Russia: Investing

FDI in Figures

On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political and economic context in both countries and will have substantial ramifications on the investment climate. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

The latest specific information on economic sanctions against Russia in response to the conflict in Ukraine is available below:
•    What sanctions are being imposed on Russia

After plummeting by 70% in 2020 due to the COVID-19 pandemic, FDI flows to Russia rebounded by 267% in 2021, reaching USD 38.2 billion (compared to USD 10.4 billion in 2020) according to UNCTAD's World Investment Report 2022. Russia ranked 9th top host economy in the world. In 2021, the stock of FDI was about USD 521.9 billion (UNCTAD). However, following Russia’s invasion of Ukraine in February 2022, various Western companies have decided to stop or limit their activity in Russia. For example, major oil and gas groups such as BP, Shell and Exxon withdrew from the country, and following international pressure French TotalEnergies announced it would gradually withdraw from its Russian investments. Norway’s sovereign wealth fund, the world’s largest, also decided to divest itself of its Russian investments. With the aim of provoking the collapse of the economy, Western countries adopted an unprecedented range of sanctions against Russia, which triggered the flight of foreign capital. Russia’s central bank assets have been frozen, selected banks have been removed from the international communication tool SWIFT, the EU airspace has been closed to Russian aircraft, exports of high-tech components to Russia have been restricted, and the Nord Stream 2 certification was withhold, among other measures. In reaction, in August 2022, Russian President Vladimir Putin issued a decree imposing an overall ban on transactions with certain assets, preventing foreign investment exiting the country without specific permission. According to OECD data, in the first half of 2022 negative FDI flows to Russia reached USD 24.3 billion.

Major investors in 2021 included Cyprus, the Bermudas, the UK, the Netherlands, Ireland, Luxembourg, Germany, the Bahamas and France (Central Bank of Russia). The geographical proximity has also driven FDI within the territory of the Russian Federation, with ongoing Chinese cross-border investment in the Russian Far East and resilient investment from Finland. The main sectors receiving FDI are the extractive industry, manufacturing, financial and insurance activities, wholesale and retail trade, administrative and service activities, and real estate.
 
Before the war, the share of FDI in GDP remained relatively low given the country's growth and economic potential, and working capital investments represented a significant share of total FDI. Russia had undertaken economic reforms in recent years, but administrative problems, corruption and uncertainties regarding the stability of the region remained major challenges. Russia passed a law allowing it to seize the assets of foreign states on its own territory, in reaction to the confiscation of Russian property by European countries in the Yukos case. Russia ranks 58th (out of 82 countries) in the latest The Economist’s Business Environment ranking. The war in Ukraine and associated sanctions, as well as the government's increased control over the economy, weigh on the overall business environment. The main assets of Russia are its abundant natural resources (oil, gas and metals) and its large and skilled workforce.

What to consider if you invest in Russia

Protection of Foreign Investment

Procedures Relative to Foreign Investment

Freedom of Establishment

Usually guaranteed.
Investment in certain domains which might affect national security may be limited.

Acquisition of Holdings

The majority acquisition of holdings in the capital of a local company is authorised in Russia.

Obligation to Declare

Russia’s basic legal framework governing investment includes

• Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation;”
• Law No. 39-FZ,  February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment;”
• Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense;”
• Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR).”

Competent Organisation For the Declaration

Bank of Russia

Requests For Specific Authorisations

Russia’s Commission on Control of Foreign Investment (Commission) was established in 2008 to monitor foreign investment in strategic sectors, such as natural resources, energy, transport, communications, defence industry. A law “On Mass Media,” took effect in 2015 which restricts foreign ownership of any Russian media company to 20 percent.

Office Real Estate and Land Ownership

Possible Temporary Solutions

Temporary office Solutions

The Possibility of Buying Land and Industrial and Commercial Buildings

Foreign legal entities have the right to buy land, but with certain restrictions. Russian law places two primary restrictions on land ownership by foreigners.  The first is on the foreign ownership of land located in border areas or other sensitive territories in terms of national security.  The second restricts foreign ownership of agricultural land to more than 50%. These foreign entities may, however, hold agricultural land through leasehold rights.  As an alternative to owning farmland, foreign corporations typically lease land for up to 49 years, the maximum allowable term.

Risk of Expropriation

The Law on Foreign Investments provides guarantees for foreign investors and commercial entities with foreign investments against expropriation of their property. The law prohibits nationalizations except in the case of legislation intended to protect the national interest. The company can appeal this decision and must receive compensation immediately.

At the regional level, the risk exists even so because of interference from the local government or non-application of certain judicial decisions.

Investment Aid

Forms of Aid

Russian legislation provides for different kinds of incentives for which legal entities can benefit. Among the effective incentives are: regional incentives, special economic zones, incentives regarding specific projects, such as the Skolkovo innovation centre, incentives regarding certain activities, for example IT business, different types of research and technologies works, and incentives to invest in the Asian Far East. They usually offer exemption from property, land and transport taxes, exemption from customs duties and import VAT,  corporate profits tax.

Privileged Domains

Incentives aim to develop manufacturing, innovation, R&D and increase employment.

Privileged Geographical Zones

The Federal Law on Special Economic Zones in the Russian Federation dated 22 July 2005 No. 116-FZ created a platform for the strengthening of economic growth of the regions and specific areas in Russia. The main aims of SEZs are the development of: manufacturing, tourism, and recreation industries, port and transport infrastructures, technologies and new product production. The Law on SEZs distinguishes four types of SEZs:

• Industrial production zones (15 SEZ)
• Technical and implementation zones (7SEZ)
• Recreation and tourism zones (10SEZ)
• Logistics and port zones (1 SEZ)

Free-trade zones

Currently there are 33 SEZs operating in Russian territory. To know more about the SEZs, click here.

Public aid and funding organisations

Ministry of Economic Development and Trade.
The European Bank for Reconstruction and Development finances investments in Russia, especially in the form of loans.

Investment Opportunities

The Key Sectors of the National Economy

Mining sector, heavy industry, automobile industry, real estate.

High Potential Sectors

Transport and communications, agro-equipment (Russia needs to reconstitute a local production tool to deal with import bans from the EU), information technology (services in particular), automobile (spare parts and after-sales service) sale in particular), aeronautics, distribution.

Privatization Programmes

In January 2020, the Russian government published a privatization plan for 2020-22 that identified 86 federal unitary state enterprises, 186 joint-stock companies, and 13 limited liability companies for privatization over a three-year period. According to the government estimates, the plan could generate RUB 3.6 billion ($48.2 million) per year for the federal budget.

Tenders, Projects and Public Procurement

Globaltenders, Tenders & Projects from Russia
Tenders Info, Tenders in Russian Federation
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

Distribution of water and electricity, export and distribution of natural gas, rail transport, postal services to individuals and long distance landline telephone.

Finding Assistance For Further Information

Investment Aid Agency

National Agency for Direct Investment
European Bank for Reconstruction and Development
The Federal Agency for Management of Special Economic Zones (RosOEZ)

Other Useful Resources

Ministry of Economic Development and Trade
Russian Chamber of Commerce and Industry

Doing Business Guides

Backer McKenzie Doing Business in Russia Guide
Doing Business in Russia - UHY

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