Doing Business in Russia

12 Doing Business in Russia Rostov-on-Don The law also offers foreign investors protection from unfavourable changes to Russian legislation if the foreign investor holds more than 25% of a Russian company's share capital. This protection also covers priority investment projects, regardless of the foreign investor's stake in the project's share capital. Foreign investors are protected against: - - Newly adopted laws altering customs duties, Federal tax rates, and contributions to state non-budgetary funds (subject to certain restrictions); Amendments to current laws resulting in an increase in the investor's tax burden; Any bans and limitations on foreign investment introduced in Russia. Foreign investors have this protection during the first seven years of an investment project's pay-back period, starting from the date that the foreign investor began funding the project. Russian legislation limits the activities of non-Russian investors participating in companies that are of strategic value to Russia ('strategic companies') and in companies that carry out some other activities, such as: - Exploring subsoils and extracting mineral resources on land plots of Federal significance; - Aerospace activities; Certain services provided by natural monopolies or companies with a dominant position on the Russian market; - Harvesting live aquatic resources; - - Activities controlling hydro- meteorological and geothermal processes and events; Certain activities related to the use of nuclear and radiation-emitting materials; Certain activities related to the use of encrypting facilities and bugging equipment; Military-technology activities. Thus foreign state companies (non- Russian state companies) are forbidden from engaging in transactions that would allow them to control Russian strategic companies (e.g. from purchasing more than 50 percent of the voting shares (participation units) in a strategic company, or from participating in the regulatory body of a strategic company, etc.). Non-Russian state companies can engage in some transactions, though only after obtaining approval from the relevant Russian state authorities (i.e. they can purchase more than 5% of the voting shares (participation units) in a strategic company (different thresholds are set for different types of strategic companies)). Other non-Russian investors (non- Russian private companies; non- Russian individuals; or Russian companies controlled by non-Russian companies or individual(s)) are allowed to carry out transactions that would result in them obtaining control over a strategic company. However, these transactions must be approved by Russia's state authorities. Russian legislation limits the ability of non-Russian investors to participate in companies that are of strategic value to Russia. Other business issues Licensing requirements Certain types of business activities can only be carried out in Russia with a special licence issued by an authorised licensing body. The following activities (among others) are subject to licensing: Surveying; - - Pharmaceutical activities and the production of medicines; The development, production, repair, sale and trade of weapons and military equipment; Overseas and inland waterway passenger and freight transportation; The use of highly explosive and hazardous objects for production; The production, storage, usage and distribution of explosive materials as part of an industrial assignment; Activities related to the exchange of narcotic and psychoactive drugs; Educational activities. Licensing is carried out at both the Federal and regional level. To obtain a licence, an application must be submitted to the licensing authorities. The licensing requirements depend on the type of licensed activity. KPMG © 2016 KPMG. All rights reserved.

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