Петр Анатольевич Фалилеев

Международная защита иностранных инвестиций.

Introduction

History of the Question

RUS1 Since the dissolution of the Soviet Union at the end of 1991, the former Soviet republics, including Russia, have been engaged in creating market-oriented economic systems. To reach this aim, substantial investment is required. At the beginning of reforms in Russia, as in other former Soviet republics, there were thoughts that foreign investment would greatly accelerate the process of reforming the post-Soviet economy.

RUS2 This chapter examines the current state of foreign investment in Russia, issues of admission of foreign investment, treatment of foreign investment, relevant international treaties, and settlement of investment disputes.

Government Policy

Government Investment Programme

RUS3 The Russian government passed Decree Number 1016 concerning a Comprehensive Programme for Stimulation Domestic and Foreign Investment in the Economy of the Russian Federation on 13 October 1995. The Programme has been developed in conjunction with the Programme of the entitled “Reforms and the Development of the Russian Economy in 1995-1997”, as approved by Decree Number 439 on 28 April 1995.

RUS4 A condition for improving the investment climate is the further reduction of inflation and the refinancing rate of the Central Bank of the Russian Federation. One of the central issues in improving the investment climate is improving guarantees of security to investors in the Russian market. In accordance with the Programme, the share of foreign investment was expected to grow from 3.3 per cent in 1995 to 5.2 per cent in 1997. It is proposed to ultimately increase the share of foreign investment to 10 per cent.

Stimulation of Foreign Investment

RUS5 The Programme’s plan for the attraction of foreign investment is based on the following aims:

• Realising Russia's scientific and technical potential, particularly at converted enterprises in the military-industrial sector;

• Promoting Russian goods and technology in the foreign market;

• Promoting the expansion and diversification of export potential and the development of import-substituting production in certain sectors;

• Promoting the flow of capital into regions with surplus labour resources and regions with rich natural resources to accelerate their development;

• Creating new jobs and bringing in advanced forms of production organisation; and

• Promoting the development of the production infrastructure.

RUS6 Measures of the Russian government intended to improve the investment :climate are to:

• Reduce the rate of inflation;

• Provide preferential treatment for the taxation of the profit of commercial organisations with foreign investment, with exemptions from value-added tax for imported technical equipment and related spare parts; and

• Grant preferential credits in foreign currency received from foreign banks and credit institutions.

WS7 The stimulation of foreign investment was intended to increase the volume of capital investment in the Russian economy in 1996 by four per cent ind in 1997 by seven per cent.

Legal Conditions

RUS8 There has been an appreciable progress in the reform of civil legislation in the Russian Federation. A substantial Civil Law reform was started in 1994 by the adoption of the first part of the new Russian Civil Code. In 1995, the Russian Parliament passed the second part of the Civil Code. The new Russian Civil Code builds on previous Soviet Civil Law, but it represents a significant advance for Russia in the promotion of free enterprise and the regulation of contractual and other commercial relations in a market economy. The Russian Civil Code prevails over inconsistent provisions of other laws, edicts of the President, or decrees of the government. There will not be a separate Commercial Code.

RUS9 New legislation is planned in regard to tax incentives for the capitalisation of profit, the development of a secondary securities market and the transfer of capital, insurance activity and guarantees, mortgages, preventing the flight and encouraging the return of domestic capital from abroad, and attracting foreign investors.

Admission of Foreign Investment Definitions and Forms of Investment RUS10 The Law on Foreign Investment specifies that foreign investors can be:

• Foreign legal persons;

• Foreign citizens, including stateless persons;

• Russian citizens permanently residing abroad who are registered in their country of residence to engage in commerce;

• Foreign states; and

• International organisations.1

RUS11 The Law on Foreign Investment defines the property that can be understood as foreign investment as 'all types of material assets and intellectual property invested by foreign investors into entrepreneurial and other types of activity with the aim of deriving profit'.2 Investment can take the following legal forms in accordance with article 3 of the Law on Foreign Investment:

• Equity participation in joint ventures founded with Russian participants;

• Establishment of wholly owned subsidiaries;

• Acquisition of enterprises, assets, buildings, structures, equity stakes in enterprises, shares, bonds and other securities, and other property not prohibited from foreign investment by other Russian legislation;

• Acquisition of rights to use land and other natural resources;

• Acquisition of other property rights; and

• Other investment activities not prohibited by Russian legislation, including making loans, issuing credits, and offering property and property rights.1

RUS12 The Law on Foreign Investment provides that enterprises with foreign investment may be set up in accordance with Russian legislation as:

• Enterprises with foreign equity participation (joint ventures), as well as their subsidiaries and branches;

• Enterprises wholly owned by foreign investors, as well as their subsidiaries and branches; and

• Branches of foreign legal entities.

RUS13 The Russian law provides for foreign investors a right to make investment in any objects in the Russian Federation which are not prohibited by law ind which may include:

• Newly created, modernised, fixed, and circulating assets in all sectors of the economy and industries;

• Securities;

• Special deposits;

• Scientific and engineering products;

• Rights to intellectual property; and

• Property rights.2

Legal Forms of Enterprises with Foreign Investment

RUS 14 The Russian Civil Code states the principal legal forms in which an enterprise vith foreign investment can be organised. Such enterprise can be organised as a:

• Full partnership;

• Limited partnership;

• Limited liability company;

• Company with additional liability; and

• Joint stock company (open or closed).

Registration Procedure

RUS15 The registration of an enterprise with foreign investment in Russia is not a very quick and easy process. Basic rules in respect of registration can be found in the Law on Foreign Investment. There also were numerous applicable Presidential Decrees and Governmental Decrees. On 8 July 1994, Presidential Decree Number 1482 was approved, and it simplified the procedure set forth in the Law on Foreign Investment. To establish a company with foreign investment in Russia, the founders must obtain relevant approvals and register with various government authorities. The documents which should be produced for registration depend on the following factors:

• Status of the founder;

• Legal form of enterprise created;

• Size of the investment; and

• Purpose for which the entity is being created.

RUS16 The foundation documents of an enterprise with foreign investment must define the objective of its activity, the composition of its participants, the size and the procedure for the formation of its authorised capital, the amount of the shares of the participants, the structure and composition and terms of reference of its bodies of management, the procedure for making decisions, the issues which require a unanimous vote, and the procedure for the liquidation of the enterprise. Contributions to the authorised capital of enterprises with foreign investment will be jointly assessed by its participants on the basis of world market prices. Should such prices be unavailable, the amount of the contributions will be jointly determined by agreement of the participants in the enterprise.

