Investment Protection Bill
On 10 December 2019 Russia's State Duma passed the first reading of the bill No. 828237-7 “On protection and promotion of investments and development of investment activity in the Russian Federation” (hereinafter - the Bill)[1].
The bill aims to create conducive and stable environment for investment-oriented activities, improve incentives for investment and to create predictable and reliable regulatory framework and system support for encouraging investment in Russia.
The bill sets forth the mechanisms for state support of the investment projects by ways of two investment regimes: the general and the project-oriented ones.
General investment regime
The general investment regime represents the general rules of investment activity, applicable to any investment project whether investment promotion and protection agreement takes place or not.
Key features of the general investment regime:
it applies in relation to the investor or the company implementing the project
[2];
it applies in relation to any investment project regardless of the field of implementation;
there is no minimum investment required
[3];
provisions of the law and by-laws, worsening the conditions for investments, shall enter into force no earlier than three years after the day of their official publication
[4]; provisions abrogating or mitigating the existing requirements may be retroactive
[5];
it provides for a wide range of state support measures (such as receiving funding from the state budget, tax and customs exemptions, state guarantees, providing state property for rent, intellectual property rights, influence on demand by means of public procurement, providing state property for equity payment, informational and management support of projects)
[6];
foreign investors regime cannot be less favorable than that provided to Russian investors
[7].
Project-oriented investment regime
The project-oriented investment regime is a special regime applicable to investment projects implemented under investment promotion and protection agreements (hereinafter - the Agreement)[8].
Key features of the project-oriented investment regime:
it applies to the investment projects, the decision on the implementation of which was taken after 1 January 2019
[9], in one of the areas of the Russian economy, except gambling business, tobacco, alcohol and liquid fuels production (with some exceptions), production of crude oil and natural gas (with some exceptions), wholesale and retail trade, financial, insurance, real estate and securities transactions
[10];
the proprietary investment of the investor or the company implementing the project shall be no less than:
250 million rubles for projects in the field of healthcare, education, culture, physical education and sports; minimum total budget is 1 billion rubles;
1.5 billion rubles for projects in the field of digital economy, agriculture, manufacturing; minimum total budget is 7 billion rubles;
5 billion rubles for projects in other sectors of the economy; the minimum total budget is 25 billion rubles
[11];
the procedure for concluding the Agreement depends on the party initiating the investment project: private initiative requires for declarative procedure
[12], while public initiative requires for the competitive one
[13];
the public party to the Agreement may be represented by the Russian Federation and the subject of the Russian Federation together or only by the subject of the Russian Federation
[14]; the private party to the Agreement may be represented by the company implementing the project
[15], as well as by the third party involved by it
[16];
the term of the Agreement shall be up to 6 years in case the proprietary investment does not exceed 5 billion rubles, up to 15 years - if the amount of proprietary investment is from 5 to 10 billion rubles, up to 20 years - if the amount of proprietary investment exceeds 10 billion rub; the time-frame for concluding the Agreement is 1 January 2030
[17].
the term of the Agreement may be extended once and for no longer than 6 years, provided that the company implementing the project undertook to reinvest the income in the amount of at least 1 billion rubles into the same project or another project in the territory of the Russian Federation
[18];
state support measures applicable for the general investment regime may be provided for within the framework of the project-oriented investment regime (with some exceptions)
[19];
in case of violation of the Agreement the company implementing the project shall reimburse to the public entity the expenses incurred in connection with the provision of state support measures
[20]; and the public entity shall reimburse to the company implementing the project the real damage (documented and actually incurred expenses)
[21];
the Agreement may provide for limit deviations from the established project ranges within 10 percent; for the projects implemented in the Russian Far East Federal District and/or the Arctic zone – within 25 percent
[22];
the essential terms of the Agreement are the following:
description of the investment project;
list of acts (decisions) establishing the application mode of certain provisions of the Bill and tax conditions for the parties to the Agreement;
responsibility of the parties to the Agreement;
the way for providing information concerning the progress of the project;
term of the Agreement;
dispute resolution clauses
[23].
In relation to the investor and/or company implementing the project either a general investment regime alone or both a general and a project-oriented regimes together may be applied[24].
Despite the fact the Bill is still pending, it has been already highly appreciated by business community. The adoption of the Bill is anticipated to make investment activity more stable, however, it is unclear so far how such a large number of investment projects will be managed and how the government support measures, guaranteed to participants of investment activities under the general investment regime, will be actually carried out.
[1] https://sozd.duma.gov.ru/bill/828237-7
[2] Clause 3 Art. 5 of the Bill. There is a contradiction in this part of the Bill, since under clause 1 Art. 6 of the Bill the general regime applies only to the company implementing the project.
[3] Clause 2 Art. 5 of the Bill.
[4] Clause 1 Art. 7 of the Bill.
[5] Clause 6 Art. 7 of the Bill.
[6] Article 10 of the Bill.
[7] Articles 8 and 12 of the Bill.
[8] Clause 1(4) Art. 14 of the Bill.
[9] Clause 1(12) Art. 2 of the Bill.
[10] Clause 1(1) Art. 14 of the Bill.
[11] Clauses 1(2) and 1(3) Art. 14 of the Bill.
[12] Article 15 of the Bill.
[13] Article 16 of the Bill.
[14] Paragraph 1 Clause 8 Art. 19 of the Bill.
[15] Clauses 5-6 Art. 19 of the Bill.
[16] Clause 17 Art. 18 of the Bill.
[17] Clause 2 Art. 18 of the Bill.
[18] Clause 2 Art. 19 of the Bill.
[19] Article 23 of the Bill.
[20] Clause 1 Art. 20 of the Bill.
[21] Clause 5 Art. 20 of the Bill.
[22] Clause 13(2) Art. 18 of the Bill.
[23] Clause 13 Art. 18 of the Bill.
[24] Clause 3 Art. 5 of the Bill.
