The Russian Federation Act on Foreign Investment of 04.07.91 determines the way the foreign investors can qualify for the Russian market. The may be: states and international groups, legal entities and private persons, individuals with no nationality and Russian citizens with usual residence abroad, provided their business is officially registered in the home country. The investment incentives might be: joint ventures or participation in native companies, setting up a business with 100%—own capital , opening subsidiaries of foreign companies and participation in privatisation of state-run enterprises.

Registrations and Permits

In fact, a business can be set up in all branches of economy, except for area where production is still government controlled.
To register a business a minimum of capital is sufficient and not necessarily in material form.
Some activities require a licence.
A business can be set up in a form of a limited company, a sole trader, a joint stock company and public limited company. At present the most popular are joint stock and public limited companies.
A registered capital of any form of business with foreign investment is 20.5 mln rubles.

Tax Law

The major taxes levied within the tax law are VAT, profit and income tax.
Taxation of businesses with foreign capital is effected in the same way as for Russian entities.
Corporate profit tax rate is 32%, for stockbroker deals—45%, intermediaries— 45%, casino and video saloons are subject to 70% profit tax. The rate calculations are based on normal tax rates. Tax rate of equity and security returns is 15%.
The agreement on double taxation enacted in the former USSR is still in force, thus every effort is made to avoid double taxation in the countries of origin.
The enterprises with foreign capital ratio of over 30% are granted tax privileges. The following costs are subject to tax exemption:
1. Lowering of profit volume subject to taxation.
When the profit is re-invested in technical modernisation and renovation, commissioning of new production facilities in oil and coal industries, medical and food stuff equipment production, food staff , pharmaceuticals and consumer goods production. 30% of funds invested in environment protection. Social expenditures such as health, education, children-care and pre-school institutions. 2. Special benefits for enterprises with less than 200 employees.
They may enjoy the same tax relief mentioned in par 1, tax exemptions are not to increase 50% of the normal rate.
The following costs are tax free: construction, modernisation, renovation of fixed assets and introduction of new technologies. In case an enterprise with foreign capital is involved in farm products processing, consumer goods production, constriction and repair works, it is tax exempt for the first two years of operation. 3. Transfer of Losses.
The losses may be transferred within 5 years. It is not allowed to show losses with the profit for the previous years. The losses are to be covered by reserves or similar funds.
4. Lower Profit Tax Rate.
50% tax relief is provided for the enterprises employing over 70% of handicapped and pensioners.

Some Types of Income Subject to Taxation

Foreign legal entities with income generated from sources located on territory of RF are subject to taxation at the source of payment.
Such incomes may include: dividends paid by Russia residents as well as revenue paid to a foreign participator from the profits of an enterprise set up in Russia with foreign investments;
—income received from shares of a partnership with foreign participation;
—additional remuneration of shareholders paid in money or in any other form;
—returns from chegue-investment funds;
—interests received from any kind of dept liabilities, including bonds, convertible bonds, etc.;
—premiums, interests paid by annulment of securities (prior realised with discount), insurance and re-insurance premiums;
—income from issue services (including income from caring out of independent issue and income from its servicing) and share allocation of any Russian resident;
—interests from sanctions and penalties for failure to meet agreement and dept terms;
—other income not related to permanent office activities, in particular the income generated by work or any service carried out or rendered on territory of RF.

Labour Law

The employment of Russian personnel is regulated by labour agreements. In case of redundancy caused by privatisation, social programmes are to be developed.

