracting direct foreign investments to Russian economy.

  • Facilitating realisation of investment projects, including those with participation of foreign investors.

  • Organisational support of activity of Advisory council on foreign investments in Russia affiliated to the Government.

  • Participating in negotiations with international financial organisations aimed at signing of international agreements on realisation of joint projects.

  • Co-ordinating preparation and conduct of annual St. Petersburg international economic forum and so on.

Other federal authorities regulating investment activity or influencing the investment climate in Russia include the:

  • Federal Antimonopoly Service (direct control over foreign investments in companies of strategic significance for national defence and state security).

  • Governmental Committee on Control of Foreign Investments in Russia (approving foreign investments in certain sectors).

  • Advisory Council on Foreign Investments in Russia (consideration of problems connected with foreign investments and suggesting ways of their solution).

There are also regional authorities involved in regulation of a foreign business. For instance, in St. Petersburg Investment Committee of St. Petersburg and Investment Council of St. Petersburg affiliated to the Governor of St. Petersburg are functioning.

6. What international treaty organisations and/or economic, customs or monetary unions or free-trade areas is your jurisdiction a member of?

Currently, Russia is a member of the following international organisations and unions affect its economy and investment policy:

  • World Trade Organization (WTO).

  • Eurasian Economic Union (EAEU). The members are Armenia, Belorussia Russia, Kazakhstan and Kyrgyzstan.

  • Commonwealth of Independent States (CIS).

  • Shanghai Co-operation Organisation (SCO).

  • BRICS. The members are Brazil, Russia, India, China and South Africa.

  • The Black Sea Economic Co-operation (BSEC). The members are Azerbaijan, Albania, Armenia, Bulgaria, Greece, Georgia, Moldova, Russian, Romania, Serbia, Turkey and Ukraine.

Under an agreement signed between the EAEU members and Vietnam, a free-trade area was established in 2015 aimed at:

  • Liberalising and facilitating trade through the reduction of tariff and non-tariff barriers, and the simplification of customs formalities.

  • Facilitating, promoting and enhancing investment opportunities between the parties through the further development of favourable investment environments.

This agreement also envisages priority investment projects to be approved by the parties.

During the 2015 BRICS VII summit held in Russia (Ufa), the members signed a strategy of economic partnership stating (among other objectives) to broaden members' co-operation in trade, investments, production, energy, agriculture, science, technology and innovation, finances and so on. The ways to actualise this are currently being evaluated by the ministers of BRICS' members.

In accordance with its Charter, BSEC has been established as a regional economic organisation for the purposes of its members' co-operation in areas including:

  • Trade and economic development.

  • Banking and finance.

  • Communications.

  • Energy.

  • Transport.

  • Agriculture and agro-industry.

  • Health care and pharmaceuticals.

  • Environmental protection.

  • Tourism.

  • Science and technology.

  • Exchange of statistical data and economic information.

  • Collabouration between customs and other border authorities.

  • Human contacts and so on.

7. What other international agreements apply to foreign investment?

Russia is currently a party to 80 double tax treaties and around 80 treaties on encouraging and mutual securing of capital investments.

Russia has standard forms of double tax treaty and treaties aiming to encourage and mutually secure capital investments.


Investor individuals

8. Are there any visas, permits or other requirements for foreign individuals entering your jurisdiction for business purposes?

Individual foreign investors, directors, managers or company agents require a business or work visa to enter the Russian territory.

Business visa

The business visa is designed for those who are intending to come to Russia occasionally for business purposes (short term and temporary business activity, for example, attending conferences, business meetings, negotiations, market studies, preparation to set up a company and so on), as well as for the representatives and employees of foreign companies which are either:

  • Considered large in accordance with certain financial-economic criteria and accomplish investment activity on the territory of the Russian Federation.

  • Participating in certain projects (Skolkovo Innovation Centre, International Financial Centre) and fall within certain criteria established by the Russian government.

In general, the term of business visa is one year. However, for the above representatives and employees of foreign companies this term may be up to five years.

In addition, at the end of 2015 it was stated that business visa may also be granted for up to five years under the reciprocity principle. Business visas are issued by Russian consulates or Russian diplomatic missions. Currently, the amount of consular fee for issuing a multi-entry business visa is US$150 or US$300 depending on how quickly it is processed (standard processing is from four to 20 working days and express processing is three working days).

Work visa

The work visa is designed for those who are intending to stay in Russia on a long-term basis to conduct professional activity as an employee (including positions of director, manager and so on) or as a contractor or service provider.

In general, multi-entry work visa is issued for not more than one year.

However, to receive a work visa, a foreign individual must (except for highly qualified employees) initially apply for a single-entry work visa issued under the condition of getting an invitation from the employer. The term of this single-entry work visa does not exceed three months.

In certain cases (visas for highly qualified specialists and for employees in affiliates, representative offices and subsidiaries of foreign commercial companies who are residents of World Trade Organization member states) multi-entry work visa can be issued for a term not exceeding three years with the possibility of a further extension for not more than three years each time.

Short-term single-entry work visas (and multi-entry work visas for highly qualified employees) are issued by Russian consulates and diplomatic missions of the Russian Federation. Other multi-entry work visas are currently issued by the Federal Migration Service of the Russian Federation.

In accordance with the President’s Act of 4 April 2016 No. 156, the Federal Migration Service is in the process of abolition. Starting from 1 June 2016 its functions will be transferred to the Main Department of Migration Issues within the Ministry of Internal Affairs of the Russian Federation.

As a general rule, apart from a work visa the following are also required:

  • Individual work permit, for the foreign employees.

  • Employment permit (permit for employment of foreign employees), for the employer.

In practice, it is the employer who applies for both documents when the foreign person is hired. Individual work permits are required to obtain multi-entry work visas for employees.

Issuing individual work permits is subject to a quota regulation system which means that the company which intends to hire foreign persons must submit an advance request for hiring foreign persons for the next year.

Based on the requests received from the companies, the total quota of individual work permits to be issued in Russia (and for every region in particular) is established for every coming year. For example, the total number of individual work permits to be issued in 2016 is 213,929 and includes 15 different professional positions.

Work permits and employment permits are currently issued by the Federal Migration service of the Russian Federation.

The process of getting a work visa is still quite lengthy and has several stages. However, Russian authorities continue their work aimed at facilitating the investors and other categories of high-net worth foreign individuals to get easy access to Russian business environment by envisaging special conditions and fast-track procedures for them.

9. Are there any visa waivers or fast-track procedures available for foreign individuals entering your jurisdiction as investors?

There is a list of countries the citizens of which are allowed to enter the territory of the Russian Federation without a visa. This list includes mostly CIS countries (that is, Ukraine, Belarus, Moldova, Armenia, Azerbaijan, Uzbekistan, Tajikistan, Kyrgyzstan, Kazakhstan) and some other countries (such as Brazil, Israel, Thailand, Venezuela and Argentina). However, the non-visa regime has strict limitations for the term of stay which, in most cases, must be no more than 90 days in every half of a year.

In addition, in relation to certain countries (for example, Israel), if a person is intending to undertake business or labour activities then the non-visa regime is not applicable, and a business or work visa is required.

Generally, foreign persons entering Russia under the non-visa regime can undertake labour activities under the condition of obtaining a patent (which is different from work permit). This patent is currently issued by the Federal Migration Service (its territorial subdivision) for a period up to 12 months, within ten working days from the date of filing of all documents required.

In accordance with the President’s Act of 4 April 2016 No. 156, the Federal Migration Service is in the process of abolition. Starting from 1 June 2016 its functions will be transferred to the Main Department of Migration Issues within the Ministry of Internal Affairs of the Russian Federation.