RUS17 The Russian Civil Code requires state registration of legal entities in the Russian Federation on the basis of the Law on Registration of Legal Entities.1 At writing, this Law had not been enacted, and the Regulation on Procedure for Registration of Business Entities with Governmental Authorities is in force because it does not conflict with the new Civil Code.

RUS18 All documents submitted to the registration authorities must be in the Russian language or in a foreign language with a Russian translation attached. The translation should be notarised and legalised.

RUS19 The government authorities involved in the registration procedure are the Moscow Registration Chamber, the State Registration Chamber, and the Antimonopoly Committee. The Moscow Registration Chamber issues certificates of registration for Russian enterprises with foreign investment. A Russian company with foreign investment must obtain certificates of registration from both the Moscow Registration Chamber and the State Registration Chamber. In addition, the Antimonopoly Committee must be notified within 15 days following the establishment of a company if its founders have combined assets greater than 100 statutory minimum wages. The foundation documents that must be presented to the Moscow Registration Chamber consist of the:

• Charter of the company;

• Memorandum of incorporation;

• Application;

• Minutes of the meeting of the founders; and

• Original guarantee from the landlord of the legal address of the company. 1

RUS20 After provisional registration, companies with foreign investment must submit proof of registrations from other state bodies, including a confirmation of registration with the Russian Federation State Committee for Statistics, confirmation of registration with the Tax Inspection, confirmation of registration with the Pension Fund, declaration in respect of the seal of the company, and documents from a Russian-authorised bank, staling that the company has opened a bank account with 50 per cent of the charter capital paid in.

RUS21 The foreign investor must produce:

• Original letters from the bank of the foreign investor, stating that the foreign investor is solvent;

• Articles of incorporation of the foreign company;

• Registration certificate or an extract from the Commercial Register; and

• Copy of the decision of a competent body of the foreign company on the establishment of the company in Russia.

RUS22 After receipt of the permanent certificate of registration from the Moscow Registration Chamber, the company must apply for registration with the State Registration Chamber. The State Registration Chamber requires the same documents as the Moscow Registration Chamber.

RUS23 After registration of the company in the form of a joint stock company with the State Registration Chamber, its shares should be registered with the Russian Federation Ministry Finance. An enterprise with foreign investment may be denied state registration only in the event of violation of the procedure governing the establishment of such enterprises in accordance with Russian legislation. The refusal to register an enterprise may be appealed to the courts.

RUS24 If, on the expiration of one year following registration, the appropriate documents have not been submitted to confirm the contribution by each participant in the enterprise of 50 per cent of the amount of its authorised capital, the body which has registered the enterprise will declare the registration void and order its liquidation. An enterprise with foreign investment may establish subsidiaries which enjoy the rights of legal entities, as well as branches and representative offices within and outside Russia.

Regulation of Admission

Restrictions on Foreign Investment

RUS25 In General. The Law on Foreign Investment states that foreign investment may take any form not prohibited by Russian legislation.1

RUS26 Licensing. Russian law contains certain provisions in respect of licensing of certain activities. Government Decree Number 1418 of 24 December 1994 establishes the procedure for obtaining licences and provides a list of the types of activities for which a licence is required. The following operations are subject to licensing:

• Banking;

• Insurance;

• Commodity exchanges;

• Stock exchanges;

• Investment funds;

• Specialised privatisation investment funds and companies;

• Investment companies;

• Financial brokers;

• Investment consulting;

• Intermediation in securities transactions;

• Production and import of securities blanks;

• Clearing operations;

• Customs activities;

• Customs warehouse activities;

• Construction activities;

• Use of natural resources and mining;

• Construction, maintenance, and use of nuclear and radioactive installations, technology, and products;

• Transportation of goods and passengers by road;

• Freight forwarding;

• Loading and unloading operations;

• Storage services; and

• Communications services.

RUS27 Sectors Restricted by Law. There are restrictions on foreign investment in insurance, communications, and banking companies registered in Russia. Under the Law on Insurance, companies providing insurance services must be majority-owned by Russian investors.

RUS28 According to Russian Central Bank Letter Number 14 of 8 April 1993, the Central Bank is obliged to annually fix a limit on foreign capital participation in the banking system. The higher minimum capital requirement for foreign banks is determined in accordance with Russian law.

RUS29 Some limitations in respect of foreign investment are contained in international agreements to which the Russian Federation is a party. For example, an agreement between the Russian Federation and the United States on investment promotion of 3 April 1992 contains a list of areas where mutual investment may be restricted or prohibited. The agreement signed between Russia and Bulgaria signed on 8 June 1993 states the right of the governments to determine sectors and spheres where the activity of foreign investors can be limited or prohibited.

RUS30 Environmental Regulation. The Law on Protection of the Environment of 19 December 1991 establishes the basis for environmental protection. The Law states that compensation must be paid for damages caused to the environment, and there is no distinction between liability for on-site and off-site pollution. In addition to administrative fines and criminal liability, an injured party may have the right to compensation, together with the right to apply for an injunction to prevent future harmful activity.

RUS31 The Law gives a right to the Russian Ministry of Environmental Protection and Natural Resources to establish permissible pollution limits and obligatory payments for industrial-waste discharge. The Law prescribes three kinds of civil remedies for environmental damage:

• Compensation for damage caused to the environment as a result of an environmental offence;

• Restoration of the environment at the defendant's expense; and

• Termination of environmentally harmful activities that cause damage to the public or the environment.

RUS32 The establishment and registration of enterprises with foreign capital and associated with large-scale construction or reconstruction projects which could harm the environment will require a prior ecological inspection. 1

RUS33 Capitalisation Requirements. The Law on Joint-Stock Companies contains requirements in respect of funds and net assets required of a joint-stock company. Article 35 requires that a reserve fund in the amount provided for by the charter of the company, but not less than 15 per cent of its charter capital, be created. The reserve fund is to be formed by obligatory annual deductions. The annual deductions may not be less than five per cent of net profit.

RUS34 The reserve fund of a company is to be earmarked for covering its losses, he cancellation of bonds, and the purchase of stock in the company. It may not be used for other purposes. A company may not adopt a decision concerning he payment or declaration of dividends:

• Until the entire charter capital of the company is paid up in full;

• Until the purchase of all shares which must be purchased in accordance with the Law;

• If, at the time of the payment of dividends, the company is liable to be deemed insolvent or bankrupt; or

• If the value of net assets of the company is less than its charter capital and the reserve fund and the excess over face value of the liquidation value determined by the charter of the issued preferred shares or becomes less than the amount thereof as a result of the payment of dividends.1

RUS35 Other Restrictions. Russian law does not contain requirements with regard to export targets. Nor does it require foreign investors to hire local staff.

