The concepts of a ‘foreign investor’ and of ‘foreign investments’ will be specified
Pepeliaev Group advises that a draft law has been put before the State Duma that specifies the concepts of a ‘foreign investor' and ‘foreign investments’ outlined in the Federal Law “On foreign investments in the Russian Federation”[1].
According to the Explanatory Note, the aims of the draft law are to create an efficient tool for preventing Russian legal entities and individuals from gaining unjustified benefits reserved for foreign investors, and to improve the rules of investment legislation.
The measures are being taken in connection with multiple abuses of the rights and benefits granted to foreign investors on the part of Russian legal entities and individuals by way of implementing investment projects through their own foreign companies registered abroad.
Among the amendments set out in the draft law is a proposal to delete from the definition of a ‘foreign investor’ foreign unincorporated businesses and structures that are under the direct or indirect control of Russian legal entities and individuals. Moreover, it is suggested that a separate term ‘controlled entity’ be introduced and expanded upon.
In addition, it is proposed that the concept of ‘foreign investment’ should be set out in more detail as an independent direct investment of its own funds by a foreign investor. This will rule out instances where investments are performed through trusts or other fiduciary institutions.
The above amendments are planned to be inserted into Federal Law No. 57-FZ[2] and the Law “On subsoil resources”[3].
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The anticipated amendments are aimed at preventing the capital drain from Russia, as well as obtaining real-life data about the inflow of foreign investments into Russia. |
What to think about and what to do
Companies engaged in investment operations will need to assess what impact the anticipated amendments will have on the structure of the business and financial activities of international groups. It is also essential to analyse all possible risks of these amendments being introduced in order to optimise business processes.
Help from your adviser
Pepeliaev Group's lawyers possess unique methodological expertise in international taxation and are ready to provide legal support to companies facing legal issues in connection with any change in the status of the investing company.
[1] Federal Law No. 160-FZ dated 9 July 1999.
[2] Federal Law No. 57-FZ dated 29 April 2008 “On the procedure of investing foreign capital in business entities of strategic importance for Russian national defence and state security” (as amended by the current Federal Law No. 160-FZ).
[3] Law No. 2395-1 of the Russian Federation “On subsoil resources” dated 21 February 1992.