Book-Keeping

Book-keeping at joint ventures may be effected as per regulations common in the investor’ s country.
Cash funds are invested in foreign currency with exemption of re-investment of net profit. The accounts may kept as in rubles as in foreign currency.
The legislature of the Russian Federation guarantees a coverage of losses, including loss of profit incurred by a foreign investor in case of:
—following the instructions issued by state authorities in contradiction with the current regulations;
—incomplete fulfilment by state authorities their legal obligations towards investor.
In such cases there is a legal ground to rule for compensation of losses by authorities held responsible.
Protection of freeing investments is ensured by the following regulations:
—ban on nationalisation of enterprises with foreign capital;
—requisitions and confiscation are effected only in exceptional cases and strictly on condition of unrestricted conversion of compensation funds into currency of the original investment;
—in case of share cuts or withdrawal of the funds, the investor may repatriate his profits and investments;
—no restrictions are imposed on repatriation of income (profit, dividends, interests, commissions, fees, etc.) upon tax deductions.
Proprietary rights on bought out property covers only buildings, the land lot are subject to 50-year lease.
In the frames of the so-called commercial investment competition foreign investors may buy shares, equities and other securities of sate-owned enterprises.
The purchase exceeding 50% is to be authorised accordingly.

Participation in Stake Distribution and Privatisation

The bellow given acts, in essence, provide a foreign investor with the national regime of privatisation:
—Privatisation of State and Municipal Property Act of July 3, 1991;
—Revisions and Additions to Privatisation Act of December 24, 1993, No.: 2284;
—Main Clauses of State and Municipal Enterprises Privatisation Programme in the RF after July 1,1994 of July 22, 1994, No.: 1533;
—Foreign Investment Act of July 4, 1991.
The act have a number of exemptions, how ever, due to specific features of privatisation in some industries and regions.
An access to privatisation is given to;
—foreign legal entities, including companies of any form, firms, enterprises, organisations and associations set up and warranted for investments as per legislation in the country of origin;
—foreign subjects, persons with no nationality, Russian citizens with foreign residence, provided they are registered for business activities in the country of origin or residence;
—foreign states;
—international organisations.
To get an access to privatisation the above foreign investors are liable to obtain appropriate legal permits for their activities in the Russian Federation.
The following privatisation forms are possible:
—purchase of shares of PLC’s set up in the process of privatisation;
—tenders;
—auctions, including those held by stock market institutions (stock exchanges);
—share auctions;
—purchase of enterprises which are not joint stock companies at auctions, at tenders, including tenders with limited number of bids, investment tenders;
—purchase of property of enterprises in operation and liquidated enterprises, as well as unfinished construction objects;
—purchase of state-owned (municipal) insolvent enterprises , as well as their property (assets), state-owned shares and equities.
Trading of such enterprises as well as their shares and securities is effected within the frames of the RF President Act on Sales of State-Owned Insolvent Enterprises of July 2, 1994, ¹ 1114 and by the Government Decree on Bankruptcy Procedures of May 20, 1994 , ¹ 498. A specific privatisation procedure is not to be determined by a foreign investor, but by either an executive committee or by a privatisation committee set up by appropriate Property Administrations in line with aforementioned legislation and the regional and local privatisation programmes.
The auctions, tenders and sales are arranged and held by appropriate property funds as per following regulations:
—Temporal Provisions on Privatisation of State-Owned and Municipal Enterprises of the RF by Auctions enacted by the RF President Act of January 29, 1992, ¹ 66 On Promotion of State-Owned and Municipal Enterprises Privatisation;
Provisions on Investment Tenders for Sale of Joint Stock Companies Share Packages.
Set Up for Privatisation of State-Owned and Municipal Enterprises of February 15, 1994, ¹342;
—Guiding Regulations for Investment Tenders of Privatised Sate-Owned Objects drafted by the State Property Committee of Russia of November 13, 1992, ¹ 770-p;
—Procedure of Share Sales of Joint Stock Companies at Auctions drafted by the State Property Committee of Russia of October 6, 1994, ¹ 2469-p.
Payments for the obtained share packages are to be made in the currency of the Russian Federation.
It is recommended to follow the Instruction of the Central Bank of Russia of July 16, 1993 on Opening and Operating of Non-Russian Residents Rouble Accounts by Authorised Banks.