Based on the Treaty on Eurasian Economic Union, the citizens of Belarus, Kazakhstan, Armenia and Kyrgyzstan enjoy the most favourable incentives for labour activity in Russia which does not require visa and patent to be formalised.

Highly qualified specialists (HQSs) are one of the categories of foreign persons who can receive specific incentives in Russia. A HQS is a foreign person who has experience, skills or achievements in certain area and who will receive a certain level of salary in Russia (the exact amounts are established in the Federal law No. 115-FZ on the legal status of foreign persons in the Russian Federation). The salary level depends on the specific category of specialist and starts from RUB58,500 per month. The salary requirement does not apply to foreign persons who are participating in the Skolkovo project (see Question 25, Skolkovo innovation centre).

HQSs also benefit from the following:

  • Work visas can be issued for up to three years.

  • Individual work permits can be issued for the period up to three years.

  • Quota limitations do not apply to HQS and their family members.

  • The term of getting the individual work permit is shortened to 14 working days from the date of filing the package of all documents required.

  • Employment permit is not required from the employer with regard to HQS.

It is worth noting that HQS's family members are entitled to get multi-entry work visas for the whole period of validity of HQS’s visa. Such visas could be used for work, study and any other legal activity.

Apart from cases connected with HQS and their family members employment permits are also not required to be received by the employer with regard to the following categories of foreign employees (could be applicable for investors):

  • Who entered the territory of the Russian Federation in accordance with non-visa regime.

  • Employees sent for accomplishing work activity in affiliates, representative offices and subsidiaries of foreign commercial companies being residents of the country members of World Trade Organization.

Apart from cases connected with HQSs (and their family members) and foreign persons who entered Russia on the basis of non-visa regime and need patents instead of work permits, work permits are also not required for the following categories of foreign employees (this could apply to investors):

  • Employees permanently or temporarily residing in the Russian territory on the basis of residency permits.

  • Employees of foreign companies sent to Russia to perform installation works or service guarantees for equipment supplied to Russia by such foreign companies.

  • Accredited employees of accredited representative offices of foreign companies in accordance with the principle of reciprocity based on international treaties.

10. What are the circumstances under which an individual becomes liable to pay tax in your jurisdiction? Can individuals be liable for tax on foreign-source income?

Under the Tax Code, tax residents are individuals who remain in Russia for not less than 183 calendar days over 12 consecutive months.

Individuals are taxed as follows:

  • Tax residents are taxed on their worldwide income.

  • Non-tax residents are taxed on Russia-source income.


Investment restrictions

11. Are there any restrictions on foreign ownership and investment in specific industry sectors? Do any formalities, permit or notification requirements apply?

There are certain restrictions for foreign investors, set out in Federal Law dated 29 April 2008 No. 57-FZ on the Procedure of Making Foreign Investments in Companies of Strategic Importance for National Defence and State Security (Strategic Investment Law).

This law provides a list of 45 activities of strategic importance. These activities can be conditionally divided into the following main categories:

  • Security and defence (including, for example, cosmic activity, development and production of aerotechnics, weapons and military equipment).

  • Activities related to the nuclear industry.

  • Development and production of encryption devices (including services provided in the field of data encryption).

  • Monopolies.

  • Media (similar restrictions are also contained in the Law of the Russian Federation No. 2124-1 on Mass Media).

  • Natural resources (for example, mining of mineral resources within subsoil plots of federal significance, extraction (catch) of water biological resources (see also Federal Law dated 20 December 2004 No. 166-FZ about Fishery and Preserving Water Biological Resources)).

  • Works affecting geophysical and hydrometeorological processes.

These restrictions either:

  • Ban transactions in which control is gained over companies of strategic importance (in relation to foreign countries, international organisations and companies under their control as potential investors).

  • Require the prior approval of these transactions by the Federal Antimonopoly Service of the Russian Federation (FAS).

Among the controlled transactions there are (Article 7, Strategic Investment Law):

  • Transactions (except transactions with shares of an economic entity of strategic importance that exploits subsurface areas with federal status) as a result of which a foreign investor or a group of persons gains:

    • the right to directly or indirectly control more than 50% of the total voting shares (stock) of a business entity of strategic importance;

    • the right to appoint a sole executive body and/or more than 50% of members of a collegial executive body of a business entity of strategic importance, and/or an absolute ability to elect more than 50% of members of the board of directors (supervisory council) or other collegial executive body of this business entity.

  • Transactions with shares of a business entity of strategic importance that exploits subsurface areas with federal status, as a result of which a foreign investor or a group of persons gains:

    • the right to directly or indirectly control 25% or more of the total voting shares of such a business entity;

    • the right to appoint a sole executive body and/or 25% or more of members of a collegial executive body of such a business entity, and/or an absolute ability to elect 25% or more of members of the board of directors (supervisory council) or other collegial executive body of such a business entity.

  • Transactions which aim to buy shares of a business entity of strategic importance that exploits subsurface areas with federal status by a foreign investor or a group of persons, if this foreign investor or this group of persons have the right to directly or indirectly control not less than 25% but not more than 75% of the total voting shares of this business entity (with some exceptions).

  • Contracts to perform the functions of the executive manager (the managing organisation) over a business entity of strategic importance by a foreign investor.

  • Transactions aimed at:

    • acquiring the right to directly or indirectly control more than 25% of the total voting shares of a business entity of strategic importance by foreign states, international organisations or organisations under the control of foreign states or international organisations;

    • blocking the decisions made by the management bodies of this business entity;

    • gaining the right to directly or indirectly control more than 5% of the total voting shares of a business entity of strategic importance that exploits subsurface areas with federal status.

  • Other transactions aimed at transferring the rights to determine the decisions made by the management of a business entity of strategic importance, including conditions of entrepreneurial activities, to a foreign investor or a group of persons.

A foreign investor or a group of persons must submit a petition for approval of establishing control (Strategic Investment Law) if it gains control over a business entity of strategic importance by changing the balance of voting shares of the business entity at the general shareholders' (members) meeting as a result of:

  • Acquiring, transferring to or buying-out its own shares by a business entity.

  • Distributing the shares that belong to this business entity among its shareholders.

  • Converting privileged shares into ordinary shares.

  • Statutory grounds.

The foreign investor submits a petition with supporting documents concerning the transaction, the investor, the relevant business entity of strategic importance to the FAS. The FAS processes the application with the Ministry of Defence and the Federal Security Service, and undertakes to:

  • Ensure that all necessary supporting documents are included.

  • Check the fact of establishing control over a business entity of strategic importance.

  • Check the business entity of strategic importance.

The FAS then transfers the petition along with results of the checks and the opinions of the Ministry of Defence and the Federal Security Service to the Government Commission for Control over Foreign Investments (Commission), led by the Chairman of the Government of the Russian Federation. The Commission must decide on the petition in three to six months (Strategic Investment Law). The decision can be challenged in the Supreme Court.

Non-compliance with the above mentioned requirements of the Strategic Investment Law means that the relevant transactions are void.

Also, a number of restrictions on foreign ownership and investment are set by:

  • Law of the Russian Federation dated 27 November 1992 No. 4015-1 on Organisation of Insurance Business in Russia.

  • Federal Law dated 24 July 1998 No. 127-FZ on State Control Over the Implementation of International Road Transport and Liability for Violation of the Order of their Implementation.

  • Law of the Russian Federation dated 14 July 1992 No. 3297-1 on Closed Administrative-Territorial Formation.

  • Federal Law dated 2 December 1990 No. 395-1 on Banks and Banking Activities.

  • Federal Law dated 9 July 1999 No. 160-FZ on Foreign Investments in the Russian Federation (in relation to prior approval of the transactions connected with Russian legal entities being committed by foreign public investor (in certain situations)).

