FOREIGN CITIZENS

Procedure of inviting foreign citizens to the Russian Federation

The Government of the Russian Federation has introduced new regulations for the inviting of foreign citizens to enter Russia, regulating the procedure for issuing invitations in greater detail.

Firstly, the Regulations establish that an invitation to the Russian Federation serves as legal grounds for issuing a visa to a foreign citizen or permitting entry into Russia not requiring a visa. Moreover, a foreign citizen may be denied a visa only in cases expressly stipulated by federal law. For example, if a foreigner has any criminal records that have not been cleared or expunged or if a foreigner submits forged documents, he or she may be denied an invitation.

In accordance with the new regulations, the Ministry of Foreign Affairs of the Russian Federation and the Federal Migration Service bodies are responsible for the issue of invitations. However, their respective authorities are strictly delimited: the Ministry of Foreign Affairs issues invitations for applications for federal authorities and subjects (regions) of the Russian Federation, international companies and their representative offices, as well as diplomatic missions and consular institutions of foreign countries in the Russian Federation.

The Federal Migration Service issues invitations for applications from local municipal authorities and legal entities and individuals. In such case, legal entities, including foreign ones, are registered with the Federal Migration Service or its territorial bodies on a notification basis upon filing their first application for an invitation.

Decree No.655 of the Government of the Russian Federation of October 08, 2007, Moscow “On approval of the Regulations for procedure of issuing to foreign citizens and individuals without citizenship invitations for entry into the Russian Federation”

Issuance of Russian visas to foreign citizens

The Government of the Russian Federation has introduced amendments to the regulations of visa issuing procedure.

The most significant change is the restriction of the total length of stay of a foreign citizen in the Russian Federation under a multi-entry visa. Under the new law, the stay cannot exceed 3 months within each 6-month period; hence, if a multi-entry visa is issued for one year, a foreigner may stay in Russia for no longer than 6 months. These restrictions do not affect work visas, which are issued for a 3-month period and may be prolonged for the term of validity of the employment agreement.

The above restrictions will inevitably impact on Russian companies with foreign capital frequently engaging foreign specialists in their business. In such cases, the workers are actually employed by a foreign company and enter Russia on a business visa.

Furthermore, the list of circumstances under which the relevant state bodies may extend a visa validity term has been clarified. Thus, a visa validity term will not be prolonged if the total length of stay of a foreign citizen within 6 months exceeds 3 months. This restriction does not extend to emergencies, such as sickness requiring urgent intervention, natural disasters, etc.

Decree No.635 of the Government of the Russian Federation of October 04, 2007, Moscow “On introducing amendments to the Regulations on the form of visa, procedure and conditions of issuance, prolongation of validity term thereof, reissuance thereof in case of loss, and procedure of visa cancellation”

CONSUMER PROTECTION

Amendments to consumer protection law

Consumer protection legislation is aimed at protecting the rights of individual consumers as concerns their interaction with vendors, inasmuch as the latter are considered to be the stronger party in sale and purchase relations.

The amendments introduced are based on exercising consumer rights to receive timely, accurate and free information regarding goods or services. Thus it has been established that, in the course of documenting a consumer loan, the consumer must be informed of the terms and conditions of the receipt and return of the loan and the bank is legally bound to indicate the full amount that the creditor is obliged to return. These amendments prevent banks from misleading their potential consumers with regard to the value of the loan and the accrual of hidden interest, and legally bind them to make their consumer agreements clearer. If an agreement that has already been signed does not correspond to the legal requirements, the transaction shall be deemed void.

It is particularly worth noting the introduction of new standards regulating consumer rights in respect to defective goods. Thus for example, according to the amendments introduced, if any defects are found in a technically complex or an expensive product (car, computer, etc.), a consumer is, within 15 days from the day of receipt of the product in question, entitled to terminate the sale and purchase agreement and demand a refund of the amount paid for the product or else demand its replacement with a different model, providing for appropriate adjustment of the price. If the defect was found after this time, a consumer may return or replace the product only if the defect is intrinsic, or if the vendor breaches a legally established term for repairing the product. Furthermore, a consumer may exercise the same right if, within any year of the warrantee period, they were unable to use the product for over 30 days in aggregate due to repeated repairs of its various defects.

The term “intrinsic faults” in this case means defects that cannot be cured without resulting in “unreasonable expenses or loss of time” or defects that occur repeatedly or resurface after being repaired, or defects that make use and enjoyment of the product impossible in accordance with its designated use. Previously, the term “defects or faults” had no clear definition, and court practice associated with its interpretation was mixed.