Investment Incentives

RUS36 Guarantees against Expropriation. The Law on Foreign Investment provides protection against nationalisation, confiscation, and illegal actions by state bodies. Nationalisation requires an act of the Russian Parliament, and confiscation measures must be taken in accordance with a decision by the Parliament, the President, or the government.2

RUS37 In the cases of nationalisation and confiscation, a foreign investor must )e compensated promptly and adequately. The compensation paid to a foreign investor will be equal to the actual value of the nationalised or sequestrated investment prior to the announcement concerning the de facto or impending nationalisation or sequestration. Compensation will be payable without any unfounded delay and in the original currency of the investment. Prior to the payment of the compensation, interest will be paid on it according to the interest rate existing in the Russian Federation. Damages including the loss of profit incurred by a foreign investor as a result of the illegal actions of state bodies will be compensated by these state bodies.

RUS38 Tax Incentives. Russian law provides tax incentives for enterprises with foreign investment which operate in priority areas and certain regions. There is a two-year tax holiday for enterprises registered after I January 1994 which are involved in material production activities and have at least 30 per cent paid in foreign equity participation equal to at least US $10-million. The tax holiday is available only if income from production activities during the first two years comprises greater than 70 per cent of enterprise's total income from all activities.

RUS39 Customs Incentives. Under the Law on Foreign Investment, assets imported by foreign investors as part of the contribution to the authorised capital of enterprises with foreign investment within the periods of time specified by the constituent documents of such enterprises for their formation, as well as assets intended for their own material production, will be exempt from customs duties and import tax.

RUS40 Assets imported into Russia by the foreign staff of enterprises with the involvement of foreign investment for their own needs will be exempt from customs duties. On 23 July 1996, the Russian government approved Decision Number 883, establishing that commodities imported to the customs territory of the Russian Federation as a contribution of a foreign founder to registered (shared) capital will be exempted from customs duties if the commodities are:

• Not subject to excise duties;

• Qualified as fixed production assets; and

• Imported within the deadlines fixed for the building up of the registered (shared) capital in constituent documents.

RUS41 However, if the commodity is sold, customs duties due as of the date of conditional issue must be paid in compliance with customs legislation of the Russian Federation. Tariff incentives, such as return of previously paid customs, lower tariff rates, or total exemptions, apply to:

• Imported goods that will be contributions to authorised capital;

• Certain products and exports; and

• Property imported by foreign employees for their own needs.

RUS42 With the permission of the Russian government, tariffs are reduced by SO per cent on certain goods imported as foreign investment if:

• The foreign suppliers are founders of enterprises producing similar goods in Russia;

• The enterprise uses Russian raw materials and labour;

• The enterprise invests in material production;

• The total investment in the enterprise is no less than US$100 million; and

• The foreign contribution to the authorised capital of the enterprise is not less than US $10 million.

RUS43 Export and Import Operations. In accordance with the Law on Foreign investment, enterprises fully owned by foreign investors and joint ventures with more than a 30 per cent foreign involvement have the right to export their products and import products for their needs without licences, with the exception of the cases stipulated for by international treaties valid in Russia.1

RUS44 The procedure for defining products as the enterprise's own exports and those imported for its own needs are established by the Russian government on the basis of rules of origin which are in compliance with internationally accepted practice.2 Products imported for the owner's needs will be understood :o mean the assets of the enterprise, including raw and auxiliary materials, semifinished products, components, and equipment, used directly by the enterprise in the process of material production of its own products.

RUS45 Depreciation Allowance and Revaluation of Assets. By virtue of Decree lumber 7 of 19 August 1994, enterprises of all forms of property are granted the right, starting from I July 1994, to apply declining ratios in the amount of 0.5 to depreciation deductions, provided financial and economic performances of the enterprises after revaluation of fixed assets materially deteriorate.1

Treatment of Foreign Investment

Standard of Treatment

RUS46 According to principles of international law, the host country, the recipient of an investment, must guarantee foreigners and their property a certain minimum protection.2 The minimum standard means that the expropriation:

• Can only take place in the general interest;

• May not be done in a discriminatory way;

• Must be coupled with effective, prompt, and appropriate compensation;

• Must take place according to lawful expropriation procedures, which guarantee the expropriated person sufficient legal protection.3

RUS47 The Law on Foreign Investment states that foreign investment in Russia will enjoy the full and unconditional legal protection provided by Russian legislation and international treaties. The legal status of foreign investment and of the activity of foreign investors may not be less favourable than that provided for the property, property rights, and investment activity of nationals, with the exception of the cases stipulated by the Law on Foreign Investment.

RUS48 The Russian Federation is a party to various international agreements related to foreign investment. Provisions in the international agreements take precedence over conflicting domestic legislation. In principle, the guarantees granted to a foreign investor in accordance with a national legislation and international treaties can be divided into three groups, as follows:

• Guarantees providing inviolability of property, which is a foreign investment in the territory of a host country;

• Guarantees providing a right of a foreign investor to use results of his activity carried out in the territory of a host country; and

• Guarantees connected with the settlement of investment disputes.

Regulation of Foreign Investment

Protection and Security of Person and Property Rights

RUS49 The Russian Constitution states that guarantees will be provided for the integrity of economic space, a free flow of goods, services, and financial resources, support for competition, and the freedom of economic activity. In the Russian Federation, recognition and equal protection are given to private, state, municipal, and other forms of ownership. The right of private property is protected by law.

RUS50 Article 35 of the Constitution provides that everyone has the right to have property and possess, use, and dispose of it, both personally and jointly with other people. No one may be deprived of property otherwise than by a court decision. Forced confiscation of property for state needs may be carried out only with compensation. The right of inheritance is guaranteed. The principle of the inviolability of private property is stated and regulated in the new Civil Code.

Regulation of Investment Agreements

RUS51 Under the Decision of 24 July 1995 and Presidential Decree Number 73 of 25 January 1995, investment agreements must take into consideration the requirements of the domestic market and necessity to increase the Russian Federation's export potential. The parties to an investment agreement are the Ministry of Economics of the Russian Federation and a foreign company which has made a contribution to the authorised capital of a Russian legal entity at not less than US $100 million and which makes direct investment in the production industries of the Russian Federation of not less than US $100 million. For the preparation of an investment agreement, a foreign investor must submit to the Ministry of Economics a draft investment agreement, based on the model investment agreement provided by the government, and a feasibility study made by an independent examination.

