In contemplating the accession of the Russian Federation (RF) to the WTO, a dramatic increase in foreign investment activity is anticipated. With respect to this positive tendency, the legislative regulation of foreign investments, especially issues regarding the legal regime applied to direct foreign investments, is becoming more important.
The core legislation governing the national regime of foreign investments in Russia is presented in the Federal Law "On Foreign Investments in the Russian Federation" (hereinafter - the "Law on foreign investments").
It is generally recognised that the main legal guarantees, protection of investments and conditions of commercial activities for foreign investors in Russia provided by the Law on foreign investments, other laws, regulations and international treaties of Russia correspond to international standards.
Due to the on-going process of administrative reform and the liberalisation of legislation regarding currency regulation and currency control, as well as due to the recent changes in antimonopoly law, the implementation of direct foreign investments in Russia has become significantly easier.
DIRECT FOREIGN INVESTMENTS: LEGAL NOTION AND FORMS:
The Law on foreign investments provides for the application of the national regime to foreign investors (in other words - equal rights in the domestic market), guarantees the protection of property ownership rights, ensures the fair settlement of disputes, and amongst other guarantees contains a "grandfather clause."
With respect to direct foreign investments, it should be noted that significant amendments have been made in the currency control regulations governing foreign economic operations. Due to the liberalisation of currency regulation, the procedure for currency control in Russia has been greatly simplified.
In accordance with a new version of the Federal Law "On Currency Regulation and Currency Control," currency transactions between residents and/or non-residents by the acquisition of rights to participate in the share capital of already existing or newly established commercial organisations, do not need to be completed either via special accounts or through the mandatory reservation of funds.
Recent changes in antimonopoly regulation also relate to the process of acquiring rights to participate in the share capital of a Russian commercial organisation. With respect to the legal regime of direct foreign investments, it should be noted that threshold values for the purposes of antimonopoly control procedures have been increased, and the procedures, as such, have become clearer.
The legislation stipulates it should be more than 3 billion rubles (approximately $114 million) for the participating commercial organisations and has introduced a new threshold value of their aggregate income for the previous calendar year, which should be more than 6 billion rubles (approximately $229 million).
The subsequent notification might be required for the establishment of a commercial organisation as a result of a merger or take-over of commercial organisations and acquisition of shares of commercial organisations.
Then it should be filed with the Federal Antimonopoly Service within 45 days after the completion of the transaction. It should be noted, that the described provisions for subsequent notification are not applicable to the transactions with the participation of foreign investors, which are subject to the prior consent of the Federal Antimonopoly Service.
Pursuant to the Law on foreign investments, direct foreign investments in Russia may be made in any assets or sector of the economy, as long as it is not prohibited in the legislation.
Russia has retained the right to make exemptions from the application of the national regime in such activities as banking, production of fissionable materials and related products, ownership rights on agricultural land plots, use of natural resources, etc.
Russia maintains restrictions on direct foreign investments in strategic sectors of the economy. In certain industries, such as banking and insurance, there are restrictive provisions, which limit direct foreign investments to specific levels regarding their proportion to the amount of Russian entities acting in the particular sector.
In specific industries, such as broadcasting, gas supply and others, the current legislation limits direct foreign investments to their proportion of the share capital of Russian entities. For example, the participation of foreign investors in the share capital of Russian aviation companies is subject to a 25 percent limit. Exception from this limitation may be obtained upon the decision of the President of Russia.
The Russian government is currently considering a new regulation on the procedure of direct foreign investments concerning commercial organisations of strategic importance for the national safety of Russia. It appears that the list of strategic activities will be actively extended.
Summarising the effective legislative provisions, which constitute the legal regime of direct foreign investments in Russia with respect to the recent changes in the currency, and antimonopoly laws, it should be noted that they ensure that Russia aims at offering a favourable investment climate, to provide the main guarantees and to open attractive opportunities for foreign investors.
(The writer is Deputy Trade Representative of Russia.)
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