of a Russian company by a foreign entity is regulated by the same rules as those applicable to domestic acquisitions. There are, obviously, some restrictions to the access of foreign entities to areas of national interest, such as cryptography, national security, trading in certain products and technologies etc. At the same time Russian law as it stands at the moment assumes the necessity for state protection over domestic companies in certain areas such as exploration of natural resources, banking, insurance and some others.
The amount of participation (quotas) of foreign capital in the banking system is fixed. The quota is calculated as a ratio of the total capital belonging to non-residents in the registered capitals of credit organisations with foreign investments and the capital of branches of foreign banks to the aggregate registered capital of credit organisations registered on the territory of the Russian Federation. Upon reaching the quota the Bank of Russia suspends the issue of licences for banking operations to banks with foreign investments and branches of foreign banks. Currently the quota is 50%, a maximum level allowed by Russia's WTO membership.
A credit organisation must obtain the preliminary permission of the Bank of Russia for:
· placement of its shares among non-residents; or
· for an alienation of its shares to non-residents.
Resident shareholders of a credit organisation must also obtain consent from the Central Bank for an alienation of their share to non-residents. Failure to obtain such permission will lead to the invalidity of the transaction.
Similarly, an insurance company must obtain prior consent from the Federal Service for Insurance Supervision to increase their share of the registered capital formed out of non-resident resources, for an alienation of their stocks to non-residents, and resident participants for an alienation of their stocks to non-residents. Such consent will not be given to insurance companies, the subsidiaries of foreign entities, or those with more than 49% foreign shareholding, or those who obtain such participation as a result of the transaction if the quota of foreign capital in the insurance system has been reached. Currently the quota is 25%.
The Russian legislation restricts the purchase by foreign persons of the shares of domestic enterprises in certain areas. For example, no more than 20% of ordinary shares of gas companies can be sold to foreign entities. Foreign companies and individuals or Russian companies with more than 50% of foreign shareholders may not own agricultural land. Federal Law No.57 of 29 April 2008 restricts foreign investments in those Russian companies operating in certain «strategic» areas, such as construction, production and the trade of arms and military equipment, and technologies and space related activities. Strategic areas also include construction, manufacturing and the repair of aircraft, TV and radio broadcasting and other telecommunication services (excluding the internet), research and exploration of natural resources (on lands of «federal significance»), printing if the enterprise in question can print more than 200 million pages per month and publishing houses with a circulation of over 1 million copies per edition.
On the other hand, Russian legislation provides that a foreign company, at least 25% of shares in which is possessed by a Russian resident (10% if Russian residents are in possession of total 50% of its shares) is deemed to be a controlled foreign entity. The income generated by a controlled foreign entity is subject to taxation in Russia if such income exceeds RUR 10 million (€109,140). Nevertheless, such companies may be relieved from taxation in Russia if tax rates for corporate income tax in country of domicile of such entity exceeds 75% effective average rate of Russian CIT, the entity is an active foreign company, holding or sub holding company, operates a new marine hydrocarbon field, participates in mining projects under product-sharing agreements, concession agreements, licensing agreements or other risk-based agreements (contracts) and in some other cases.
Financial services
There are a number of legal Acts regulating the stock market, banking and investments. The principal legal Act for the stock market and securities is the federal law on the securities market of 22 April 1996, and the federal law on protection of rights and legitimate interests of investors on the securities market of 5 March 1999. Investment funds are regulated by the federal law on the investment funds of 29 November 2001.
In Russia the regulation of banking, insurance and investment is carried out by Central Bank of Russia. Until 1 September 2013, the Federal Service for Financial Markets of the Russian Federation (FSFM) (formerly the Federal Commission for Securities and Stock Market) was the state agency responsible for the regulation of stock market and investment business.
Russian law as it stands at the moment regulates collective investment schemes organised in the form of a joint stock investment fund or in the form of a unit trust.
A joint stock investment fund is, generally speaking, a Joint-Stock Company (JSC) whose exclusive activity is investments. The name of an investment company must contain the words «joint stock investment fund» or «investment fund». A joint stock investment fund is regulated by general legislation on joint stock companies with amendments and exceptions applicable to the investment companies.
A joint stock investment fund must be licenced by the Central Bank. At the time of filing an application for the licence the fund must have own capital in the amount aligning with the Central Bank Directives, of no less than RUR 5 million (approximately €54,000). The fund's property used for its own purposes and assets to be invested must be accounted for separately. Investment assets must be held in trust by a management company. The management can be a limited liability or a JSC and it must be licenced by the Central Bank. The fund's activity must comply with the investment mandate approved, normally, by the meeting of stockholders, and be registered with the Central Bank. This form of investment, however, is rather unpopular.
A unit trust does not comprise a legal entity. The participants of a unit trust pool their contributions into a property complex held in trust by a management company. The participants lose ownership over their contributions, and the trust's property is owned jointly by all trust members. The management company acts in its name but it must make it known that it acts as a trustee, otherwise the participants will be personal liable.
Again a management company and the trustee of a unit trust, must be authorised by the Central Bank.
Banking
The Central Bank of the Russian Federation is the regulatory body for banking and it is authorised to issue and withdraw licences to provide banking services. The main legal act is the federal law on banks and banking of 2 December 1990.
A bank can be incorporated in the form of a limited liability or a JSC or in other forms established by company law. Banks are entitled to accept money from individuals or legal entities on deposits, operate these funds in its name and at its own expense, open accounts. Russian law provides different arrangements for the non-banking credit institutions that can provide certain banking operations.
The name of a credit institution must contain the words «bank» or «non-banking credit institution». The Central Bank may prohibit the use of a particular name if such name is already in the Book of State Registration of Credit Institutions.
A credit institution must publish its balance sheet quarterly; it must annually publish a profit and loss account, information about own capital and reserves, and annually a balance sheet and a profit and loss account together with the statement of an auditor who examined the bank's accounts.
Since 2013, Russian banks apply so-called «barrier tariffs» as a measure against money laundering. Such tariffs apply to the operations and persons banks find suspicious. The measure is, by far, dubious, and application of such tariffs may be challenged in court.
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