Intellectual Property Rights

RUS52 The rights of enterprises with foreign investment to intellectual property are safeguarded in accordance with Russian legislation.

Hard Currency Issues

RUS53 All enterprises operating in Russia are obliged to exchange 50 per cent of their hard currency income for rubles on the domestic currency market. It is possible to buy hard currency for import needs or for transfers abroad.

Financial Facilities

RUS54 Presidential Decree Number 1928 of 17 September 1994 on Private Investment gives the right to the Russian government to put 0.5 per cent of the gross domestic product into financing efficient investment projects. State participation in a project can be made through:

• Loans by the Russian Central Bank;

• Government purchase of equity in joint-stock companies that can later be sold on the market once the project is profitable; and

• Special incentives for large investment when a foreign contribution exceeds 30 per cent of share capital.

Privatisation and Foreign Investors

RUS55 In General. There are some restrictions on foreign participation in privatisation. Section 10 of the privatisation program allows foreign investors to participate in auctions, tenders, and investment tenders with prior notification of the Ministry of Finance. Government approval is required for the privatisation of enterprises in the defence industry, the gas and oil industry, transport and communication enterprises, and enterprises extracting and processing strategic ores, precious and semiprecious stones, and radioactive and rare-earth elements.

RUS56 Foreign investors are not allowed to participate in the privatisation of enterprises located in restricted areas. After auction or tender, the privatisation bodies must submit information on the successful foreign bidder to the Federal Counter-Intelligence Service, which has a right within one month to advise the Russian government to block the transaction.

RUS57 Privatisation of Land. The privatisation legislation does not deal with land. Under Presidential Decree Number 301 of 25 March 1992, privatisation of land is possible in connection with the privatisation of the enterprises that occupy the land.

RUS58 President Decree Number 631 of 14 June 1992 provides the procedure for purchasing land for commercial and industrial purposes in connection with privatisation, with certain exceptions for national parks, public gardens and parks, river embankments, and beaches. Decree Number 631 provides two types of procedures for purchasing land, as follows:

• In connection with the privatisation of an enterprise; and

• For expansion of the business activities of a privatised enterprise.

Natural Resources and foreign Investment

RUS59 The Law of 30 December 1995 on Production Sharing Agreements establishes a legal basis for the exploration, development, and production of mineral raw materials within the Russian Federation, as well as on the continental shelf and/or within the boundaries of the exclusive economic zone of the Russian Federation under the terms and conditions of production-sharing agreements.

RUS60 A production-sharing agreement is an agreement under which the Russian Federation gives to the investor an exclusive right for exploration, development, and production of mineral raw materials and conducting operations related thereto on a chargeable basis and for a certain period, with the investor undertaking to perform the operations for his own account and at his own risk.

Securities Market Regulations

RUS61 The main legislation in the field of securities regulation is Resolution Number 78 of 28 December 1991, approving the Regulations on Issuance and Circulation of Securities and Stock Exchanges. The Ministry of Finance is responsible for the securities market in Russia. The other regulator of securities markets is the newly created Federal Commission for Securities and Capital Markets, which have the status of the Ministry.

RUS62 The Law on Foreign Investment provides that foreign investors have the right to acquire securities of enterprises with registration with the Ministry of Finance.1 Foreign investors may acquire securities in Russian currency and in foreign currency. The amounts in foreign currency will be converted into rubles according to the exchange rate established by the Russian Central Bank. The Regulations on Issuance and Circulation of Securities and Stock Exchanges state that a legal entity or a group of legal entities associated through contractual or property arrangements must notify the Ministry of Finance within five days after acquiring more than 15 per cent of the shares of a securities issuer.2 There is an exception for a joint-stock company's founders at the time of foundation.

RUS63 It is necessary for foreign investors to obtain Central Bank licences when they buy shares in Russian companies for foreign currency. A purchase for rubles does not require a licence. However, in such case, a foreign investor must open a rubles account in a Russian-authorised bank.

Antimonopoly Regulations

RUS64 The Law on Competition and Restriction of Monopolistic Activities is aimed at restricting monopolistic activities and unfair competition. The Law proscribes several forms of monopolistic activities:

• Unfair trade practices of the enterprise that has a dominant market position;

• Agreements or co-ordinated actions between enterprises or other organisations aimed at the restriction of competition;

• Acts undertaken by state bodies aimed at the restriction of economic independence of entrepreneurs or of a competition; and

• Agreements or co-ordinated actions between state bodies or state bodies or private organisations aimed at the restriction of competition.

RUS65 The following activities are determined unfair competition:

• Dissemination of untrue information that may be detrimental to another entrepreneur;

• Misleading consumers about specific aspects of goods or services;

• Wrongful comparison of goods or services;

• Unauthorised use of trademarks, names of enterprises or goods, or the imitation of the form, packing, or design of goods or other entrepreneurs; and

• Acquisition, use, or dissemination of technical or other information such as business secrets without consent of the owner.

RUS66 The Law states that the State Committee for Anti-Monopoly Polices Structures must:

• Take necessary measures to prevent monopolistic activities and unfair competition;

• Recommend improvements in legislation and in its implementation in the area of market development and competition;

• Advise state institutions to undertake certain actions to develop competition and markets, including the creation of attractive conditions for foreign investment;

• Control the adherence to antimonopoly requirements in cases of foundation, merger, reorganisation, or liquidation or organisation of companies; and

• Control large purchases and sales of shares that may lead to the dominating position of an entrepreneur in the market.

RUS67 The State Committee for Anti-Monopoly Polices Structures has the following rights:

• To order entrepreneurs, state institutions, and their executives to stop violations of antimonopoly law;

• To advise state institutions on the introduction of licensing procedures or bands on export or import activities of entrepreneurs that violate antimonopoly law;

• To impose penalties for the violation of antimonopoly law; and

• To bring a statement of claims to the courts or other jurisdictional bodies, including the public prosecutor, for the violation of antimonopoly law.

Employment Regulation

RUS68 Employees of enterprises with foreign investment are subject to Russian labour law, which consists of the following acts:

• The Labour Code;

• The Law on Employment of the Population;

• The Law on Trade Unions;

• The Law on Minimum Wages; and

• The Law on the Resolution of Labour Disputes.

RUS69 Russian law contains provisions against discrimination on the basis of gender, religious belief, and age. Joint ventures, wholly owned subsidiaries, and accredited representative offices of foreign companies have the right to hire Russian citizens directly. Three months is the usual maximum length to keep a new employee on probation, although Russian law specifically states that a six-month period may be established with agreement of the labour union.

