Investment activity

Investments into federally-owned real estate property

Investment legislation does not prohibit investors from making investments into state-owned real estate property. However, conclusion of such transactions in respect to federally-owned real estate requires obtaining an approval.

A provision approved by the Government of the Russian Federation establishes a procedure for obtaining such approvals. In accordance with said provision, executive bodies exercising jurisdiction over a particular state institution or over a unitary enterprise owning the real estate facility are authorized to issue the aforementioned approvals.

Furthermore, the conclusion of an investment agreement must be approved by the Federal Agency for State Property Management.

In certain cases, an investment agreement may be concluded only on the basis of a resolution adopted by the Government of the Russian Federation, namely in the event the property value exceeds 150 mln rubles, as well as if the property value and the total investment in aggregate exceed 500 mln rubles.

This provision establishes the timeframe and procedure for approval of transactions aimed at attracting investments, the list of required documents, material terms of investment agreements, and grounds for denying approval.

For example, approval for investment agreement conclusion may be denied in the event the investment project implementation comes into contradiction with the subject matter and purposes of the project that the initiating party stipulated in its Charter; or implementation of the investment project is not provided for in the State Unitary Enterprise (GUP) program; or the real estate facility is fully funded by the state budget, etc.

This provision stipulates that approval procedure for investment agreement conclusion shall occur within two months starting from the day of receipt of the necessary documents. In practice however, the terms may be different particularly due to the fact that the approval procedure involves two or even three executive bodies.

Decree No.505 of the Government of the Russian Federation of August 10, 2007, Moscow “On procedure of adoption of resolutions by federal executive bodies regarding issuance of approvals of conclusion of transactions on attraction of investments in respect to federally-owned real estate property”

Investments into companies of strategic importance for national security of the Russian Federation

On September 14, 2007 the State Duma of the Russian Federation adopted legislative bills in the first reading, providing for a possibility of introducing certain limitations on participation of foreign investors in companies of strategic importance for national security of the Russian Federation, as well as on concluding other types of transactions by foreign investors for purposes of establishing control over such companies.

It is assumed that innovations will be related to Russian joint stock companies and limited liability companies exercising activities of strategic importance for national security of the Russian Federation. Such types of activities will be established by the federal law; prospectively, 39 (Thirty Nine) types of activities are presumed to be included, for example:

• Manufacture of weapons and military equipment;
• Use of nuclear and space technologies;
• Aircraft construction;
• Activity of natural monopolies, etc.

It is necessary to note that for a joint stock company or a limited liability company to be acknowledged as a company of strategic importance, it is sufficient that the company be engaged in at least one of the types of activities indicated in the legislative bill. In this case, it is not important whether such type of activity is main or supplementary for the company.

The provisions of the legislative bill set forth that in a case where any shares in the charter capital of the corresponding companies are acquired by the investor in violation of the established procedure, such transactions on acquisition shall be deemed void. In such cases, it is planned to bar by judicial means the foreign investors from voting at the general meeting of shareholders (participants) pursuant to a claim of the respective authorized body.

Legislative Bill No.455348-4 “On the procedure of foreign investments into for-profit companies of strategic importance for national security of the Russian Federation”; Legislative Bill No.455354-4 “On introduction of amendments to certain legislative acts of the Russian Federation in connection with adoption of the Federal Law ‘On the procedure of foreign investments into for-profit companies of strategic importance for national security of the Russian Federation’”

Intellectual Property

Concurrence of firm names of legal entities

Intellectual property legislation of the Russian Federation stipulates that rights to a trade name shall not interfere with the rights of other rightholders to a firm name or to a previously registered trademark.

At the same time, legislation does not endow registration bodies with the powers to exercise control over compliance with the rights to firm names. Thus registration of a newly incorporated legal entity cannot be denied in the event its firm name is identical to a previously registered legal entity name, inasmuch as such grounds for refusal are not provided for under the legislation on state registration of legal entities.

Therefore, rightholders are able to protect their rights to a firm name as an item of intellectual property only in court by means of filing a claim against offenders.

In the course of court proceedings, a company disputed inaction of a registration body in response to a letter sent by the company with request not to register newly incorporated legal entities possessing a firm name identical to the firm name of the plaintiff company.

However, the court refused to force the Federal Tax Inspection Service to not register the firm name containing a word concurring with the firm name of the company without the company’s consent, inasmuch as the registration body was not empowered to exercise control over compliance by newly created legal entities with exclusive rights of previously registered legal entities to a firm name (or trademark).

Decree of the Federal Arbitration Court of North-West District of September 03, 2007 on case No.F56-43360/2006

Foreign citizens

Invitation processing procedure for entry of foreign citizens into the Russian Federation

In accordance with the applicable migration legislation, companies inviting foreign citizens are to be registered with the Federal Migration Service of the Russian Federation.

Moscow Directorate of the Federal Migration Service (FMS) established the list of documents required for registration of a legal entity inviting foreign citizens to the Russian Federation, as well as the samples of said documents. Thus in order to obtain such registration, a company must submit an application, an extract from the Unified State Register of Legal Entities (EGRUL), a copy of a document confirming the right of the company to occupied premises, and a letter of guarantee on sustenance for foreign citizens throughout the time of their stay in the Russian Federation.