The new law contains amendments establishing a maximum term to eliminate defects, i.e. forty five (45) days. This in turn will make the work of maintenance and service centers more transparent for consumers and will rule out the possibility of abusing deadline and of unreasonable delays in repairing goods due to the lack of spare parts or necessary equipment. In the event that an established term is breached, a consumer is entitled to receive compensation.

The law regulates issues of the vendor's responsibilities. For example, the value of the penalty (forfeit) for breaching the terms of a vendor-buyer in the case of advance payment for goods has been established (0.5% of the advance payment for every day of the delay = 183% a year). Application of this provision is more relevant to the protection of consumer rights on the primary real estate market.

Federal Law No.234-FZ of October 25, 2007 "On amendments to the Law of the Russian Federation “On customer protection” and the second part of the Civil Code of the Russian Federation"

Distance selling

Distance selling of goods (through advertising on TV, radio, on-line or in print media) has gained increasing popularity recently and, as a sales technique, it undoubtedly has its advantages. Frequently, however, the customer, putting their trust in an attractive and convincing advertisement, ends up being deceived as to the quality, contents, or delivery terms of the goods purchased.

In response to this, the Government of the Russian Federation has established regulations for the distance selling of goods, elucidating certain aspects of the selling technique. These regulations do not extend to non-distance services, vending machine sales, or sale and purchase agreements concluded at an auction.

It is worth noting the most relevant provisions of the regulations concerning the procedure for return of goods:

• A customer is entitled to refuse a purchase at any time prior to its transfer and within 7 days subsequent to its delivery.
• In cases where information concerning the procedures and conditions for the return of goods in working condition is not provided to the customer in writing at the time of delivery, the customer is entitled to return the goods within three months from the moment the goods are delivered.
• If the quality of the goods is unsatisfactory or any defects occur as a result of failure to supply necessary information, the customer is, at their own discretion, entitled to request that the vendor to repair the item free of charge, reduce the price of the item, replace the item or refund the monies paid for the item. In the latter case the vendor must refund the money no later than within 10 days from the day the customer submits their request.
• Also, the customer is entitled to make a claim concerning defects found in goods without a fixed warranty or service life within reasonable time, but no later than two years from the day the goods were delivered the customer, unless a longer period is established by law or agreement.

The Decree of the Government of the Russian Federation No.612 of September 27, 2007, Moscow “On approval of regulations of the distance selling of goods”

The letter of Rospotrebnadzor No.0100/10281-07-32 of October 12, 2007 “On exercising control over compliance with the regulations for the distance selling of goods”

REGISTRATION OF LEGAL ENTITIES

Unlawful refusal of Tax Authorities to register amendments to the statutory documents of a company.

In accordance with the legislation of the Russian Federation, state registration of a legal entity is obtained at the address indicated by the founders in their application for state registration of a permanently functioning body or if the company does not have such an address, at the address of a different body or entity entitled to act on behalf of the legal entity without a Power of Attorney, provided that the same address is used to contact the legal entity. 

The resolution of the Supreme Arbitration Court states that it is acceptable to indicate the address of the general director of a company in an application for state registration, inasmuch as the general director is deemed to be a permanently functioning body of a company. Consequently, the Tax Authorities’ refusal to register amendments to the statutory documents of a company on the grounds that the address of an individual can not be used as a legal entity address is unlawful.

Resolution of the North-West Federal Supreme Court to the case No.A05-207/2007 of August 01, 2007

AGREEMENT OBLIGATIONS

Reduction of unreasonably high penalties

In accordance with the principles of contractual freedom, the parties are entitled to determine the amount of penalties payable in case of a breach of contract. However, the amount of penalties established in the agreement may be reduced by a court decision if the penalty payable is significantly disproportionate to the consequences of the breach of contract.

However, most of the time the courts use a subjective approach when assessing to what degree a penalty is in proportion to a breach of contract. For example, when examining a dispute between the city hall and a tenant, the court came to the conclusion that the application of a 180% penal annual interest rate (i.e. 0.5% of the unpaid amount for every day of the delay) was disproportionate to the consequences of the company failing to make timely payment of rent, and decreased the amount of the penalty.

Resolution of the North-West Federal Arbitration Court No.A26-4524/2006-16 of September 14, 2007

Absence of agreement on material conditions between parties to a contract

The civil legislation of the Russian Federation states that, if the parties of potential contractual relations have not agreed on legally mandatory material conditions of an agreement, then the agreement shall be deemed void. This rule is applicable to all civil law agreements, including contract agreements.