RUS70 The term of employment is set by agreement between the employer and employee, and it may be for an indefinite term, a definite term of no more than five years, or for the time required to perform specific work. A term may be set for the time necessary to perform specific work only where employment arrangements cannot be established for an open-ended period, either because of the nature of the work done, the conditions in which such work is to be done, or when it is in the interests of the employee to have such a contract.

RUS71 In accordance with the Labour Code, an employer cannot require an employee to perform tasks outside the scope of duties described in the contract. Changes in the employee's duties cannot be made unilaterally by the employer. The employer must notify an employee two months in advance of any changes in working conditions. Because employees may be terminated only for cause, the inclusion of more responsibilities and duties in the contract makes this process easier.

RUS72 Wages are required to be paid at least twice monthly in rubles. The employer must withhold income tax and transfer the employee's income tax from the enterprise's bank to a state budget account. The usual work week cannot be longer than 40 hours. Any additional hours are considered overtime, which can be required only on the basis of the extraordinary circumstances, such as unforeseen delay in finishing prescribed tasks and failure of a replacement employee to show up at the designated time. Employers make social insurance and pension payments that are a percentage of their employees' total remuneration, including bonuses and benefits.

RUS73 Employment may be terminated on the following grounds:

• Unsuitability (eg, lack of qualifications or health reasons);

• Systematic and unjustified non-fulfilment of work duties, despite disciplinary measures;

• Absence without good reasons; » Prolonged absence from work due to disability;

• Reinstatement of an employee who previously filled the position;

• Coming to work drunk or under the influence of narcotics; and

• Liquidation of the employer or the redundancy of the position.

RUS74 Under the Presidential Decree of 16 December 1993, foreign nationals working in Russia must obtain work permits. In some cases, there is need for employers to obtain the authorisation of the Ministry of Migration to hire foreign nationals. The Regulation on Hiring and Use of Foreign Labour provides the system of issuing authorisations and work permits. Enterprises with foreign investment must pay social insurance premiums for Russian and foreign employees according to the rates established for enterprises and organisations in Russia.

Entry Visas and Residence

RUS75 In accordance with the Law on Exit from the Russian Federation and entry into the Russian Federation of 18 July 1996, a foreign national requesting entry to Russia, transit travel across Russia, or exit from Russia is obliged to bear a national passport with a visa, unless otherwise stated in an international treaty. Visas are issued by Russian consular offices abroad on the basis of invitation letters from Russian persons, tourist agreements, and visa applications. Foreign nationals must be registered with the Russian Ministry of Internal affairs during their stay in Russia.

Free Economic Zones

RUS76 The Law on Foreign Investment states that free economic zones will be established within the Russia with the purpose of attracting foreign investment and advanced foreign technologies and management, expertise, as well as for the purpose of the development of the export potential of Russia. Free economic zones shall provide a beneficial economic status to foreign investors and enterprises with foreign investment in comparison with other regions. Besides the rights and guarantees extended by the existing legislation to foreign investors and enterprises with foreign investment, the latter will enjoy the following additional benefits when conducting economic activities in free economic zones:

• Simplified procedure for the registration of enterprises with the foreign investment;

• Lower taxes, including the tax concerning repatriated profits1

• Reduced tax rates for the use of land and other natural resources;

• Extension of rights to a long-term lease of up to 70 years, with the right of a sub-lease;

• Special customs regime, including reduced import and export duties and a simplified procedure for crossing the border; and

• Simplified procedure of exit and entry for foreign persons, including visa-free arrangements.

RUS77 There are approximately 15 free economic zones in Russia. Unfortunately, many free economic zones are not effective. Some positive changes can be found only in Yantar and Nachodka.

Transfer of Funds

In General

RUS78 The Law on Foreign Investment includes the principle of transfer abroad of investment proceeds in foreign currency.2 After the payment of taxes and duties, foreign investors will be guaranteed the free transfer of payments abroad in connection with the investment made, provided such payments were obtained in foreign currencies. Such payments may include:

• Income from investment, including profits, dividends, interest, and license or commission fees;

• Payments for technical assistance and maintenance and other fees;

• Amounts payable on the grounds of the rights arising from monetary claims and claims arising in connection with the execution of contractual duties which have an economic value;

• Amounts received by investors in connection with the partial or full liquidation, or sale of investment; and

• Compensation for illegal actions of state bodies.

Transfer of Compensation

RUS79 The law provides a guarantee for free transfer of a compensation payable, without unfounded delay, in the original currency of the investment in the case of nationalisation and confiscation. Unfortunately, the Russian investment law does not contain provisions in respect of compensation for loss due to war, armed conflict, or revolution.

Reinvestment of funds

RUS80 The Law on Foreign Investment provides for the possibility to reinvestment of investment proceeds in local currency inside Russia1 Any sums received by a foreign investor in Russian currency may be reinvested within Russia and used in compliance with Russian legislation. In this respect, foreign investors may maintain current and settlement accounts in Russian currency in banks in Russia duly authorised by the Russian Central Bank without the right to transfer amounts from such accounts abroad.

Unfair Business Practices

RUS81 Unfortunately, the problem of bribes continues to be prevalent in business activity in Russia.2 There is a real danger that the success of economic reforms can be breached by corruption and the Russian Mafia. The question whether the fair business can win a victory over corruption and the Mafia depends on the development of government policy.

RUS82 The new Criminal Code came into effect on I January 1997, and it contains broad provisions in respect of corruption. The Russian Federation Chamber of Commerce and Industry has created its own register of reliable business persons.1 To be registered, the applicant must undergo a financial audit, which includes showing evidence of profits over the last two years, and demonstrate that he can cover short-term debts and that his bank loans are not overdue. The audit also examines the liquidity of the enterprise, the ratio of balance-sheet expenses to production expenses, and the level of equity capital. The enterprise must present copies of its founding documents, registration certificate, and balance sheet, as well as a report of financial results certified by an auditing firm or the Tax Inspectorate. If an applicant passes the audit, he is placed on the list of reliable business persons for one year.

Tax System

RUS83 In accordance with Law Number 2118-1 of 27 December 1996, taxes are divided into three categories, as follows:

• Federal taxes;

• Taxes of the constituent republics of the Russian Federation;

• Taxes of territories, provinces, autonomous provinces, and autonomous districts; and

• Local taxes.