Investments in the banking sector

The amount of foreign capital participation in the total authorised capital of credit institutions with banking licences is calculated as a ratio of foreign investments by non-residents in the authorised capital of these institutions to the total authorised capital of these institutions (Federal Law dated 2 December 1990 No. 395-1 on Banks and Banking Activities). This amount is calculated annually by the Bank of Russia as of 1 January.

The Federal Law uses quotas, meaning the threshold amount of participation of foreign capital in the total authorised capital of credit institutions with banking licences is equal to 50%. When the fixed quota is reached, the Bank of Russia takes the following measures with regard to foreign investments:

  • Deny registration of the credit institution with foreign investments and issue of banking licence to it.

  • Prohibit an increase in the authorised capital of the credit institution at the expense of non-residents' funds and an alienation of shares (stakes) of the credit institution in favour of non-residents, if the operation may result in exceeding the quota.

Unless otherwise stipulated, the Bank of Russia has a right (in co-ordination with the Government) to impose restrictions on banking operations for credit institutions with foreign investments, if the respective foreign states apply restrictions to banks with Russian investments and the branches of Russian banks in their jurisdiction.

The Bank of Russia also has the right, according to the procedure set out by the Federal Law on the Central Bank of the Russian Federation, to set additional requirements for credit institutions with foreign investments in relation to the procedure for providing statements, the approval of management personnel, and a list of banking operations carried out.

There are also additional requirements for state registration of credit institutions with foreign investments (Federal Law dated 2 December 1990 No. 395-1 on Banks and Banking Activities).

Investments in insurance sector

The Law of the Russian Federation dated 27 November 1992 No. 4015-1 on Organisation of Insurance Business in Russia provides the quota of 50% of foreign investment in the total authorised share capital of insurance companies, similar to the banking sector (see above, Investments in the banking sector).

Insurance organisations, which are affiliates of foreign investors (parent organisations) or with a foreign investor's stake exceeding 49% of their authorised capital, cannot pursue in the Russian Federation:

  • Life, health and property insurance for citizens at the expense of the relevant budget. This refers to the obligatory state insurance of certain categories of citizens, such as soldiers, firemen, police officers, judges, prosecutors and so on. The insurance is taken out by ministries and other federal executive authorities at the expense of the state budget.

  • Insurance related to the purchase of goods, works and services under contracts for state and municipal needs.

  • Insurance of property interests of state and municipal organisations.

Insurance organisations, which are affiliates of foreign investors (parent organisations) or with a foreign investor's stake that exceeds 51% of their authorised capital, cannot pursue in the Russian Federation (in addition to the above restrictions):

  • Insurance of property interests related to survival of citizens to a certain age or period or occurrence of certain events in life of citizens, and to their death (life insurance).

  • Compulsory third party insurance.

12. Does the government retain and exercise control over certain industry sectors? If so how?

State monopoly

State monopolies are stipulated by a number of Federal Laws and currently exist in certain industry sectors, such as:

  • Cultivation of drug-containing crops for scientific, educational purposes and expert activities, as well as certain activities related to drug turnover.

  • Sampling and marking of jewellery and other products made from precious metals.

  • Export of natural diamonds.

  • Military and technical co-operation.

Also, the following activities are subject to state regulation:

  • Natural monopolies (such as transportation of oil, gas, mail services, railway services, and so on).

  • Production and distribution of ethyl alcohol and alcohol-containing products.

Golden share

The golden share is a special right of the Russian Federation and Russian subjects to participate (upon the relevant decision) in the management of joint-stock companies for the purposes of defence and security of the country, health, rights and interests of the citizens. This term is introduced in the Federal Law dated 21 December 2001 No. 178-FZ on Privatization of State and Municipal Property and also in the Federal Law dated 26 December 1995 No. 208-FZ on Joint-Stock Companies (these companies, for example, exist in the timber and engineering industries).

The golden share means that the Government (or state authorities) appoints a representative to the board of directors (supervisory council) and to the check-up committee, who can put issues into the agenda of annual general shareholders' meeting, demand to call unscheduled general shareholders' meeting. The representative also has a veto right for a number of issues (prescribed by the Federal Law). The joint-stock company with the golden share must notify these representatives on the dates and agenda of general shareholders' meetings.

A classic example of a wholly nationalised economic sector is military industry.

13. Are there restrictions on foreign ownership or occupation of real estate? Do any formalities, permit or notification requirements apply?

Foreign ownership of the near-border land plots (the list of the relevant territories is established by the President in accordance with the legislation on the State Border of the Russian Federation) and special territories is prohibited. Special territories include:

  • Agricultural lands (however, foreign citizens and legal entities can rent these land plots).

  • Lands within the boundaries of the sea ports.

14. Are there any minimum capital requirements for foreign investment?

Minimum capital requirements do not depend on the identity of investor.

Minimum authorised share capital for a limited liability company and a private joint stock company is RUB10,000, and for a public joint stock company the minimum is RUB100,000.

Special requirements for minimum authorised share capitals are provided for in the banking and insurance sectors, brokers and dealers (see Question 11).

15. Are there any exchange control or currency regulations? Are there any restrictions on the remittance of profits abroad?

Currency regulation is set out in:

  • Federal Law dated 10 December 2003 No. 173-FZ on Currency Regulation and Currency Control.

  • Directions (instructions) of the Bank of Russia.

  • International treaties.

Currency transactions between residents are prohibited, with some exceptions. Currency transactions between residents and non-residents as well as between non-residents, in general, can be carried out without limitations. However, certain procedures must be followed (for example, residents must provide the banks with information and supporting documents while undertaking foreign trade activity (including transaction passports), repatriation by residents of foreign currency and the currency of the Russian Federation). Breaching the currency control rules can entail administrative and criminal liability.

After paying relevant taxes and fees a foreign investor is free to use the income and profit in Russian territory for reinvesting or other legal purposes, and can transfer this overseas.



16. Are there any restrictions on the importation of commercial goods?

Customs legislation can impose certain restrictions in relation to the import of commercial goods:

  • Embargo (import ban). For example, due to political reasons, until 5 August 2016 there is a prohibition on the import of agricultural products, raw materials and food from the US, EU, Canada, Australia, Norway, Ukraine, Albania, Montenegro, Iceland and Lichtenstein. In addition, the import of certain food products from Turkey is prohibited. There is also a general prohibition on the import of goods being acquired for the purposes of defence and the security of the country.

  • Licences and certification (for goods subject to compliance confirmation). For example, a licence is required for the import of gravel and road metal from non-EAEU member countries (for a limited period of time).

  • Quotas (restriction of imports).

  • Temporary restrictions for the import of quarantineable products.

  • Conformity with standards (see Question 18).

17. What import duties apply to commercial goods?

There are the following types of customs payments regarding imports (Customs Code of the Customs Union):

  • Import customs duty.

  • VAT.

  • Excise (type of tax for certain categories of goods, such as alcoholic beverages, cigarettes, petrol, diesel, and so on).

  • Customs fees.

Preferences and incentives may be provided by the Customs Code and/or international treaties.

The rates of customs duties can be divided into the following types:

  • Ad valorem. That is, a percentage of cost of the goods in question.

  • Specific. A specified amount depending on physical characteristics in kind (that is, quantity, weight, volume or other characteristics).

  • Combined (combining the first two types).

If not stated otherwise, for the purposes of calculation of import customs duties, one applies the rates specified in the Common Customs Tariff of the Customs Union. The rates vary widely, depending on the category, type and kind of the product (goods).

18. Are the safety regulations and standards applicable to commercial goods in your jurisdiction compatible with other standards that are recognised internationally?

While importing the goods subject to compliance confirmation, the applicant along with customs declaration provides the customs with compliance declaration or compliance certificate (Federal Law dated 27 December 2002 No. 184-FZ on Technical Regulation). These documents, if issued abroad, can be recognised in accordance with international treaties.

