IFF: Investor, Friendly or Foreign

Evgeny Voronov, lawyer

At the end of May, investment legislation underwent some changes affecting Russian legal entities and Russian citizens: Federal Law No. 122-FZ of May 31, 2018 "On Amendments to Certain Legislative Acts of the Russian Federation Concerning the Clarification of the Concept of a Foreign Investor" has been enacted.

The new version of the Federal Law "On Foreign Investments in the Russian Federation" excludes foreign legal entities and foreign organizations that are not legal entities1, of which Russian citizens or legal entities are participants, from the term "foreign investor". Russian citizens with passports of other countries are excluded from that category as well. This law gives legal guarantees to foreign investors for safe business activities. These guarantees extend, in particular, to investments and the revenues and profits received from them. The main goal of this law is the creation of a favorable legal regime for foreign investments.

These exemptions do not apply to the Law on Foreign Investments in Strategic Business Companies. The amendments also stipulate that explanations on the application of this law are provided by the Governmental Commission for Control over the Implementation of Foreign Investments in the Russian Federation.

This federal law, in our opinion, can be considered as one of the measures targets de-offshorisation and is intended for the return of withdrawn capital from Russia. From now on the Russian citizens and foreign legal entities controlled by them cannot enjoy the guarantees provided by the Federal Law "On Foreign Investments in the Russian Federation". In particular, Art. 9 of this Federal Law contains a restriction on all changes in legislation that may lead to higher taxes on activities for implementing priority investment projects2. These negative changes cannot be applied to the foreign investor for no more than 7 years from the date of financing the project at the expense of foreign investments, if this investor has been carrying out such projects. Given the new amendments to the law on foreign investment, foreign legal entities controlled by Russian citizens are no longer in a better position than Russian legal entities.


1For example, limited liability partnerships in the UK

2 A priority investment project is a project in which at least 1 billion rubles have been invested by foreign investors. It can also be a project in which the minimum share of a commercial organization with foreign investment is at least 100 million rubles (see Article 2 of the Federal Law "On Foreign Investments in the Russian Federation").