RUS84 The following federal taxes and fees are applicable:

• Value-added tax;

• Excise duties;

• Tax on exchange activities;

• Tax on securities transactions;

• Customs duties;

• Contributions for the replacement of the mineral raw-material base;

• Payments for the use of natural resources;

• Profits tax on enterprises;

• Income tax on physical persons;

• Road fund taxes;

• Levies on coats of arms;

• Government fees;

• Tax on property inherited or received as a gift; and

• Levy for the use of the names 'Russia' and 'Russian Federation' in a corporate name.

RUS85 There are the following regional taxes and fees:

• Tax on the property of enterprises;

• Tax on income from timber;

• Payment for water; and

• Levy on legal entities for educational institutions.

RUS86 Some of the most significant local taxes and fees are:

• Tax on the property of physical persons;

• Land tax;

• Registration levy on physical persons who engage in entrepreneurial activities;

• Tax on advertising;

• Levy on trading rights;

• Levy for the right to use local symbols; and

• Tax for the maintenance of the housing fund and social and cultural assets.

Double-Taxation Treaties

RUS87 The income of a foreign legal entity can be subject to double taxation n Russia and the home country of the foreign legal entity. Double-taxation Teaties eliminate or reduce the impact of double taxation through special rates of :ax on certain types of income. Russia has the following double-taxation treaties:

• Austria, 1981;

• Bulgaria, in respect of physical persons, 1977, and in respect of legal entities, 1978 and 1993;

• Canada, 1985;

• Cyprus, 1982;

• Czech Republic, in respect of physical persons, 1977, and in respect of legal entities, 1978;

• Denmark, 1986; ' Finland, 1975, with additional protocol, 1983;

• France, 1985;

• Germany, 1981;

• Great Britain, 1985;

• Greece, 1993;

• Hungary, in respect of physical persons, 1977, and in respect of legal entities, 1978;

• India, 1988;

• Ireland, in respect of auto-transport enterprises, 1986;

• Israel, 1992;

• Italy, in the field of shipping, 1975;

• Japan, 1986;

• Korea, 1992;

• Luxembourg, 1993;

• The Netherlands, 1986;

• Norway, 1980;

• Poland, 1992;

• Poland, in respect of physical persons, 1977, and in respect of legal entities, 1978;

• Romania, 1993;

• Slovak Republic, in respect of physical persons, 1977, and in respect of legal entities, 1978;

• Sweden, 1981;

• Switzerland, 1986; and

• United States, 1992.

RUS88 To obtain the tax exemptions or preferential tax rates provided by an international treaty to which Russia is a party, a foreign legal entity must apply for treaty certification and submit the certification to the entity paying the income. If a treaty certification is not presented, the entity must withhold income at the rates prescribed by law for the type of income paid.

Profits Tax

RUS89 Russian legal entities with foreign ownership and foreign legal entities with a 'taxable presence' in Russia are liable for Russian profits tax. Foreign legal entities with a taxable presence in Russia are only taxed on profits earned through their permanent representation in Russia. The profits tax rate varies.

The maximum rate is 35 per cent. The rate comprises federal and regional elements. The federal rate is set at 13 per cent. The regional rate varies, but the maximum is 22 per cent for most entities and 30 per cent for banks and insurance companies.

RUS90 The taxable base consists of profit from sales of goods and services and net income from non-trading operations, such as leasing income and capital gains. There are items which can be deducted in arriving at taxable profit, such as:

• Profit allocated to a reserve fund;1

• Profit reinvested in capital expenditures that exceeds total depreciation in the period;2

• Losses from the taxpayer's main activity in the previous five years3 and

• Charitable contributions up to certain limits.4

RUS91 With the aim of encouraging investment, the legislation provides tax exemptions. For example, a two-year tax break applies to newly established small Russian legal entities involved in producing agricultural goods or in the production of consumer, medical goods, and construction. The law grants a complete exemption from profits tax for the first two years of operation to qualifying Russian enterprises with foreign investment. Such entities must engage in production activities and have foreign investment of greater than 30 per cent of the paid-in charter-fund capital totalling at least US$10 million.

Taxation of Foreign Legal Entities

RUS92 Foreign legal entities that receive income from sources in Russia, but not through a permanent legal representation, are liable to pay tax on that income. The tax must be withheld by the source of payment of the income. Such income includes income from:

• Investment, such as dividends and interest;

• Use of copyrights and licences;

• Freight charges and lease payments; and

• Management services and other income that results from the provision or use of any kind of services in Russia through a permanent establishment.

RUS93 The tax rate is 15 per cent for dividends and interest, six per cent for income from freight, and 20 per cent for all other types of income.

Assets Tax

RUS94 The assets tax is a tax on the annual average balance-sheet value of fixed and intangible assets, less depreciation, inventory, work in process, raw material, supplies, and prepaid expenses. Leased assets are subject to the assets tax only if the taxpayer has a right to buy the asset at the end of lease term. Both Russian legal entities and permanent representation of foreign legal entities are subject to the assets tax.

RUS95 The assets tax is fixed as a maximum rate of two per cent, and it must be paid quarterly. The deadline for filing the reports is the twentieth day of the month following the reporting period. In the case of a wholly foreign-owned Russian legal entity, the filing deadline is the thirtieth day of the month following the reporting period.

Valued-Added Tax

RUS96 All legal entities, including foreign legal entities that receive revenue from commercial activities conducted in Russia, are liable for value-added tax. A foreign company need not have a permanent representation in Russia to be liable for valued-added tax. The tax base for value-added tax is revenue from the sale of goods and services performed in Russia. The tax base includes:

• Unlicensed loans from Russian companies;

• Sums received as penalties resulting from the violation of agreements; and

• Imputed market price revenue from the provision of goods and services without consideration.

RUS97 The valued-added tax rate is 20 per cent for all goods and services, except food products not subject to excise tax and children's goods, for which the rate is 10 per cent.

Protection of Foreign Investment Property Protection

RUS98 Russian law defines neither the method of estimation of the real value af foreign investment nor a body authorised to fulfil such estimation. Unfortunately, Russian law merely obliges bodies responsible for damages to compensate them.

Investment Insurance

RUS99 The Law on Foreign Investment states that enterprises with participa-:ion of foreign investment will be free to insure their assets and risks at their 3wn discretion, if not otherwise stipulated for by law. Insurers can be divided .nto three groups:

» Non-state (private) insurers (eg, Lloyd's); » State insurers (eg, the Overseas Private Investment Corporation); and • Multinational insurers (eg, the Multinational Investment Guarantee Agency).