Russia as a WTO member strives to harmonise its local standard system with the international one. For now, national standards (in particular, developed in recent years) are supposed to be quite compatible with standards recognised internationally. Therefore, generally, the necessity to comply with the local standards should not be too onerous for the importers.

19. Are there any similar or equivalent restrictions on providing services into another jurisdiction?

Russian legal entities (or entrepreneurs) providing services (regardless of who is the services recipient (resident/non-resident) and its location) must comply with Russian legislation, including licence requirements and standards.

There is a list of activities (49 types) subject to obligatory licensing. Among them there are:

  • Activities, connected with development, production, testing, repair, utilization of weapons and ammunition.

  • Production of medicines and medical equipment.

  • Air, sea, inland water transportation.

  • Private security.

  • TV and radio broadcasting.

The "external service trade" can be restricted due to national interests (Federal Law dated 8 December 2003 No. 164-FZ on Bases of State Regulation of Foreign Trade Activity). For example, these restrictions are provided in the field of technical and military co-operation (the President approves a list of military products (goods), that also include military-related services, and the licensing procedure for the export of military goods).

Certain restrictions can also be put in regard of services that may be used for production of mass weapons, other weapons, military machines or for terrorist attacks (Federal Law on Export Control dated 18 July 1999 No. 183-FZ).

It is assumed that certain restrictions on Russian legal entities (entrepreneurs) providing services into another jurisdiction (including affiliates acting in the territory of foreign country) can be imposed by legislation of the relevant jurisdiction and by international legislation (treaties).


Structuring and tax

20. How is foreign investment into your jurisdiction typically structured? What forms of legal vehicle are attractive to foreign investors?

Within the Russian market, foreign investors have different options for choosing a type of structure into which they invest. All these types are set out by the Civil Code, with some specific laws providing regulation on certain legal entities. Among forms that are commonly used by the foreign investors are:

  • Limited liability companies.

  • Joint-stock companies.

  • Representative offices and branches of foreign legal entities.

There are also other commercial legal entities such as full and limited partnerships. However, they are not commonly used.

The Civil Code has recently been amended significantly. All Russian legal entities are now divided into unitary entities and corporations. The main distinction is based on the holding of shares by owners: owners of corporations hold shares and owners of unitary entities do not. In addition, the amendments cover the matters relating to the rights and obligations of shareholders, the requirements to the structure of management and the legal status of entities.

Under the new rules:

  • Joint-stock companies can be public and private corporations.

  • Limited liability companies can only be private corporations.

These two types are generally treated as the main options for starting business in Russia.

Limited liability company

Limited liability companies (LLCs) are governed by the Civil Code and Federal Law on Limited Liability Companies of 8 February 1998 No. 14-FZ. It is generally recognised as the simplest form of a Russian legal entity and it is attractive to foreign investors since it has, in comparison with other forms, simpler and more flexible way of corporate establishment and management because of its non-public character.

LLCs can be established by one or more individuals and/or legal entities. However, the sole participant cannot be a legal entity if is only has one participant (being either a sole legal entity or an individual). The maximum number of participants is limited to 50. The liability of each participant is limited to the value of a participatory interest in the charter capital.

The minimum charter capital of an LLC is RUB10,000 (it is the minimum size of the LLC's property which guarantees the creditors' interests). Contributions into the charter capital can be made in cash or in kind (property, securities or other tangible or intangible rights or assets that have a monetary value). If the monetary value of an in-kind contribution exceeds RUB20,000, an independent valuer must be involved. Each participant must pay its contribution within four months from the moment of the LLC's state registration. If the LLC's net assets fall below its charter capital it must decrease its amount accordingly or the LLC may be subject to liquidation.

The LLC's management structure is flexible. There are two main bodies that must be established in the LLC:

  • A general meeting of participants (management body).

  • A Chief Executive Officer (CEO) (executive body).

There are also optional bodies, such as a board of directors and a management board, and their powers are defined by the charter and internal regulations adopted by the participants.

The general meeting of participants is responsible for making major decisions such as:

  • The amendment of an LLC's charter.

  • The change of the charter capital.

  • The distribution of profits.

  • The approval of annual reports and balance sheets.

In general the decisions are taken by a simple majority of votes of all participants. For the matters specifically mentioned in the Federal Law on Limited Liability Companies and in a certain LLC's charter a qualified majority of votes is needed (for example, liquidation of the LLC).

The CEO exercises day-to-day company activities and deals with all matters not relating to the scope of competence of other bodies, and reports to the general meeting of shareholders and the board of directors (if established). The CEO acts on behalf of the LLC, represents the LLC without a power of attorney, enters into transactions, deals with all employment matters.

The transfer of participatory interest (shares for the LLC) between the participants is free. However, this may be specifically regulated by the LLC's charter. The transfer of the participatory interest to third parties is subject to a pre-emption right of the other participants, or the LLC itself, if it is stipulated in the company's charter.

Joint-stock company

Joint-stock companies (JSCs) are governed by the Civil Code and Federal Law on Joint-Stock Companies dated 26 December 1995 No. 208-FZ, and the regulation set out by this law is similar to the law on LLCs.

JSCs can be public or private (non-public). Public JSCs can trade their shares publicly. However, they must comply with strict legal requirements as to the structure of their bodies, compulsory reporting, relationships between shareholders, and so on.

Private JSCs are more flexible in terms of their management and operations. However, if the number of shareholders exceeds 50 persons they become similar to public corporations and must publish annual reports and financial statements. As for LLCs, the sole shareholder of a JSC cannot be a legal entity with itself as the only owner. Shareholders generally are not liable for the JSC’s obligations and their losses are limited to the value of their shares.

The minimum charter (share) capital for a public JSC is RUB100,000 and for a private JSC is RUB10,000. The charter capital is divided into shares which may be classified as ordinary or preference shares. The shares are treated as securities, so they must be registered with the Central Bank of Russia. Contributions into the charter capital, as for LLCs, can be made in cash or in kind. Contributions in kind must be valued by an independent valuer.

The management structure in JSCs is different depending on whether a JSC is public or non-public and on the number of shareholders. In public JSCs there are three mandatory bodies:

  • The general meeting of shareholders.

  • The board of directors with at least five members (supervisory board).

  • The sole executive body (CEO or several executives).

In non-public JSCs the mandatory bodies are:

  • The general meeting of shareholders.

  • The sole executive body (CEO or several executives).

The establishment of the board of directors (supervisory board) in non-public JSCs with fewer than 50 shareholders is not mandatory. In addition, in both public and non-public JSCs, a management board (collegial executive body) can be formed.

The general meeting of shareholders adopts most decisions by a simple majority of the votes. However, a number of limited matters must be resolved by a qualified majority of 75% votes of the shareholders attending the meeting (for example, the amendment of the charter, decisions on liquidation and reorganisation).

The CEO is responsible for the day-to-day management of the JSC and represents the JSC without a power of attorney. Several persons can serve as the sole executive body, which they may be authorised by the general meeting of shareholders or the board of directors. Legal entities can be appointed as a sole executive body as well.

In public JSCs, the shares can be transferred with no restrictions as to the pre-emption rights of the shareholders or the company. There may be both public and closed offerings of the shares.

In private JSCs, the shares are freely transferable between the shareholders; however, the transfer of the shares to third parties is subject to the pre-emption rights of the shareholders. This cannot be changed in a JSC's charter. As to the other terms, they can be varied in a shareholders' agreement.

Representative office

A representative office is not a separate legal entity under Russian legislation. It acts as an office set up by a parent company. The main function of the representative office is to represent the parent company's interests which includes, but not limited to, negotiation on the terms and conditions of the contracts on behalf of the parent company, marketing and advertising of the parent company. As a matter of limited formal legal capacity, it may not, for example, import goods for resale or buy immovable property to its own name.