It should be noted that existing procedure does not provide for a possibility to process invitations for foreigners by representative offices and subsidiaries of foreign companies operating within the Russian Federation. Presently, bodies of the Federal Migration Service, as well as any other body refuse to accredit subsidiaries and representative offices of foreign companies to enable them to process invitations for foreign citizens.

Decree No.133 of the Moscow Directorate of the Federal Migration Service of July 20, 2007

Land Legislation

Procedure of establishing a public easements in Moscow

As a result of the development boom in Moscow, the lack of vacant lands in the city has been particularly acute lately and therefore the problem of rational regulation of land use in the city is becoming more pressing. Any limitations on property use inevitably cause clashes of interests.

For purposes of resolving the situation at hand, the Moscow Government has adopted a resolution which approves the list of land parcel encumbrances and specifies limitations on their use within the Moscow area, it also provides a tentative classification of functional, constructional, and landscape land parcels in Moscow, explicates city rights to use of lands for public needs and determines a procedure for establishing public easements.

The Moscow Government establishes public easements in Moscow in relation to the following land parcels:

• Private or state-owned,
• Provided on the basis of lifetime ownership with hereditary succession or perpetual (permanent) use

In the event the boundaries of public easement zones are established in relation to newly created land parcels, i.e. those that are being formed presently, the establishment and substantiation of such boundaries shall be conducted within projects of city territory surveying.

Establishment of boundaries of easement zones in respect to previously formed land parcels that have been registered with the State Cadastre and have undergone the procedure of state registration of title, are to be conducted upon initiative of an interested party.

The following entities may initiate procedure of establishment of public easements in relation to previously formed land parcels:

• Citizens;
• Legal entities;
• Moscow local authorities and executive bodies;
• Executive bodies of the Russian Federation.

Applications for establishment of public easements are to be submitted to the applicable prefecture of a particular city administrative district, depending on location of the respective land parcel.

A resolution regarding establishment of a public easement is to be adopted with consideration of results of public hearings.

Prefectures of administrative districts of Moscow review submitted proposals regarding establishment of public easements and issue corresponding resolution in respect to them. Following the resolutions submitted by prefectures, the Moscow Land Resources Department prepares drafts of regulatory documents of the Moscow Government regarding establishment of public easements.

Any restrictions and encumbrances on titles to land parcels, including public easements are subject to state registration.

Decree No.753-PP of the Moscow Government of August 28, 2007

Taxes

Including into costs the expenses under agreements for provision of marketing services

Tax authorities, in the course of conducting a tax inspection, pay increasing attention to agreements for provision of marketing services, the reason being that tax authorities regard marketing services as those that are frequently economically unsubstantiated and hence expenses related to agreements for provision of such services cannot be included in the amount of costs deducted from the profit tax base.

In the event any court disputes occur, arbitration courts put special emphasis on the fact of whether or not marketing research is connected with the company’s activities. In one of the court disputes, a company included expenses for provision of marketing services on carrying out a market research with regard to energizing, vitamin, and enriched beverages. The tax authority declared such expenses as unsubstantiated; the court nevertheless disagreed with the decision adopted, indicating that manufacture of above-mentioned drinks was an area of the company’s business and the research had enabled the company to increase sales turnover of the produced beverages and therefore the stated expenses were declared as reasonable and economically justified.

Decree No.A66-1154/2007 of the Federal Arbitration Court of the North-West District of September 05, 2007

Procedure of payment of individual property tax

In the event that an individual obtains an ownership title to premises under a sale and purchase agreement signed with the previous owner of such premises, an obligation to pay an appropriate individual property tax occurs starting from the month when the new owner, as an individual, obtains the ownership title (from the time of state registration) and the previous owner pays its own portion of tax for the current calendar year beginning with January 01 until the beginning of the month when the ownership title is transferred to the new owner.

In respect to construction of new buildings, premises, and structures, the property tax is paid from the beginning of the year subsequent to construction or acquisition thereof and can only be applied to facilities constructed by an individual or acquired thereby without the transfer of the ownership title to such facility, for example under participatory share construction agreement.

Letter No.03-05-07-01/18 of the Department of Tax and Customs and Tariffs Policy of the Ministry of Finance of the Russian Federation of September 03, 2007

Regarding prolongation of validity terms for forms of strict accounting

In accordance with the common rule, all companies and individual entrepreneurs must use cash register equipment for payments that are settled in cash when selling goods, performing works or rendering services.

However, in the event payments are settled in cash without using cash registers, companies and individual entrepreneurs are to use forms of strict accounting which constitute settlement documents due to their content and are issued by a company or an individual entrepreneur instead of a cash receipt in case of provision of services to the public.

The form itself and procedure of using forms of strict accounting are subject to approval by a decree of the Government of the Russian Federation.

It should be noted that the previous validity term for using forms of strict accounting extended until September 01, 2007 has been prolonged until June of 2008 by the Decree No.542 of the Government of the Russian Federation of August 28, 2007.

Letter No.03-01-15/9-286 of the Department of Tax and Customs Tariffs Policy of the Ministry of Finance of the Russian Federation of August 23, 2007