^USI 00 Foreign state insurers insure non-commercial risks in respect of invest-Tient in Russia. After the signing of the Treaty on Promotion of Capital investment between Russia and the United States in 1992, the Overseas Private Investment Corporation (OPIC) began to insure the non-commercial risks of American investors in Russia. OPIC also has a right to look after capital nvestment, determine repayments, make payments, and file claims.

guarantees Provided by Banks

tUSIOI The new Civil Code contains provisions in respect of a bank guarantee vhereby a bank (guarantor) issues a written guarantee to a creditor (the beneficiary), promising to pay a sum owned by a debtor on the presentation )i certain documents as specified in the bank guarantee. The guarantor's )bligation to pay the beneficiary depends on the beneficiary's presentation of

the required documents, not on the relationship between the principal and the beneficiary. The guarantor is obliged to refuse payment to the beneficiary in the event that the beneficiary presents non-conforming documents or the demand has been submitted after the term specified in the guarantee. The obligation of the guarantor to the beneficiary is limited to payment of the amount for which the guarantee was issued. The guarantor's right to demand from the debtor compensation of the amounts paid to the beneficiary under the bank guarantee is determined by the agreement between the guarantor and the debtor.

Protection of Investment by Pledge and Hypotheque Pledge Regulation

RUS102 A pledge is defined in Russian law as security for the fulfilment of an obligation under which the creditor acquires the right, in case of default by the debtor, to be satisfied out of the pledged property prior to other creditors, except where otherwise provided by law. The creditor also has the right to be satisfied from insurance compensation for the loss of or damage to pledged property, irrespective of for whose benefit the property was insured. There are two subcategories of pledge, being:

• Possessory, the debtor transferring possession of the collateral to the holder of the security interest; and

• Non-possessory, the debtor retaining possession and the right to use collateral.

RLJS103 The Civil Code defines the property which may be subject of pledge, indicating that 'any property, including things and property rights, may be the subject of a pledge, except for property withdrawn from circulation, demands inseparably linked with creditor personally, in particular claims for alimony and compensation for harm caused to life or health, and such other rights prohibited by law to be assigned to another person'.^

I Civil Code, art 336.

Hypotheque Regulation

KLJS104 A hypotheque is the pledge of an enterprise or real property, ie, land, building, structures, facilities, or other objects directly related to land. A hypotheque of a building or installation is only permitted with the simultaneous hypotheque under the same contract of the land on which the building or instal-ation is situated^ The contract of hypotheque should be registered and notarised.

ltUSIOS Under current Russian law, a secured creditor may not directly take •title to the collateral, but may only satisfy his debt from the proceeds of its sale. Fhe collateral will be sold at an auction sale in accordance with the procedure established by law.^ At the pledger's request, the court may defer the sale of the collateral for up to one year. Such deferral does not relieve the debtor from compensating the creditor's losses and the penalty accrued during the deferral period. In the case of recovery of the pledge with court involvement, the initial sale price at the auction sale will be determined by the court. In other cases, the initial >ale price is set by agreement between the pledger and pledgeholder. The collateral is sold to the highest bidder. If the collateral is not sold at the first auction sale, (he pledgeholder has the right to purchase the collateral from the pledger and >et off his demands secured by the pledge against the purchase price. If the collateral is not sold at a second auction sale, the pledgeholder has the right to retain :he collateral, valuing it at an amount of not more than 10 per cent less than the initial sale price set for the second auction sale. The pledge terminates if the pledgeholder does not use this right to retain the collateral within a month following the second auction sale.

Diplomatic Protection

ltUS106 Investment-protection treaties concluded between Russia and other countries provide the possibility to settle investment disputes through diplomatic channels by the way of mutual consultations. Moreover, the contracting states must attempt to settle investment disputes through diplomatic channels; i there is failure to reach positive results, the dispute can be settled by a competent arbitration.

1 Civil Code, art 340.

2 Civil Code, art 350.

Treaty Protection of Foreign Investment Bilateral Treaties Purpose of Treaty

RUS107 Foreign investors can be protected by investment-protection treaties. Such treaties state how the host country must treat foreign investment. Such obligations are subject to international law. If the host country breaches treaty, it can be held responsible under international law by the investor's state for breach of a treaty, which may lead to international sanctions' From an official point of view, such treaties regulate investment in both directions, both contracting states being considered as states exporting and importing capital. Actually, in the investment-protection treaties where Russia is a party, Russia is intended to be a capital-importing state. The former Soviet Union concluded and ratified 14 bilateral investment-protection treaties, as follows:

• Austria, 1990;

• Belgium, 1989;

• Canada, 1989;

• China, Peoples' Republic, 1990;

• Finland, 1989;

• France, 1989;

• Great Britain, 1989;

• Italy, 1989;

• Korea, Peoples' Republic, 1990;

• Luxembourg, 1989;

• The Netherlands, 1989;

• Spain, 1990;

• Switzerland, 1990;

• Turkey, 1990; and

• West Germany, 1989.

RUS108 Russian has concluded the following investment-protection treaties:

• Bulgaria, 1993;

• Greece, 1993;

I Sornarajah 'State Responsibility and Bilateral Investment Treaties', 1986 }WT 79.

Norway, 1994; Poland, 1992; Romania, 1993; and Slovenia, 1993.

RUS109 Relations between Russia and the United States are regulated by the Bilateral Investment-Protection Treaty of 17 June 1992 and the Treaty on Promotion of Investment of 3 April 1992.

Standard of Treatment

RUS110 The investment-protection treaties normally contain provisions described as:

• 'National treatment';

• Treatment no less favourable than that accorded to domestic Russian investors;

• 'Most-favoured nation treatment';

• Treatment no less favourable than that accorded to investors from any third country; and

• 'Full protection and security'.

RUS111 Article 3(1) of the treaty with Austria states that each party is obliged to provide in its territory such regime which is not less favourable than in respect of foreign investment of any third state. Analogous provisions are contained in all investment-protection treaties to which Russia is a party. A provision on 'national regime' is not found in the treaties with Austria, Finland, The Netherlands, and Switzerland. However, the absence of such provision does not mean that the principle of national regime is not applied in respect of these countries'

Nationalisation and Competition

RUS112 Nationalisation and expropriation are often mentioned in investment-protection treaties. The treaties prohibit such actions by the host country.

I Arnett, 'Canadian Regulation of Foreign Investment', Canadian Bar Review, vol 50, 1972, at p 219.

However, nationalisation and expropriation of foreign investment are not considered as breaches of the principles of international law if they take place for reasons of general interest and are coupled with fair compensation.