The representative office must be registered and accredited with the Federal Tax Service. It is treated as a profit subdivision of the parent company for the tax purposes in Russian territory. It may open bank accounts whether in Russian roubles or in foreign currency.

The representative office acts on the basis of regulations approved by the parent company and is managed by the head of the office appointed by the parent company. The head of the office is authorised to represent the parent company on the basis of a power of attorney. The representative office must also have a chief accountant. There is no requirement for the management team of the representative office or any other its employees to be Russian nationals. However, as a matter of the Russian migration legislation, if these persons are foreign citizens, they are subject to visa regimes and work permit rules (see Questions 8 and 9).


A branch, like the representative office, is not a legal entity. However, in contrast to the representative office, the branch, in addition to representative functions, can exercise all or part of the business activities of the parent company. This is the main distinction between the representative office and the branch.

The regulations set out for the representative office are generally the same for the branch. As far as the branch and the representative office are mere platforms of parent company situated in a different place, the parent company is liable for its subdivisions.

21. What are the circumstances under which a business becomes liable to pay tax in your jurisdiction?

The Russian tax system has been changing over the last years, and this process is still ongoing. The main trend of the recent changes is the so-called "de-offshorisation" of the Russian economy. Notable changes include:

  • The creation of controlled foreign entities.

  • Implementation of tax residency criteria.

  • Development of the concept of beneficial ownership.

The Russian tax system is primarily based on the Tax Code consisting of two parts. It sets general principles and types of taxes applied in the Russian Federation on three levels: federal, regional and local. Tax legislation is being adopted on all three levels depending on a type of tax.

All Russian legal entities are subject to profits tax on worldwide income. Foreign legal entities are subject to profits tax if they conduct business in Russia through a permanent establishment and/or they receive income from a Russian source.

Foreign legal entities that are operated from Russia can be recognised as Russian tax residents. The criteria are based on the management of the company and exercising of control over the company through its bodies on Russian territory.

A permanent establishment is defined by the Tax Code as a representative office, branch, division, bureau, agency or any other separate fixed place through which a foreign company regularly exercises its business activities in Russia.

If a foreign company does not have a permanent establishment, then it is not subject to the Russian profits tax. If the foreign company acts in Russia through a dependant agent, which is a legal entity or individual that exercises the right to enter into contracts and negotiate the essential terms on behalf of the foreign company, it may be considered as the foreign company with the permanent establishment in Russia.

A foreign company can allocate income and expenses to its Russian permanent establishment if there is a double taxation treaty and this treaty provides for the possibility of this allocation.

Foreign legal entities that operate in Russia through a permanent establishment must follow the filing and payment schedules stipulated in the Russian Tax Code.

22. What are the main business tax rates?

Profits tax

The general and maximum profits tax rate is 20%: 18% payable to the federal budget, 2% payable to the regional budget (where the company is incorporated). The regional tax rate can be reduced by regional laws for the certain categories of taxpayers. The minimum profits tax rate is 13.5%.

Taxpayers, except for permanent establishments and certain other taxpayers, can file profits tax returns either monthly or quarterly and pay monthly advance payments. Permanent establishments must file profits tax returns quarterly and also pay quarterly.

In general, annual tax returns are due by 28 March of the year following the reporting year. Final payments are also due by 28 March of the year following the reporting year. These dates apply to the profits tax.

There are some special tax rates for certain types of income, for instance:

  • 13% on dividends received by a Russian legal entity from a Russian legal entity of foreign legal entity.

  • 0% on dividends being payable to a Russian legal entity if it has been an owner of a dividend payer for 365 consecutive days and this payer is not a resident of an offshore jurisdiction.

  • 15% on dividends payable to a foreign legal entity by a Russian legal entity.

Foreign legal entities without permanent establishments in Russia pay 20% withholding income tax on most Russian-source income, such as interest, royalties, income from leasing operations, and others. However, these rates can be reduced in accordance with double tax treaties between Russia and the actual country of beneficiary residence.


VAT is an indirect tax that leaves burden of payment to an end-customer but must be accounted for by a supplier. The following are the transactions when VAT must be charged:

  • Sales of goods, works and services within Russia.

  • Transfer of goods, works and services within Russia for the purposes of a taxpayer if the incurred expenses are non-deductible for profits tax purposes.

  • Construction and installation work for the taxpayer's own requirements.

  • Import of goods into Russia and to the other territories under Russian jurisdiction.

If the goods, works, services are supplied free of charge, the market value for identical goods, works and services excluding VAT is used.

The standard VAT rate is 18%. A reduced VAT rate of 10% applied to books, medical goods, certain foods and children's goods. A 0% rate applies to the export of goods outside Russia, works and services in relation to the transport of goods in transit, certain services and goods supplied to foreign diplomatic missions, and so on.

VAT returns must be filed quarterly in electronic form not later than on 25th day of the month following the quarter that has ended. Taxpayers must pay VAT in three equal monthly instalments following the reporting quarter.

Other taxes

Property tax. This is charged on fixed assets including leased property in certain cases. Intangible assets, inventories, work-in-progress and financial assets are not subject to the property tax. The maximum rate is 2.2% which is set out in the Tax Code. The specific rate is set by regional laws. Property tax calculations must be filed quarterly. The terms for the payment of property tax are set by regional authorities.

Land tax. Land tax is paid to the local budget by the taxpayers who possess land on the right of ownership or permanent use. The rate must not exceed 0.3% for lands intended for agricultural purposes and housing and 1.5% of the cadastral value of the land plot for any other purposes. Advance payments of the land tax are due quarterly.

Excise duties. Excise duties must be paid by the producers and/or importers of excisable goods, such as tobacco, alcohol, cars and oil products. The rates are variable depending on certain factors and are set by the Tax Code.

Social contributions. These are mandatory for an employer and persons and must be paid on a monthly basis to the following state non-budgetary funds:

  • Pension Fund.

  • Social Insurance Fund.

  • Mandatory Medical Insurance Fund.

In any case no mandatory contributions are to be paid by employees. These contributions are paid on remuneration of employees under employment and civil contracts. Contributions for a foreign national working in Russia are paid based on the visa and work permit.

23. What is the tax treatment in your jurisdiction of profits from an investee company remitted outside your jurisdiction by an investor?

Deductibility of expenses

Expenses are deducted on an accrual basis. They are deductible if they relate to the taxpayer's income, if they are economically justified and properly documented, and they are not mentioned as non-deductible expenses in the Tax Code.

Among those non-deductible expenses are the cost of assets transferred free of charge and any employee's remuneration which is not provided in relevant employment contracts. In addition, the Tax Code specifies some limits to deductibility (for example, interest on loans and other borrowings charged at a rate more than 20% above the average rate charged for comparable loans made in the same quarter, representative expenses up to 4% of payroll and, pension and life insurance for employees up to 12% of payroll).

Withholding tax

Foreign legal entities without permanent establishments in Russia pay 20% withholding income tax on most Russian-source income (such as interest, royalties, income from leasing operations, and so on). However, these rates can be reduced in accordance with double tax treaties between Russia and the actual country of beneficiary residence.

Withholding rates are as follows:

  • 15% on dividends payable to a foreign legal entity by a Russian legal entity.

  • 10% on freight income.

  • 20% on royalties, interest, income on leasing and renting operations, and other Russian-based sources.

Double tax treaties

The main goal of double tax treaties is to prevent double taxation (that is, on the same income, property, and so on). These treaties are based on well-recognised principles of non-discriminatory tax treatment and co-operation between the tax authorities of respective signatory jurisdictions. According to the Constitution, the provisions of double tax treaties override the rules of Russian legislation.

To be subject to withholding tax rates a foreign legal entity must confirm that it is a resident of the country with which Russia has an effective double tax treaty. This confirmation is valid if it is documented in a certificate issued by the relevant foreign authorities.

