Tax on Inbound Investment

Russian law recognizes an acquisition of stock or of another ownership interest (a share deal) as well as an acquisition of the assets and liabilities of a business.
The latter type takes the form of the acquisition of what Russian law terms ‘an enterprise as a property complex` (further referred to as an ‘enterprise’). However, it is poorly regulated both in civil law and in tax law, and is extremely rarely used in practice, so it cannot be recommended. One example of the rules applicable to the acquisition of an ‘enterprise’ is that, if the contractual purchase price of the ‘enterprise’ is less than the book value of its net assets, the difference is recognized as income on the part of the buyer, regardless of the circumstances that led to such difference. In other words, this rule applies even if the losses could reasonably have been anticipated, which is a valid commercial reason for the contractual price to be lower than the net assets. This rule effectively makes buyers pay tax for acquiring an ‘enterprise’ with an anticipated loss, which is contrary to underlying economic essence of such transaction.