Insurance

RUS113 Investment-protection treaties often contain provisions on the insurance of foreign investment. Thus, for example, in article 8(1) of the treaty with Canada it is stated that, 'if the party of its competent body makes any payments to its investors in accordance with insurance or guarantee agreement, other party will recognise validity of subrogation of an investor's rights'. Analogous provisions can be found in the treaty with The Netherlands.

Transfer of Payments

RUS114 In the bilateral treaties concluded by Russia, there is a list of payments which can be transferred freely abroad by a foreign investor, such as:

• Profits received in connection with the investment;

• Sums received in connection with liquidation of investment;

• Loan payments;

• Wages and other remuneration for foreign citizens who are allowed to work in connection with the investment.

Multilateral Conventions

RUS115 Russia is a party to the Multilateral Investment Guarantee Agency Convention of 1988 that provides insurance against non-commercial risks in all signatory countries. Russia ratified this Convention on 22 December 1992. Russia has signed, but not yet ratified, the Washington Convention on the International Centre for Settlement of Investment Disputes of 1965 and the Energy Charter Treaty of 1994.

Settlement of Investment Disputes In General

RUS116 Russia is a party to the Washington Convention on the International Centre for Settlement of Investment Disputes. The Convention has not been ratified, but ratification is expected in the near future.

Arbitration (Commercial) Courts Participation by Foreign Party

RUS117 Disputes arising from issues connected with investment, including the amount and terms or the procedure of the payment of compensation, are dealt with the Supreme Court of the Russian Federation or by the Supreme Arbitration Court, unless otherwise stipulated for by an international treaty applicable in the Russian Federation. Thus, any such disputes can be submitted for arbitration in any country in accordance with an agreement of the parties. Unfortunately, determination of jurisdiction to consider such disputes is unclear. Thus, it is practically impossible to determine the competent court to consider investment disputes.

RUS118 In Russia, disputes between business people over business matters should be considered by arbitration courts (commercial courts). The Arbitration Procedural Code of 1995 provides that foreign organisations, international organisations, and foreign citizens, performing business activities, as well as the persons with no citizenship, have the right to file claims with the arbitration courts.

RUSH 9 The arbitration courts will accept jurisdiction over cases with the participation of foreign persons if a defendant (a Russian legal entity) is located in Russia and the party has a permanent place of residence in Russia. The arbitration courts in the Russian Federation also have the right to consider the cases with the participation of foreign persons if:

• The subsidiary or the representation of the foreign person is situated in Russia;

• The defendant possesses the property in Russia;

• The claim follows from a contract, the execution of which must take place

or has taken place in Russia;

» In a claim for compensation for property damages, the alleged act has taken place in Russia;

• The claim follows from an unjustified enrichment which has taken place in

Russia;

» The plaintiff in a case involving honour, dignity, or business reputation is in Russia; or

• There is an agreement on jurisdiction between parties.

Application of Foreign Law

RLJS120 The arbitration courts apply foreign law in the following three cases:

• Where contemplated by the Russian Law on Conflict of Laws (Foundations of Civil Legislation of 1991) or international agreements to which Russia is a party;

• Where required to do so by agreement of the parties to the dispute which does not contradict law or international agreements; and

• Where so required by force of an international custom recognised in Russia.^

Execution of Foreign Judgments

RUS121 The possibility of execution of foreign judicial decisions in Russia depends on the existence of an international agreement, ie, bilateral agreements for mutual legal assistance in civil and criminal matters. The execution of a decision of a foreign court in Russia requires permission for execution issued by a competent Russian court on the application of the claimant.

RUS122 The application is examined in an open hearing on notice to the debtor. Russian courts do not examine correctness of the foreign court's decisions on the merits; they check only for the observance of certain conditions whose violation is a ground for denying permission for compulsory execution. Permission for execution may be denied when:

• According to the legislation of the state in whose territory the decision was rendered, the judgment has not yet taken legal effect;

• The party against whom the decision was rendered was deprived of the opportunity to participate in the proceedings as a result of failure to give that party timely and proper notice of examination of the case;

• Examination of the matter relates to the exclusive competence of Russian organs of justice (eg, a dispute concerning real property in Russia may be resolved only by a court in the place where the property is found);

• A decision of a Russian court, rendered in a dispute between the same parties, concerning the same subject, and relying on the same grounds, has already taken legal effect;

I Foundations of Civil Legislation 1991, art 156.

• A case in process in a Russian court) involving a dispute between the same parties, concerning the same subject, and relying on the same grounds, was commenced before the case was brought in the foreign court;

» The three-year period for presentation of the decision for compulsory execution has expired; or

» Execution of the decision would contravene the sovereignty or threaten the security of Russia or would contradict the basic principles of Russian legislation.^

arbitration

^US123 The Law on Foreign Investment states that international treaties ipplicable to the Russian Federation may provide for settlement of investment disputes by international institutions intended for the settlement of economic disputes.^ The Law on International Commercial Arbitration of 7 July 1993 is ?ased on the UNCITRAL Model Law and applies to arbitrations, whether id hoc or institutional, provided they fall within the scope of questions stated n the Law. The Law applies to international commercial arbitration if the place 3f arbitration is in Russia. Pursuant to agreement of the parties, the following Tiay be referred to international commercial arbitration:

• Disputes resulting from contractual and other Civil Law relationships arising in the course of foreign trade and other forms of international economic relations, provided that the place of business of at least one of the parties is situated abroad;

» Disputes arising between enterprises with foreign investment, international associations, and organisations established in Russia; and

» Disputes between the participants in enterprises with foreign investment, international associations, and organisations established in Russia.

recourse against Award

IUS124 An application for setting aside may not be made after three months lave elapsed from the date on which the applying party received notice of the

1 This condition relies on the so-called 'public order' exception under which, in particular, a court may refuse to execute a foreign judicial decision against Russia rendered in violation of the sovereign immunity.

2 Law on Foreign Investment, art 9.

award. The court may suspend the setting aside proceedings for a period of time determined by it to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will eliminate the grounds for setting aside.

Recognition and Enforcement of Awards

RUS125 Russia is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958. Thus, in Russia, there is a mechanism of recognition and enforcement of foreign arbitration decisions. An arbitral award, irrespective of the country in which it was made, will be recognised as binding and, on application in writing to the competent court, will be enforced subject to the provisions of the Russian law.

Sanctions for Injury to Investment

RUS126 One of the principles of the Russian concept of international law is the principle of reciprocity between states. Accordingly, it is reasonable to assume that, in the case of injury to investment, any actions by foreign states in connection with protection of private investment made by their nationals in Russia can be considered as appropriate from the point of view of the Russian law if Russia can take such measures in similar cases.