For example, the following are the rates for some countries involved in the double tax treaties with Russia:

  • China: 10% on dividends, interest and royalties.

  • France: 5%, 10% or 15% on dividends, 0% on interest and royalties.

  • Germany: 5% or 15% on dividends, 0% on interest and royalties.

  • UK: 10% on dividends, 0% on interest and royalties.

  • US: 5% or 10% on dividends, 0% on interest and royalties.

24. What transfer pricing and/or thin capitalisation restrictions may apply to investments into your jurisdiction from elsewhere?

Transfer pricing

In general, transfer pricing is intended for tax authorities to control pricing between certain legal entities. Since 2012 the Russian legislation on transfer pricing has significantly changed. For example, the list of interrelated parties has been extended, the definitions as to what must be put under control of tax authorities have been made clearer, and the threshold of 20% for the deviation of the market prices has been introduced.

Transfer pricing arises when the following scenarios occur:

  • Cross-border transactions between interrelated persons.

  • Income and expenses under one transaction between interrelated persons within one calendar year exceeding RUB1 billion, except in certain circumstances.

  • Use of one of the special tax regimes by one of the parties to a transaction between interrelated persons, income and expenses under which exceed RUB100 million for one calendar year (and some other examples of transactions between interrelated persons).

  • Cross-border transactions involving oil and oil products, precious metals, and so on, if the proceeds exceed RUB60 million for one calendar year.

  • Transactions with the counterparty from the country included into the blacklist by the Russian Ministry of Finance, if the proceeds exceed RUB 60 million.

Taxpayers must notify tax authorities of any controlled transactions performed within one year before 20 May of the year following the year when the transaction occurred. All such transactions should be supported by the pricing documentation.

Thin capitalisation

Under the Tax Code, interest on loans received from or guaranteed by foreign shareholders (or their Russian affiliates) owning more than 20% of capital is deductible. This occurs if the loans do not exceed the amount of equity by three times (12.5 times for banks and leasing companies). If loans exceed this limit, excess interest on the loans will be moved into another category for taxation purposes as dividends payable to foreign shareholders. Therefore, these dividends are not deductible for profits tax and are subject to withholding tax at the rate of 15%.



25. What tax incentive or other schemes exist to encourage foreign investment?

Russian legislation provides for different kinds of incentives for which legal entities can benefit. Among the effective incentives are:

  • Regional incentives which are granted at regional and local levels, and are concerned with the taxes paid to the respective budgets.

  • Special economic zones which provide for special tax regimes.

  • Incentives relating certain major projects, such as the Skolkovo innovation centre, FIFA 2018, and so on.

  • Incentives regarding certain activities, for example IT business, different types of research and technologies works, and so on.

Regional incentives

To develop regions, respective authorities create ways to involve investors into the processes of building residential areas, schools and kindergartens, business and shopping areas, reconstruction of historical districts, railway stations and airports. For such projects to be attractive to investors, tax and economic benefits are introduced by regional and local authorities.

The relevant project must meet specific criteria to obtain beneficial status. For instance, it must be approved as a project of particular importance or as a priority investment project. With the project being arranged on agreed terms and conditions, the incentives can, among other things, offer the following:

  • Exemption from property, land and transport taxes.

  • Exemption from customs duties and import VAT.

  • Corporate profits tax (reduced to 15.5% minimum).

Special economic zones

The Federal Law on Special Economic Zones in the Russian Federation dated 22 July 2005 No. 116-FZ created a platform for the strengthening of economic growth of the regions and specific areas in Russia. Special economic zones (SEZs) are a defined and limited part of the Russian territory, in which business is carried out in a specific way with granting tax and customs benefits to the residents of the SEZ.

The main aims of SEZs are the development of:

  • The manufacturing, tourism, and recreation industries.

  • Port and transport infrastructures.

  • Technologies and new product production.

Foreign investment is necessary to the implementation of these goals. The advantages provided for the SEZ residents are the same as regional:

  • Exemption from property and land tax.

  • Exemption from customs duties and VAT.

  • Reduced corporate profits tax.

The Law on SEZs distinguishes four types of SEZ:

  • Industrial production zones.

  • Technical and implementation zones.

  • Recreation and tourism zones.

  • Port zones.

To become an SEZ resident, a candidate must comply with certain specific requirements set out by a certain SEZ:

  • The applicant must be registered within territory of the SEZ.

  • A certain number of investments must be made by the applicant within a specified period of time, in accordance with their business plan.

  • The applicant cannot establish branches or representative offices outside the SEZ, as its main activity must be carried out within the SEZ.

The resident of the SEZ must be a commercial organisation (or, in some cases, individual entrepreneur) incorporated in the SEZ which has concluded an agreement with the Ministry of Economic Development.

Currently there are 34 SEZs operating in Russian territory. The official website of Russian SEZs is (some sections of this website are under construction).

Skolkovo innovation centre

This centre was established in 2010 as an isolated area for the purpose of research and development, and the commercialisation of this. The project is subject to a special legislative regime.

To operate in the Skolkovo innovation centre, investors must set up Russian companies to conduct research and they must follow a certain procedure.

Among the incentives granted to Skolkovo participants are:

  • Exemption from property and land taxes.

  • Exemption from VAT.

  • 0% corporate profits tax in relation to income received as a result of research and development.

  • Exemption from the payment of some state duties.

The official web-site of the Skolkovo innovation centre is located here:


Investment guarantees

26. What legal guarantees exist against expropriation and/or provide for appropriate compensation? What is your government's track record in this regard?

Under the Russian Constitution, recognition and equal protection must be given to the private, state, municipal and other forms of ownership.

General principles of expropriation and nationalisation are regulated by the Civil Code. Article 242 of the Civil Code is a blanket provision regulating seized property. This means that the particular order and conditions of seizure are regulated by other laws. One of these laws is a Federal Law No. 160-FZ on Foreign Investments in Russian Federation dated 9 July 1999.

The Law on Foreign Investments provides guarantees for foreign investors and commercial entities with foreign investments against expropriation of their property. Foreign investors or commercial entities with foreign investments have the right to compensation of the value of the expropriated assets. If the circumstances under which the property was seized end, the foreign investor can claim for the return of the seized assets. In this case, the foreign investors must return the compensation (and depreciation must be taken into account). Foreign investors or commercial entities with foreign investments, whose property was nationalised, have the right to claim compensation for the value of the nationalised property with other losses.

Disputes, relating to the investments in Russia, must be resolved in accordance with the international agreements and federal laws by the state court, or by the arbitration court (Article 10, Law on Foreign Investments). Russia has 57 bilateral investment treaties (BITs) in force.

Russia signed, but did not ratify, BITs with such countries as:

  • The United Arab Emirates.

  • Poland.

  • Slovenia.

  • Croatia.

  • Cyprus.

  • Portugal.

  • Thailand.

  • Cambodia.

  • The Philippines.

  • Guatemala.

  • Ecuador.

  • Namibia.

  • Equatorial Guinea.

  • Algeria.

  • Nigeria.

  • Ethiopia.

  • Tajikistan.

BITs grant investments a number of guarantees, which typically include fair and equitable treatment and protection from expropriation. They also include alternative dispute resolution (ADR) procedures.

The Russian Government Decree No. 456 on Bilateral Investment Agreements between the Government of the Russian Federation and Governments of Foreign Countries dated 9 June 2001 contains the typical form of BIT. This typical BIT includes an arbitration clause. In accordance with this clause, if it is impossible to reach a settlement, the dispute can be resolved in the International Centre for Settlement of Investment Disputes (ICSID). Russia signed, but did not ratify the ICSID Convention. There are only a few BITs which allow a dispute to be resolved through the ICSID (including, for example, Japan, Portugal, the Czech Republic, Slovakia and Romania).