Existing court practice shows that there can be various legal consequences to non-compliance with the aforementioned rules. For example, when examining a case for the retrieval from the defendant of costs for works performed and interest accrued using borrowed funds, the North-West Federal Arbitration Court (FAS SZO), taking into account the lack of a concluded contract agreement, reasonably stated that the absence of any contractual relations between the parties gives grounds to apply the regulations on unjust enrichment stipulated by the Civil Code of the Russian Federation.

Resolution of the North-West Federal Arbitration Court No.A52-3656/2006 of August 24, 2007

REAL ESTATE

Regulating real estate lease relations

The legislation on management of government and municipal contracts contains relatively broad definitions concerning this area of legal regulation. Therefore, there are often question about the necessity of applying the standards of these regulations, for example to real estate lease relations.

The Ministry of Economic Development and Trade was reported as stating that, inasmuch as a lease agreement can not be deemed an agreement for provision of fee-paying services and lease relations can not be deemed obligations to provide fee-paying services, real estate lease relations are not considered to be governed by the legal regulation of management of government and state contracts.

Letter of the Ministry of the Economic Development and Trade of the Russian Federation No.14902-AP/D04 of October 02, 2007

Lease of premises by foreign citizens or companies

The Tax Code of the Russian Federation states that no VAT is imposed when providing foreign citizens or foreign companies accredited in Russia with premises to rent.

However it should be taken into account that these rules apply exclusively on the basis of the reciprocity principle, i.e. only in if a similar procedure is established by the legislation of a respective foreign country in relation to citizens of the Russian Federation and Russian companies accredited in that country, or else if same rules are prescribed in an international contract (agreement) of the Russian Federation. In this case, such foreign countries are to be included in the List of Foreign Countries compiled by the Ministry of Foreign Affairs in conjunction with the Ministry of Finance of the Russian Federation.

At present, this list consists of 113 countries including Belgium, Germany, Ireland, Netherlands, Poland, USA, Finland, and a number of others.

Letter of the Federal Tax Service of the Russian Federation No.SHT-6-03/765 of October 09, 2007 (together with the Letter of the Ministry of Economic Development and Trade No.03-07-15/138 of September 21, 2007)

LAND REGULATION

Acquisition of rights to state-owned or municipally-owned land plots

From October 30, 2007, new provisions regarding acquisition of rights to land plots held by legal entities under permanent unlimited use rights have come into effect, along with the establishment of a procedure for acquiring rights to land plots containing buildings, constructions, and structures.

The procedure for acquiring rights to state-owned or municipally-owned land plots has been simplified. Moreover, additional conditions of land purchase, as well as regulations on administrative liabilities (fines) for non-compliance with the land legislation requirements, have been established.

The purchase price of land plots should not exceed their cadastral value and will be determined by executive bodies and local municipal authorities depending on the form and type of the ownership title to the land plot.

The terms of purchase of state-owned and municipally-owned land plots (until January 01, 2010) as well as preferential prices/special prices for certain subjects of the Russian Federation (from 2.5% to 20% of the land plot cadastral value) have been established.

The law introduces a mechanism for imposing and removing bans in relation to construction and reconstruction of buildings, constructions and structures located within the area of the plot purchased.

In accordance with the law the term for re-registering a legal entity’s right to permanent (unlimited) use of land plots has been extended until January 01, 2010.

It should be expressly noted that regional authorities have been empowered with the authority to establish purchase prices to land plots, to impose or remove bans on construction and reconstruction, and to determine the amount of rent for use of land plots.

In accordance with the these amendments, unitary and public enterprises leasing land plots are prohibited from transferring their land plots for sublease or assigning their rights and obligations to third parties, from pledging their lease rights, and from transferring their lease rights as an in-kind contribution to charter capital or as an equity contributions to a production cooperative.

The Federal Law of the Russian Federation No.212-FZ of July 24, 2007

Expropriation of land in Krasnodar Region

In connection with the Olympic Games to be held in 2014, the State Duma intends to pass a bill on the holding of the Olympic Games at its first reading. Different amendments, including those regulating advertisement and trade for the duration of the games and simplifying the procedure for entry and exit from Russia for the participants in the Games, are to be introduced to a number of Russian laws.

