Russia - Country Commercial Guide
Investment Climate Statement

The Investment Climate Statement Chapter of the CCG is provided by the State Department. Any questions on the ICS can be directed to EB-ICS-DL@state.gov.

Last published date: 2020-11-12

The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world.  They analyze a variety of economies that are or could be markets for U.S. businesses.

Topics include Openness to Investment, Legal and Regulatory systems, Dispute Resolution, Intellectual Property Rights, Transparency, Performance Requirements, State-Owned Enterprises, Responsible Business Conduct, and Corruption.

These statements highlight persistent barriers to further U.S. investment.  Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.  To access the ICS, visit the U.S. Department of State Investment Climate Statement website.

EXECUTIVE SUMMARY

The Russian Federation continued to implement regulatory reforms in 2019, allowing Russia to climb three notches to 28th place out of 190 economies in the World Bank’s Doing Business 2020 Index.  However, fundamental structural problems in Russia’s governance of the economy continue to stifle foreign direct investment in the country.  In particular, Russia’s judicial system remains heavily biased in favor of the state, leaving investors with little recourse in legal disputes with the government.  Despite ongoing anticorruption efforts, high levels of corruption among government officials compound this risk.  In February 2019, a prominent U.S. investor was arrested over a commercial dispute and remains under house arrest.  Moreover, Russia’s import substitution program imposes local content requirements that  create advantages for local producers .  Finally, Russia’s actions since 2014 have resulted in numerous EU and U.S. sanctions – restricting business activities and increasing costs.

U.S. investors must ensure full compliance with U.S. sanctions, including sanctions against Russia in response to its invasion of Ukraine, election interference, other malicious cyber activities, human rights abuses, use of a chemical weapons, weapons proliferation, illicit trade with North Korea, and support to Syria and Venezuela.  Information on the U.S. sanctions program is available at the U.S. Treasury’s website: https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx  U.S. investors can utilize the “Consolidated Screening List” search tool to check sanctions and control lists from the Departments of Treasury, State, and Commerce: https://www.trade.gov/consolidated-screening-list.

In January 2020, the Russian government published a privatization plan for 2020-22 that identified 86 federal unitary state enterprises, 186 joint-stock companies, and 13 limited liability companies for privatization over a three-year period.  The plan specifies that market conditions will determine the terms of privatization, but the government estimates the plan could generate RUB 3.6 billion ($48.2 million) per year for the federal budget.  The plan would also reduce the state’s share in VTB, one of Russia’s largest banks, from over 60 percent to 50 percent plus one share and in Sovkomflot, a large shipping company, to 75 percent plus one share within three years.  Other large SOEs might be privatized on an ad hoc basis, depending on market conditions.

Since 2015, the Russian government has had an incentive program for foreign investors called Special Investment Contracts (SPICs).  These contracts, managed by the Ministry of Industry and Trade, allow foreign companies to participate in Russia’s import substitution programs by providing access to certain subsidies to foreign producers who establish local production.  In August 2019, the Russian government introduced “SPIC-2.0, which incentivizes long-term private investment in high-technology projects and technology transfer in manufacturing.

U.S. Embassy Moscow advises any foreign company operating in Russia to have competent legal counsel and create a comprehensive plan on steps to take in case the police carry out an unexpected raid.  Russian authorities have exhibited a pattern of transforming civil cases into criminal matters, resulting in significantly more severe penalties.  In short, unfounded lawsuits or arbitrary enforcement actions remain an ever-present possibility for any company operating in Russia.

In February 2019, Russia’s Federal Antimonopoly Service (FAS) submitted its fifth anti-monopoly legislative package, which is devoted to regulating the digital economy, to the Cabinet.  It includes provisions on introducing new definitions of “trustee” and a definition of “price algorithms,” empowering FAS to impose provisions of non-discriminated access to data as a remedy.  It also introduced data ownership as a set of criteria for market analysis.  The legislative package is undergoing an interagency approval process and will be submitted to the State Duma once it is approved by the Cabinet.

Since January 1, 2019, foreign providers of electronic services to business customers in Russia (B2B e-services) have new Russian value-added tax (VAT) obligations.  These obligations include VAT registration with the Russian tax authorities (even for VAT exempt e-services), invoice requirements, reporting to the Russian tax authorities, and adhering to VAT remittance rules.