Chambers & Partners - Russia Overview contributed by Anton Sitnikov and Nikolay Kholshev
It's a challenging task to write an introductory chapter on Russia at a time of economic and political uncertainty. However, we can highlight and focus on significant and positive changes and improvements to the Russian legal system in 2015.
Overall, we feel that foreign institutional and corporate investors, as well as the Russian business community are starting to feel that the Russian economic outlook is becoming more predictable.
Also, this year Russia has significantly improved its position in a number of international ratings. Most notably, in the Doing Business – 2016 rating published by the World Bank, Russia has moved up to 51st place out of the 189 ranked countries (compared to 62nd place last year), which is ahead of China, Brazil, India and the Republic of South Africa. Russia was also awarded 58th place in the 2015 Prosperity Index published by the Legatum Institute, up from 68th place in 2014.
General economic overview
The economic sanctions imposed by the United States, the European Union and other countries in 2014 are still having a negative impact on the Russian business environment. Yet there is a strong feeling that most corporates doing business in Russia have already adapted to the new business conditions. The sanctions have also influenced the choice of Russia's economic partners.
The Russian Government, Russian sovereign funds and large Russian corporates continued to strengthen commercial ties with CIS, Latin American, East and Central Asian countries by offering participation in a number of significant Russian infrastructural projects, as well as presenting opportunities to invest in sectors such as agriculture, retail and logistics. Notable investment agreements include investment agreements between the Russian Direct Investment Fund and Saudi Arabia’s Public Investment Fund on investment of USD 10 bn in the Russian infrastructure and incorporation of the Asian Infrastructure Investment Bank and the New Development Bank BRICS with capital of USD 100 bn each.
Russian domestic business is also adapting to the new economic reality and, as we have observed, is starting to feel more comfortable with investing and expanding their businesses.
Improvement of business-regulating legislation
In 2015 the Russian Government and the Parliament made further business friendly amendments to Russian corporate and commercial legislation. As a result, the legal framework of doing business in Russia has been significantly changed and now includes a number of new legal provisions.
The most significant change to general business regulation is the newly introduced contractual provisions commonly used by international businesses in commercial deals, including M&A, joint venture and private equity transactions. New amendments provide for more freedom and fewer restrictions, as well as introducing legal instruments to protect against various business risks. More specifically, the amendments include a long-awaited option mechanisms, regulation of the negotiating process (including culpa in contrahendo), a significant expansion of the security instruments available to the parties, and recognition of conditional performance of undertakings.
It's also very important to highlight that the Russian Civil Code’s provisions relating to commercial issues were further amended, including key corporate laws, namely the federal Joint-Stock Companies' law and the federal Limited Liability Companies' law. The changes introduce more detailed and balanced regulation with respect to joint-stock companies and limited liability companies, in relation to their business activities and corporate governance systems.
Effective use of the new legal instruments is still to be tested in court. So far, the court practice that could provide some guidance is lacking and is expected to take some time before one can more firmly rule on success of the said amendments.
At the same time, in practice are already seeing an increasing number of M&A and joint venture transactions structured under the Russian law using the new instruments and concepts, including mandates involving foreign investors.
De-offshorisation of Russian assets
New rules on de-offshorisation , including the first-ever domestic rules on controlled foreign companies (CFC), offshore disclosure, beneficial ownership and corporate tax residency, came into force in 2015. The deadline for the mandatory disclosure of all foreign companies and trusts owned by both Russian corporates and private individuals was set for 15th of June 2015, yet the number of filings was quite low, with only 7,000 notifications filed by the end of November, according to the Federal Tax Service. A disclosure programme was introduced on 8th of June 2015 that extended the deadline for filings to 31st of December 2015 and offered an amnesty to violations of disclosure prior to 2015. Yet the programme has proved very unpopular, receiving only around 200 applications. President Vladimir Putin has then instructed the government to amend the law further and extended the deadline of disclosure to 1st July 2016.
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