The most significant legislative changes pertain to the procedures for purchasing land for the construction various Olympic Games facilities. To aid preparation for the Olympics a procedure for expedited land expropriation is being established. For example, pursuant to the new edition of the bill, citizens will be notified of the intended expropriation of land plots six (6) months in advance, as opposed to the existing one year term provided for under the Civil Code of the Russian Federation.

If the owner of a land plot does not sign within twenty (20) days of receiving a draft agreement,, the authorized bodies will be entitled to file with the courts for the expropriation of the land for federal needs.

Bill No.469622-4 “On introducing amendments to certain statutes of the Russian Federation in connection with preparing for and holding the ХХII Winter Olympic Games and ХI Winter Paralympic Games in 2014 in Sochi”

HOUSING LAW

Court practice

The practice of applying Russian housing law regulations has significantly expanded with introduction of the new Housing Code in the Russian Federation in 2005. Among the most topical issues are the grounds and procedures for the supply of living premises under social rent agreements, and the rights and obligations of the owner of residential premises.

In accordance with Russian legislation, if a tenant and the members of his/her family move to a different location, the respective social rent agreement will be deemed terminated from the day they move out. These legal provisions provide the tenant and the members of his/her family (former members of his/her family) with the right to unilateral termination of a social rent agreement, and the right to determine the timeframe for such a termination.

In its legislative and court practice review, the Supreme Court has stated that, based on the equality of rights and obligations of the tenant and the members of his/her family (former members of his/her family), the aforementioned legal provisions extend to every party to a social rent agreement for residential premises. Consequently, in the event that any party to a social rent agreement moves to a different location and unilaterally refuses to comply with said agreement, such agreement will be deemed terminated for that particular party from the day they move out. In such cases, the individual who moved out of the residential premises will lose his/her rights thereto, whereas individuals remaining there will retain their rights and obligations thereto under the social rent agreement.

In addition, the aforementioned review includes certain issues of compliance with the obligations of the owner of residential premises to participate in carrying out capital repairs. Thus, Article 158 of the Housing Code of the Russian Federation stipulates that an owner of property in an apartment block is legally bound to bear expenses for the maintenance of his/her property, and to contribute to the maintenance of common property in an apartment block proportionately to the amount of his/her share in the right to common property, by paying for its maintenance and repairs. The Supreme Court has pointed out that, if a former landlord (a state body or a local municipal body) has not fulfilled its obligation to carry out capital repairs on residential premises of an apartment block before a citizen privatizes his/her dwelling premises, the landlord will remain responsible for compliance with its obligations until such time as it has fulfilled them.

Review of the legislation and the court practice of the Russian Federation Supreme Court for the second quarter of 2007

ENVIRONMENTAL LAW

Procedure for the use of forests in specially protected natural areas

The Ministry of Natural Resources of the Russian Federation has approved regulations for the use, conservation, protection, and planting of forests located within specially protected natural areas. These provisions were elaborated in compliance with Article 103 of the Land Code of the Russian Federation containing general legal regulations on the use of forests located within specially protected natural areas.

In accordance with these provisions, any activities in forests within specially protected natural areas inconsistent with their designated use and beneficial function are prohibited. Clearing and selective felling of forests are significantly limited. The importance of undertaking all necessary measures for the protection of such forests from fires, pollution and other negative impacts, as well as for protection from noxious organisms, is especially stressed. Furthermore, these bylaws state the necessity of implementing mandatory cleaning for the various functional areas in these forests.

Efforts at forest restoration and forestation within specially protected natural areas should ensure plantations that are close in appearance and type to the forest plants inherent to the specific climate and environment.

Decree of the Ministry of Natural Resources of the Russian Federation No.181 of July 16, 2007

Procedure for the issue of permits from the Federal Service for Environmental, Technological and Nuclear Supervision

The Federal Service for Environmental, Technological and Nuclear Supervision (Rostekhnadzor), in its Resolution No.632 of September 17, 2007, has approved Directives regarding the procedure for reviewing documents for the obtaining and issue of permits from the Federal Service for Environmental, Technological and Nuclear Supervision (Rostekhnadzor).

• Rostechnadzor has been authorized to issue the following permits:
• For the implementation of technical equipment at hazardous industrial facilities
• For the use of industrial explosive substances and the implementation of blasting works
• For the operation of hydraulic engineering structures within industrial and electric power facilities
• For construction within areas containing mineral deposits
• For executing works associated with the use of nuclear power (such permits are issued to employees of nuclear power facilities).