27. Are there any issues in relation to the enforcement of intellectual property rights?

In Russia there is a special court, called the Intellectual Property (IP) Court. The IP Court was established under Federal Constitutional Law 4-FKZ dated 6 December 2011. The IP Court opened its doors on 3 July 2013. Since that time the IP Court had resolved different cases. The IP Court acts as a court of the first instance and as a court of cassation. Although the IP Court is a young court, it is highly efficient. The resolution of the IP disputes requires not only legal knowledge, but also special technical knowledge. These disputes are more complicated than other commercial disputes. The existence of the IP Court helps to minimise judicial errors.

Another important court for IP purposes is the Moscow City Court. On 2 July 2013, Federal Law No. 187-FZ on Amendments to Certain Legislative Acts of the Russian Federation on Protection of Intellectual Property Rights in Information and Telecommunications Networks was enacted and received the non-official title of Anti-Piracy Law. The Law entered into force on 1 August 2013. Under the Anti-Piracy Law, the IP owner, who considers that his rights are being violated, can preliminarily block illegal content by applying to the Moscow City Court before trial.

The claim of the IP owner is examined at court, and the problem content can be deleted following the court ruling. The Federal Service for Supervision of Telecommunications, Information Technologies and Mass Communications (Roskomnadzor) sends a notification of temporary blocking of the content to the internet service provider.

Roskomnadzor is a federal executive authority entitled to carry out permitting and licensing activities, validation and supervision in telecommunications, information technologies and mass communications.

The main problem in relation to enforcing IP rights is that the IP owner, under the Civil Procedure Code, only has a short term to prepare a claim to enforce IP rights (that is, within 15 days from the Moscow City Court's ruling to preliminarily block the content).

The Federal Antimonopoly Service of the Russian Federation (FAS) is a state authority, whose main aim is to suppress anti-competitive conduct that harms the market, particularly, in cases when the intellectual property is illegally used. One of the functions of the FAS is ensuring compliance with competition rules in the IP sector. The FAS actively uses this function.

Occasionally state authorities give different interpretations of the same legal provision (for example, the interpretation of Article 1484 of the Civil Code). There is currently a conflict between the FAS and the IP Court concerning a placement of photos of goods marked by trade marks in the internet as a method of introducing goods on the territory of Russia. The IP Court’s position is that a placement of photos of goods marked by trade marks in the internet cannot be regarded as a method of introducing goods on the territory of Russia. The FAS is of the view that, a placement of photos of goods marked by trade marks in the internet is a method of introducing goods on the territory of Russia. This position was supported by the Judicial Chamber of the Supreme Court of Russia on Economic Disputes in case No. А67-4453/2014 ( On 2 March 2016 in case No. А67-4453/2014 a supervisory appeal was filed. The Presidium of the Supreme Court of Russia will have the final word on the matter in 2016.

The issue has been raised because the internet becomes a very important channel in selling goods, particularly, in the international trade.

The point is that the exhaustion of IP rights constitutes one of the limits of IP rights. There are three concepts of exhaustion:

  • National exhaustion.

  • Regional exhaustion.

  • International exhaustion.

In Russia there is a concept of "national exhaustion". The exclusive right to a trade mark will not be deemed infringed if the trade mark is used by other persons in respect of goods that have been introduced in civil-law transactions on the territory of Russia directly by the right holder or with his consent (Article 1487, Civil Code).

It is still unclear if it is necessary to take the right holder's permission where photos of goods marked by a trade mark have been placed on the internet.

The right holder can demand (at his discretion) that the infringer pay compensation in lieu of reimbursement of damages:

  • In the amount of RUB10,000 to RUB5million at the court's discretion , depending on the nature of the infringement.

  • In the amount equal to double the value of the goods on which the trade mark has been illegally placed or double the value of the right of using the trademark assessed on the basis of the price normally charged in comparable circumstances for the legal use of the trademark.

Article 14.10 and item 2 of Article 14.33 of the Code of the Administrative Offences provides for significant penalties.

28. Are there any issues in relation to the gaining and enforcement of judgments and/or arbitral awards?

In general, foreign investors are not subject to different treatment in relation to the gaining and enforcement of judgments and/or arbitral awards. However, there are some peculiarities regarding proceedings with a foreign element.

In Russia, arbitration (commercial (arbitrazh)) courts are state (federal) courts included in the Russian judicial system. They resolve economic disputes and other disputes referred to their jurisdiction by the law.

Complementary to these courts, mediation (arbitral) courts may be established either on permanent basis or ad hoc (for specific disputes). These courts are not included in the Russian judicial system and act on the basis of the Federal Law dated 24 July 2002 No. 102-FZ on Mediation Courts in the Russian Federation. A special type of mediation court is the international commercial arbitration court, acting on the basis of the Russian Federation Law dated 7 July 1993 No. 5338-1.

Chapter 32 of the Arbitration Procedure Code contains a list of disputes which Russian arbitration (commercial) courts are competent to resolve. Simply, these disputes must have a close connection with the Russian Federation, for example:

  • The defendant must be situated, live or have property in the Russian Federation.

  • The management body, branch, affiliate or representative office of a foreign legal entity must be situated in the Russian Federation.

  • The dispute has arisen from an agreement that is subject to execution in Russian territory.

  • The dispute has arisen from harm or unjustifiable enrichment taken place in the Russian Federation.

There is also a list of disputes subject to exclusive jurisdiction of Russian courts. A classic example is disputes related to real estate situated in the Russian Federation.

The parties can conclude a written agreement (a prorogation of jurisdiction) establishing the exclusive jurisdiction of a Russian arbitration court upon a certain dispute that already exists or may appear, provided this agreement does not remove the exclusive jurisdiction of another (foreign) court.

Interim relief can be granted in disputes with foreign element falling within the jurisdiction of Russian courts.

Generally, the procedure (as well as procedural rights and obligations) is the same for both Russian and foreign individuals (legal entities), unless otherwise provided by international treaty. Special requirements are imposed for notifications (for parties living or situated outside the Russian Federation, in this case, the standard trial duration would be extended) and documents of foreign origin (requiring legalisation (apostillation)). The Government can impose counter restrictions in regard of individuals and legal entities of those foreign countries where restrictions for Russian individuals and legal entities are imposed.

Judgments of foreign courts are recognised and enforced in the Russian Federation if it is provided by international treaties and the federal law, and if there are no grounds to refuse it. For example, the court refuses to recognise and enforce the judgment if it has not come into force under the relevant foreign law, or the resolution contradicts Russian public policy. The party seeking recognition and enforcement must submit an application to the arbitration court. This court resolves this issue without examining the judgment on the merits and only establishes the presence or absence of grounds to recognise and execute the judgment.

Arbitral awards (of mediation courts) adopted in Russian territory can be challenged (by submitting an application to cancel) and enforced in arbitration (commercial) courts. The foreign arbitral award which was adopted using Russian legislation can be challenged in cases provided by international treaty. The Arbitration Procedure Code contains an exhaustive list of grounds for cancellation of arbitral awards as well as for refusal of enforcement. The term for submitting an application to cancel is three months from the date of receipt of the arbitral award by the party (if otherwise is not provided by the international treaty). The term for submitting application to enforce the award is three years after the deadline for voluntary execution of the arbitral award (but it can be extended due to justifiable reasons).

Similar rules are set out by the Civil Procedure Code of the Russian Federation in relation to disputes falling within jurisdiction of general jurisdiction courts. In addition, Russia is a party of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) which, in general, provides the same rules.


Recent developments and proposals for reform

29. Have there been any significant recent or proposed legal developments affecting investors?

Russia continues to pursue a series of reforms to modernise its Civil Code. The most significant amendments are in corporate law and law of obligations. Some of these changes are the result of court's enforcement and business practice. In addition, principally new concepts have been introduced. All these amendments should be taken into account by foreign investors.

