Foreign investment law

Foreign investors are guaranteed certain property rights to their investments in the Russian Federation and to profits earned in Russia.

Foreign investments are regulated both on a Federal and regional level. According to the Federal law on foreign investments, the rights of foreign investors to conduct business activities in Russia and their rights to dispose of profits gained in Russia cannot be less favorable than those of national investors. Certain limitations can be placed on foreign investors, but only if these limitations are required to protect constitutional guarantees such as the health, rights and lawful interests of citizens, or state defense and security measures.

Foreign investors are generally subject to the same treatment as Russian investors. Restrictions on business activities such as licensing, notifications and permission requirements apply to both Russian and foreign legal entities.

Foreign investors are guaranteed the full and unconditional protection of their rights and interests. A foreign investor is entitled to recover losses caused by an unlawful action or omission by the Federal or regional state authorities in accordance with Russian civil legislation.

The property of a foreign investor or company with foreign participation cannot be seized by way of nationalization or requisition, except in cases stipulated by Russian Federal laws or international laws.

In case of requisition, the value of the seized property must be reimbursed to the foreign investor or company with foreign participation. In case of nationalization, the value of the nationalized property and incurred losses must be reimbursed.

The law also offers foreign investors protection from unfavorable changes in Russian legislation if the foreign investor holds more than 25 percent of a Russian company’s share capital and for priority investment project protection regardless of the foreign investor’s stake in the project’s share capital. Foreign investors are protected against:

  • Newly adopted laws altering customs duties, Federal tax rates and contributions to state non-budgetary funds (subject to certain restrictions);
  • Amendments to current laws resulting in an increase of the investor’s tax burden;
  • Any introduced bans and limitations on foreign investments in Russia.

Foreign investors have this protection during the first seven years of an investment project’s pay-back period, starting from the date that the foreign investor began funding the project.

Russian legislation limits the activities of non-Russian investors participating in companies that are of strategic value to Russia (‘strategic companies’), companies that carry out certain activities, including:

  • Exploration of subsoil and extraction of mineral resources on land plots of Federal significance;
  • Aerospace activities;
  • Certain services provided by a natural monopoly or a company with a dominant position on the Russian market;
  • Harvesting of live aquatic resources;
  • Activities controlling hydro-meteorological and geothermal processes and events;
  • Certain activities related to the use of nuclear and radiation-emitting materials;
  • Certain activities related to the use of encrypting facilities and bugging equipment;
  • Military-technical activities.

Thus, non-Russian state companies are forbidden to perform transactions that would allow them to control strategic companies (e.g., from purchasing more than 50 percent of the voting shares (participation units) of a strategic company, participating in the regulatory body of a strategic company, etc.).

Non-Russian state companies have the right to perform some transactions after obtaining approval from state authorities (i.e. purchase of more than 5 percent of voting shares (participation units) of a strategic company (different thresholds are set for different types of strategic companies)).

Other non-Russian investors (non-Russian private companies; non-Russian individuals; or Russian companies controlled by non-Russian companies or individual(s)) are permitted to carry out transactions that would result in their obtaining control over a strategic company. However, such transactions, among others, must be approved by state authorities.