Rostekhnadzor Resolution No.632 of September 17, 2007

PROCEDURAL LAW

Law on Enforcement Proceedings

The law to be introduced from February 01, 2008 is a new draft of a similar law adopted in 1997. It establishes the basic principles and objectives of enforcement proceedings. In contrast to the current legislation, the new law regulates the timeframes of enforcement proceedings more thoroughly. Special emphasis is put on procedures for claims of lien on securities and debts. Also, provisions have been introduced that provide for temporary limits on the debtor's right to travel outside the Russian Federation.

The authority and obligations of court bailiffs have been significantly expanded, and control over the decisions adopted by bailiffs has been enhanced, to eliminate violations on their part. In addition, the new law provides for their actions to be appealed in court and by superior bailiffs.

Federal Law No.229-FZ of October 02, 2007

AIR TRANSPORTATION

General rules of air transportation approved

The rules that have been approved establish conditions for the air carriage of passengers and passenger luggage, including carry-on transported boarding the cabin of an aircraft according to the air passenger carriage agreement, as well as for other property received for air carriage on the basis of a freight bill.

The rights and obligations of an air carrier and other persons engaged in organizing and providing air carriage, as well as the rights and obligations of passengers, consignors and consignees have been specified. The entire procedure of organizing air carriage, starting from booking and payment for tickets, right up to delivering and receiving luggage has been stipulated.

The rules are applicable both to domestic and international flights, and to regular and charter flights.

It has been established that air carriers are entitled to establish their own rules and regulations for air carriage, provided that the latter do not contradict the general rules for air carriage and do not entail the deterioration of on-board and consignment services.

Resolution of the Ministry of Transport No.82 of June 28, 2007

TAXES

Taxation on above norm per diem allowance

In practice, in fiscal accounting of travel expenses, the question of taxation on above norm per diem allowances often arises.

Above norm per diem allowances are considered expenses that do not reduce the sum subject to profit tax and, in accordance with Clause 3 Article 236 of the Tax Code of the Russian Federation, are not subject to Unified Social Tax.

As far as Personal Income Tax is concerned, per diem allowance is non-taxable only if its amount does not exceed the norm established by the Russian legislation (the per diem norm for in-Russia trips amounts to 100 rubles). Per diem allowances exceeding the norms established by the applicable legislation are subject to the general procedure of taxation.

The Letter of the Federal Tax Service Directorate of the Russian Federation for Moscow No.21-11/062098 of July 02, 2007

Application of comments from the Russian Ministry of Finance

In accordance with the Tax Code the Ministry of Finance is authorized to give its comments in writing to taxpayers regarding the way to apply Russian laws on taxation. However in practice there have been a number of incidents when comments from the Ministry of Finance contradicted existing court practice, and provoked conflicts with the Federal Tax Service, who refused to comply.

To regulate this situation, the Federal Tax Service published a letter in which it stated that the letters from the Ministry of Finance of the Russian Federation issued in response to specific and common requests from taxpayers, or addressed to unspecified persons, could not be counted as regulatory legal acts and therefore were legally void. Consequently, such written comments are not legally binding for the tax authorities and they serve only informative and expository functions as far as the application of Russian laws on taxation is concerned. The only exception is for letters from the Ministry of Finance sent directly to the Federal Tax Service.

To regulate this disputed situation, existing court and arbitration practice regarding similar issues and incidents should be taken into account.

The Letter of the Federal Tax Service of the Russian Federation No.SHS-6-18/716 of September 14, 2007

Amendments to Moscow tax laws

The Government of Moscow has approved a number of amendments to laws “On corporate property tax” and “On land tax” stipulating that housing cooperatives, housing construction cooperatives, and homeowners’ associations be completely exempted from paying property and land tax.

It should be noted that these tax benefits are conditional, i.e. homeowners’ associations, housing cooperatives and housing construction cooperatives are entitled to land tax exemption only in relation to land plots used to fulfill their functions and to achieve goals established in their charters, pursuant to the housing legislation of the Russian Federation. These restrictions are intended to prevent other organizations using housing facilities for offices or different purposes from benefiting from these tax concessions.

We would like to draw your attention to the fact that amendments to the law “On corporate property tax” will come into effect from January 01, 2008, except for certain provisions planned to be introduced at other times.

Moscow Law No.41 of October 10, 2007 “On the introduction of amendments to the Law of Moscow No.64 of November 05, 2003 ‘On corporate property tax’”

Moscow Law No.40 of October 10, 2007 “On the introduction of amendments to Article 3.1 of the Law of Moscow No.74 of November 24, 2004 ‘On land tax’”