Corporate law has been changed, particularly, corporate governance (rights of members, shareholder meetings and so on). The concept of a corporate agreement has been developed. This concept covers agreements between shareholders in a joint-stock company and participants in a limited liability company.

The law of obligations has changed significantly. Indemnity for losses not connected with a breach of obligations has been introduced. Under this concept, parties may agree that one party will indemnify the other against any actual losses incurred on the occurrence of events not related to a breach of obligations. For example, losses incurred as a result of a claim by a third party. The regulation of preliminary agreements has been amended. Now it is unnecessary to include all essential terms of the main agreement into the preliminary agreement. Options and option agreements have been introduced. However, the scope of these concepts is quite specific in Russia.

The system of securities has been amended. New rules of surety and guarantee have been introduced. A guarantee may be issued not only by banks and other credit entities, but also by other commercial entities. Financial collateral is a new concept, which has been introduced. Monetary obligations, including losses or penalties, can be secured by transferring a sum of money from one contracting party which owes the secured obligations to another.

These are only a few of the changes that have occurred.

These examples positively demonstrate the trend to reform. It makes the Civil Code more flexible and useful.

The system of rights in rem (real rights) will be amended. Lawyers, businessmen and officials are still discussing the necessity of introduction new rights in rem. One of them is a building lease. The building lease is a right in rem, which will provide investors a great number of rights relating to real estate. At present investors are using tenancy, including the right of a tenant to build real estate on a land plot, but the position of a building leaseholder is stronger than the position of a tenant.

There are different legal forums in Russia, where practising lawyers and officials can discuss certain amendments (for example, law institute "M-Logos"). It helps to update the current laws and raise their quality.

In addition, Russia has introduced significant changes to its Tax Code. Most of these changes are the result of the so-called "de-offshorisation" of the Russian economy.

30. Are there any planned or on-going treaty negotiations or political developments that could have an impact on your jurisdiction's bilateral relationships with other nations and/or other economic, customs or monetary unions, free-trade areas or markets?

On 27 November 2014, the World Trade Organization (WTO) General Council adopted the Protocol of Amendment. This Protocol amends the Marrakesh Agreement Establishing the WTO. The Trade Facilitation Agreement was inserted into Annex 1A of the WTO Agreement. The main aim of the adoption of this document was to simplify customs procedures.

The Council of the Federation of the Federal Assembly of the Russian Federation on 26 February 2016 adopted the Protocol of Amendment. On 2 March 2016 the Federal Law No. 38-FZ on Adoption of the Protocol of Amendment Marrakesh Agreement Establishing the World Trade Organization was passed.

Russia has 57 bilateral investment treaties (BITs) in force. On 15 March 2016 Russia and Morocco signed BIT. Russia has 80 double taxation treaties (DDTs) in force. On 18 March 2016 Russia and Hong Kong signed DDT.

*The authors would like to thank the following individuals for their contribution to this article: Elina Zhuravleva, Kristina Savinova, Vyacheslav Garlyupin and Arseny Salamatov.


Main investment organisations

Commonwealth of Independent States (CIS) (Содружество независимых государств (СНГ))

Main activities. CIS has been founded for the purposes of cooperation in political, economic, ecological, humanitarian, cultural and other spheres between the countries of the former Soviet Union. Members of CIS have created the free trade zone and continue to cooperate in various economic spheres, including agriculture, customs, manufacturing industry, energy sector, information and communications, etc.


Eurasian Economic Union (EAEU) (Евразийский экономический союз (ЕАЭС))

Main activities. EAEU replaced the Eurasian Economic Community Integration Committee (EurAsEC) in 2015 and now comprises the Russian Federation, Republic of Belarus, Republic of Kazakhstan, Republic of Armenia and Kyrgyz Republic. The EAEU is being created to comprehensively upgrade, raise the competitiveness of and cooperation between the national economies, and to promote stable development in order to raise the living standards of the nations of the Member-States.

The EAEU provides for free movement of goods, services, capital and labour, pursues coordinated, harmonised and single policy in the sectors determined by the Treaty and international agreements within the Union.


The Shanghai Cooperation Organization (SCO) (Шанхайская организация сотрудничества (ШОС))

Main activities. SCO is a permanent intergovernmental international organisation creation of which was proclaimed on 15 June 2001 in Shanghai (China) by the Republic of Kazakhstan, the People’s Republic of China, the Kyrgyz Republic, the Russian Federation, the Republic of Tajikistan and the Republic of Uzbekistan.

The main goals of the SCO are:

  • Promoting effective cooperation in politics, trade and economy, science and technology, culture as well as education, energy, transportation, tourism, environmental protection and other fields.

  • Making joint efforts to maintain and ensure peace, security and stability in the region, moving towards the establishment of a new, democratic, just and rational political and economic international order.


Online resources

Integrated Foreign Economic Information Portal of the Ministry of Economic Development


Description. This website provides information such as investment climate and opportunities overview, regional investment projects, regional presentations, special economic zones, foreign economic activities regulation and Russia exporters' database.

Project by the Agency for Strategic Initiatives


Description. This website contains useful information for investors on the legal framework (such as licensing, labour law, tax system and land ownership, customs issues) and sectors overview.

Russian Direct Investment Fund


Description. This website contains useful information on investment trends within various sectors, investment project database, company case studies, guides, industry reports and comments from investment professionals and business society around the world.

Russian Special Economic Zones

Description. This website contains general information for investors in connection with special economic zones: map of SEZ, details description of their types, description of steps to become the resident of SEZ, database of registered residents of SEZ.

Administration of St. Petersburg


Description. This website contains official information about investments in St. Petersburg, foreign investment statistics in St. Petersburg.

Investment portal of St. Petersburg


Description. This website contains information for investors in St. Petersburg, including overview of investment climate of St. Petersburg, investment projects of the city, investment proposal lists, legal framework for investment.

The Federal Tax Service


Description. This website includes official information on how to start a business, file a tax return and register a foreign citizen and foreign legal entity, to become an Individual Entrepreneur.

The Federal Migration Service


Description. This website includes official information with regard to key migration and labour issues for foreign citizens and stateless persons (only available in Russian).

The Ministry of Foreign Affairs of Russia


Description. This website includes official information on migration registration of foreign citizens, as well as instructions for foreign citizens or stateless persons arriving visa-free with the aim of temporary labour activity.

The Central Bank of the Russian Federation (CBR)


Description. This website includes official information in the spheres of financial markets, national payment system, banking sector.

The Supreme Court website


Description. This website contains official overview of Russian judicial system.

Contributor profiles

Konstantin Dobrynin, Senior Partner

Pen & Paper, Attorneys at Law

First Law International Member Firm (Chambers Global Elite Network)

T +7 812 740 5823; +7 495 933 0092
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Professional qualifications. Russian Federation, Advocate.

Areas of practice.Criminal law (corporate crime, white-collar crime); property protection; arbitration; dispute resolution and mediation; reputation management; corporate law; constitutional law; GR; legislative expertise; pro bono.

Non-professional qualifications. Former senator, Russian Parliament; Deputy chair of the Committee on Constitutional Legislation and State-Building.

Professional associations/memberships. State Secretary, Russian Federal Chamber of Lawyers; Member, St. Petersburg City Chamber of Lawyers.

Languages. English, Russian.

Anton S. Imennov, LL.M., Special Counsel

Pen & Paper, Attorneys at Law

First Law International Member Firm (Chambers Global Elite Network)

T +7 812 740 5823
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Professional qualifications. Russian Federation, Advocate.

Areas of practice. International law; corporate law; arbitration; dispute resolution; private clients (high net worth individuals); investments.

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Languages. English, Russian.

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