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Introduction
The history of attraction of foreign capital into our country's economy began in the years of perestroyka and continued with democratic transformations between the 1980s and the 1990s. In spite of the fact that Russia integrated into the world community, it should be admitted that during nine years of economic reforms it has still not managed to duly assure the investment climate that could really guarantee the attraction of foreign capital. This lack of assurance has led to a drop in Russia's investment attractiveness rating on the world investment market. Nevertheless, the existing practices have revealed certain regularities, which allow one to make an analysis of the foreign capital structure in Russia and hope for the gradual development of investment process. At least, nowadays all prerequisites for it exist. It is evident that the country has more oil, gas, diamonds, coal, wood and other natural resources than Brazil, South Africa, China and India put together, and the lack of serious competitiveness on the part of Russian entrepreneurs, cheap manpower, qualified specialists, vast sales market and a high level of profit have no small share in determining the investment policy.
So what is the legal basis of the investment activity in Russia?
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Legal basis of the investment activity in russia:
The basic law, which at the present time regulates the activity of foreign investors, is the Law "On foreign investments in the Russian Federation" adopted in July 1999. It fixes the conditions of investment and entrepreneurial activity of banks and other credit institutions in Russia. The provisions of the law do not apply to the investment of foreign capital into non-profit organisations for social purposes: education, charity, science, culture and religion (Article 1).
For a foreign investor, the law provides a national mode, i.e. the same conditions of investment activity with the availability of certain taxation and customs privileges. The conditions of a foreign investor's investment activity cannot be less favourable that those for a Russian investor, with the exception of cases stipulated by federal legislation. It is mostly a question of investment bans and restrictions for the purpose of securing state security, the country's economical independence, protection of morals, and the health and life of Russian people. For example, it is prohibited to attract foreign investments into uranium production, development of arms and military engineering or production of banknotes.
Foreign legal entities, which are entitled to carry out the investment activity in accordance with the legislation of the country of their registration; foreign citizens, persons without citizenship as well as foreign states and international organisations, are recognised as foreign investors in Russia (Article 2).
All kinds of property and intellectual valuables being contributed by foreign investors into objects of entrepreneurial activity in Russia in order to gain profit are recognised as foreign investments.
What basic rights does a foreign investor have in Russia?
In the first place, an investor has the right to establish foreign companies, branches and representation offices; laws and privileges provided in the Law do not apply to affiliated enterprises (Paragraph 4 of Article 4). Secondly, a foreign investor is entitled to contribute monetary funds as a share into an authorised capital of a joint-venture to be established with the participation of a Russian partner; only those enterprises, in which not less than 10% of the authorised capital belong to a foreign investor shall get the legal protection of the Law. In this case, such enterprise shall get the status of an "enterprise with foreign investment" after registration of foreign investments as a contribution into the authorised capital of the joint-venture (Paragraph 4 of Article 4). Thirdly, a foreign investor has the right to buy shares and debenture bonds of Russian joint-stock companies in accordance with the State Privatisation Program. Fourthly, a foreign investor is entitled to get a concession for field development concerning fuel and raw materials, forest areas and to obtain rights to use land (Article 15). Lastly, the Russian legislation provides a foreign investor with the right to lease economic objects and real estate as well as the right to carry out investment activity, which is not prohibited by the Russian legislation (provision of loans, credits, property, interest, etc.).
The legislation provides certain guaranties of the investment activity on the territory of Russia: foreign investments shall not be subject to nationalisation, requisition or confiscation, with the exception of cases stipulated by the law, with payment of the corresponding compensation (Article 8); foreign investors shall be entitled to full reimbursement of damage, including lost profits inflicted as a result of unlawful actions of public authorities and officials (Article 8); to export profit and property in case of liquidation of the enterprise with participation of foreign capital (Article 11).
So the legislation fixes the legal basis of the investment activity on the territory of the Russian Federation. Nevertheless, one should say that the presence of foreign investments on the domestic capital market is sufficiently humble, as often it is not easy to exercise the rights in practice. The guaranties are not really supported by anything and are frequently substituted for Russia's strategic interests. Moreover, undoubtedly in practice there are restrictions in the foreign investor's activity. As a rule, it concerns privatisation of state property. Namely, a foreign investor can be attracted to the privatisation process only via auctions, tenders and bids (Article 14). It means that it cannot buy shares of open joint-stock companies, buy liquidated enterprises or redeem leased property. In addition, there is an exception. According to Item 10.1 of the State Program of Privatisation of state and municipal enterprises, a direct sale of a state enterprise to a foreign investor is possible, if such foreign investor is the only participant of the auction or the tender. It is evident that this is practically unfeasible.
To the main destabilising factor, one can relate the inconstancy of the Russian legislation. So in the period of radical economic reforms of 1991-1993, some provisions of the law "On foreign investments in RSFSR" became actually cancelled by Government's decrees and other bylaws whereas in Europe these relations are regulated exclusively at the level of the law. As an example, one can name restrictions of the right of an enterprise with foreign investments to dispose of its currency earnings from export of products (Article 25 of the Law "On foreign investments in RSFSR"). Paragraph 2 of Article 25 provided the foreign investor's right to freely dispose of its currency earnings from export of products of its own manufacture. In spite of it, in accordance with the instructions of the Central Bank of Russia No. 7, all legal entities shall be obliged to perform the sale, on the domestic currency market, of 50% of the currency earnings from exporting goods via authorised banks including enterprises with foreign investments. Then Article 25 provided that enterprises, in which authorised capital foreign investments amounted to more than 30%, shall be entitled to export products of own manufacture without license. The order of determination of products of own manufacture should have been established by the Government of the Russian Federation, which approved it only in July 1993, in spite of the fact that the law had been adopted in 1991.
The legal instability is also expressed in the fact of the Decree of the President of the Russian Federation "On improvement of work with foreign investments" dated 27th September 1993 No. 1466. According to the President's Decree, newly issued regulatory acts regulating the conditions of activity of enterprises with foreign investments on the territory of Russia are not valid during three years in respect of enterprises being in operation at the moment of the regulatory acts becoming effective. This provision shall not apply to regulatory acts providing privileged conditions of foreign investor's activity in Russia. The Decree provides that restrictions in the foreign investor's activity in Russia shall be determined exclusively by the laws of the Russian Federation and President's decrees. At the same time, the Directive of the Main Customs Committee of Russia dated 08th February 1994, with the reference to the "Law on customs tariff in the Russian Federation", cancels certain privileges of enterprises with foreign investments on paying customs duties.
To problems of Russian legislation one should also relate the taxation mode of enterprises with foreign investments.
It is evident that all these examples do not give a foreign investor assurance in the stability of Russian legislation for the future. However, one should say that, beginning in 1994, the Government of Russia has taken a number of measures directed toward improvement of the investment climate in the country.
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