Foreign Direct Investment FDI in Russia. Establishing a business

Summary:

Foreign direct investmentis the second major element of Russia's reform strategy to strengthen international economic links. Russia's overall investment climate has not been robust because of high inflation, a plunging GDP, an unstable exchange rate, an uncertain legal and political environment, and the capricious enactment and implementation of tax and regulatory regimes. Nevertheless, experts predict that improvement in those conditions will bring a strong increase in foreign activity.

At the end of 2007, Russia’s cumulative volume of foreign direct investment (FDI) amounted to US$103 billion. Last year Russia received US$27.8 billion in FDI, twice that of the previous year. In just a few years, Russia has become one of the largest recipients of FDI.

Foreign investment goes predominantly into the commodity extraction sector. Between 2004 and 2007, FDI in the resource based sector was US$26.4 billion, or 40% of the aggregate inflow in the same period.

The majority of FDI (60–70%) comes from just two countries — the Netherlands and Cyprus — suggesting this represents, to a certain extent, a repatriation of Russian capital parked abroad along with real FDI. It is, however, a sign of confidence in the Russian economy.

The National Agency for Direct Investment (NADI) was founded in 2001 to promote and facilitate investment in Russia, providing a one-stop shop for business development and investment services to both Russian & international firms & organizations. The legal framework for FDI Russia is still being developed, and not necessarily towards restrictive practices

In July 2007, the Russian government submitted to the Duma — the Russian Parliament — the draft law “On the Rules of Foreign Investments in Enterprises Having Strategic Importance for the National Security of the Russian Federation”. This legislation has been in preparation since the summer of 2005. It comprises the “Law on Strategic Enterprises” and also the “Amendments to the Law on Subsoil” (the latter first submitted to the Duma in 2005, and still awaiting a “first reading” there).

The form of legal presence in Russia influences all aspects of activity including possibility for making deals and tax consequences of the deals, financial and tax accounting and reporting, possibilities under customs, currency control legislation, ability to employ foreign nationals, repatriation of income, application of international treaties and many others. Therefore, particular attention must be paid to Russian business modeling to be made PRIOR setting up legal presence in Russia.

There are several forms for a foreign investor to start business in the Russian Federation. Foreign investor may set up (or register) a Russian legal entity in the form of limited liability company, joint-stock company (which can be private or public) or partnership. The other way is to register a representative or branch office of a foreign company in Russia.

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Foreign, Direct, Investment, FDI, Russia, Establishing, a business, Origins, destinations, inflows, legislation, business climate, Investment Opportunities, Taxation, Master, International Business