Foreign investment regime
The legislation regulating foreign investments can be divided into two groups. The first includes general rules that apply to both Russian and foreign investments. These are contained in the Civil Code of the Russian Federation (the Civil Code), the Federal Law 'On limited liability companies', the Federal Law 'On joint-stock companies', the Federal Law 'On the state registration of legal entities and sole proprietors', the Federal Law 'On the securities market' and others. These federal laws regulate, inter alia, general procedures for the establishment of legal entities, the purchasing of shares (participatory shares) constituting the authorised capital of legal entities, questions of corporate governance and state registration of legal entities. The first group also includes the antitrust rules contained in the Federal Law 'On protection of competition' (the Competition Law).
The second group of rules solely regulates foreign investments. The principal laws in this group are the Foreign Investments Law and the Strategic Investments Law.
The Foreign Investments Law determines state guarantees of an investor's right to invest, gain income and profit, and the conditions for the commercial activities of foreign investors within Russian territory. This law is not applicable to making investments of foreign capital into banks and other credit organisations, insurance companies and non-commercial organisations. These areas are subject to regulation under the Federal Law 'On banks and banking activities' (the Banking Law), the Law of the Russian Federation 'On the organisation of insurance business in the Russian Federation' and the Federal Law 'On non-commercial organisations'.
The second principal law is the Strategic Investments Law, which determines the procedures for foreign investments in strategic sectors of the Russian economy. A strategic clearance according to the Strategic Investments Law is required if the target company is incorporated in Russia and is active in one of the specified types of activities listed therein (such as activities in nuclear and radioactive materials, devices and waste; aviation and space; the natural resources sector; exploration and production of minerals on subsoil plots of federal value, and use of subsoil plots of federal value (the oil and gas sector); coding and cryptographic equipment; mass media and telecommunications; use of agents of infectious diseases (except by companies engaged in food production); or with a licence for conducting such an activity (a strategic company). Herewith, holding a licence is not a mandatory condition for a company to be deemed strategic. It is now enough that there are 'other permitting documents' enabling the company to engage in that type of activity.
As a general rule, the list of activities stipulated by the Strategic Investments Law is exhaustive, therefore a foreign investor can check whether a potential target can be considered a strategic company. However, there is a special right of the chair of the Government Commission, at his or her own discretion, to present to the Government Commission for consideration transactions conducted by foreign investors with respect to practically any Russian business entity, not just a strategic one. First, transactions that might be of interest to the Russian Prime Minister and might be considered by the Government Commission, are transactions in respect of Russian companies not involved in implementing strategic activities, but in implementing activities that might be directly connected with the 47 types of activities of strategic importance. Second, the authorities' spheres of potential interest are large trans-border transactions, involving the transfer of assets or subsidiaries located in Russia, on which the economic defence of Russia might depend (for example, food, the pharmaceutical industry and the defence sector). Finally, the third category of transactions, which might potentially result in the heightened interest of the Russian Prime Minister and might be considered by the Government Commission, are transactions with public investors usually operating in different cultural and legal environments. In accordance with the Decree of the Government of the Russian Federation 'On the Government Commission executing control over foreign investment in the Russian Federation', the state body responsible for monitoring the foreign investments sector is FAS Russia. The Government Commission considers submitted notifications of transactions and decides whether there is a threat to national security and defence.
In the banking sector, the acquisition of 10 per cent or more of the shares in a Russian credit organisation is subject to prior approval by the Central Bank of Russia, and acquisition of more than 1 per cent but less than 10 per cent requires a post-transaction notification.
In the insurance sector, a Russian insurance organisation must receive prior approval to increase its authorised capital by means of foreign funds and to assign its shares to a foreign investor. Its shareholders must receive prior approval for the assignment of their shares to foreign investors.
In the mass media sector, foreign investors cannot own more than 20 per cent of shares (participatory interests) in the Russian mass media. Moreover, foreign investors and foreign legal entities, Russian citizens with dual citizenship and stateless persons cannot be founders of mass media entities.
In the natural monopolies sector, acquisition of more than 10 per cent of fixed assets of a legal entity operating in the sphere of natural monopolies requires clearance by FAS Russia.