Russia: Investing

FDI in Figures

On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political and economic context in both countries and will have substantial ramifications on the investment climate. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

The latest specific information on economic sanctions against Russia in response to the conflict in Ukraine is available below:
• What sanctions are being imposed on Russia

According to UNCTAD's World Investment Report 2024, FDI flows to the Russian Federation stood at USD 8.3 billion in 2023, compared to a negative inflow of 15.2 billion one year earlier. At the end of the same period, the total stock of inward FDI stood at USD 278.8 billion, decreasing by 22.5% year-on-year. In fact, between 2022 and 2023, several multinational enterprises made significant divestments from Russia, with the largest write-downs and charges concentrated in the oil, gas, and extractive industries (UNCTAD). According to the Russian Central Bank, FDI dropped to its lowest level in 15 years, totaling USD 235 billion by October 2024: in the first three quarters of the year, foreign investors withdrew an additional USD 44 billion, adding to the USD 80 billion in 2023 and USD 138 billion in 2022. Much of the decline stemmed from the exit of Western firms (including those in automotive and retail) due to sanctions imposed in 2022. A peculiar aspect of Russian FDI data is that reinvested profits by foreign companies are counted as FDI, inflating the numbers, but true FDI is significantly lower.
FDI from "friendly countries" has also decreased as fears of secondary sanctions grow. In 2023, Chinese entities accounted for 24% of Russia's FDI, but investment levels fell in 2024. In terms of stock, major investors in the country include Cyprus (mostly due to Russian activities domiciled on the island), Bermuda the Netherlands, and the UK. Concerning sectors, the extractive industry is the main FDI recipient, followed by manufacturing, wholesale and retail trade, and financial and insurance activities.

Before the war, the share of FDI in GDP remained relatively low given the country's growth and economic potential, and working capital investments represented a significant share of total FDI. Russia had undertaken economic reforms in recent years, but administrative problems, corruption and uncertainties regarding the stability of the region remained major challenges. The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. Russian legislation imposes two key limitations on foreign land ownership: firstly, it prohibits foreigners from owning land in border regions or other sensitive territories; secondly, it restricts foreign ownership of agricultural land, encompassing individuals, companies, stateless persons, and agricultural firms with over 50% foreign ownership. However, they can access agricultural land through leaseholds. Typically, foreign companies opt to lease land for a maximum of 49 years, the legal limit for such arrangements. Moreover, the Russian Federation recently broadened the range of activities deemed critical for national security and thus subject to FDI scrutiny. This expansion encompasses assessments of the vulnerability of fuel and energy complex installations, ensuring their physical protection, managing sea and inland water transportation of goods, as well as related information technology services. Russia ranks 59th among the 133 economies on the Global Innovation Index 2024, 131st out of 184 countries on the latest Index of Economic Freedom, and 154th among the 180 on the 2024 Corruption Perception Index.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	10,410	38,639	-18,681
FDI Stock (million USD)	449,050	497,690	379,127
Number of Greenfield Investments*	178	156	15
Value of Greenfield Investments (million USD)	8,062	14,921	296

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND INDUSTRY

Main Investing Countries	2021, in %
Cyprus	29.9
Bermuda	10.2
United Kingdom	8.8
Netherlands	6.0
Ireland	5.6
Luxembourg	5.0
Germany	4.2
Bahamas	4.1

Main Invested Sectors	2021, in %
Mining and quarrying	26.1
Manufacturing industry	18.4
Financial and insurance activities	16.9
Wholesale and retail trade, repair of motor vehicles	16.5
Professional, scientific and technical activities	7.7
Real estate	5.0
Transportation and storage	2.7

Source: Central Bank of Russia, Latest data available.

Form of Company Preferred By Foreign Investors: Closed Joint-Stock Company (AOZT)
A partner's know-how and knowledge of the market can be taken advantage of while keeping a certain control of the company.
Form of Establishment Preferred By Foreign Investors: Investors generally open a branch office first (or a representative office) before creating a subsidiary.
Main Foreign Companies: Rosneft, Shell, Total, General Motors, Renault, Phillip Morris, Auchan, Nestlé, Cadbury, Carlsberg.
Sources of Statistics: Federal Statistics Service
Bank of Russia
UNCTAD

What to consider if you invest in Russia

Strong Points

Many investors see Russia as still under-exploited. The key advantages for FDI in Russia include:

A strong economic base, based in particular on abundant natural resources (oil, gas and metals)
Large domestic market size
Accessible labour cost attractive to foreign investors
Skilled workforce trained in export functions and relatively open internationally (due to its geographical and cultural proximity to Western Europe and Asia)
Low public debt
Comfortable foreign exchange reserves
Current account surplus

Weak Points

Russia has an investment climate that is complicated to control and generally unstable. The major disadvantages for FDI in Russia include:

Deteriorated economic and investment climate due to severe economic sanctions imposed at an unprecedented scale by the EU, US and other Western countries following Russia's military invasion of Ukraine in February 2022
The Russian economy remains extremely dependent on the prices of hydrocarbons (39% of GDP) and raw materials as well as on imports of capital goods and foreign technology
Low business confidence in the country's legal system
Institutional and governance weaknesses (insolvency treatment, property rights, corruption)
Many sectors considered strategic are closed to foreign investments
Declining demographics
High level of social security contributions (30% of salaries)

Government Measures to Motivate or Restrict FDI

The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. The Russian Direct Investment Fund (RDIF) was established to facilitate FDI in Russia.

The establishment of investment assistance in Russia is still in its infancy. The government prefers to improve the general investment climate by tax reductions and economic reforms. Majority foreign ownership is subject to authorisation in many sectors, particularly those linked to raw materials, heavy industry and aerospace.
Among the effective incentives are:

Regional incentives which are granted at regional and local levels, and are concerned with the taxes paid to the respective budgets (exemption from property, land and transport taxes, exemption from customs duties and import VAT, corporate profits tax).
Special economic zones which provide for special tax regimes (exemption from property and land tax, exemption from customs duties and VAT, reduced corporate profits tax)
Incentives regarding certain activities, for example IT business, different types of research and technologies works, and so on.

For more information, please visit the website Invest in Russia.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Russia: Russia has 63 bilateral investment treaties (BITs) in force. To see the complete list of the countries, go to the Investment Policy Hub (UNCTAD).
International Controversies Registered By UNCTAD: The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. Russian Federation is involved in 25 cases as Home State of claimant and in 26 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement: ICSID , International Center for Settlement of Investment Disputes
ICCWBO , International Court of arbitration, International Chamber of Commerce
Member of the Multilateral Investment Guarantee Agency: Russian Federation is a signatory to the MIGA Convention.

Country Comparison For the Protection of Investors	Russia	Eastern Europe & Central Asia	United States	Germany
Index of Transaction Transparency*	6.0	7.5	7.0	5.0
Index of Manager’s Responsibility**	2.0	5.0	9.0	5.0
Index of Shareholders’ Power***	7.0	6.8	9.0	5.0

Source: The World Bank - Doing Business, Latest data available.

Procedures Relative to Foreign Investment

Freedom of Establishment

Usually guaranteed.
Investment in certain domains which might affect national security may be limited.

Acquisition of Holdings

The majority acquisition of holdings in the capital of a local company is authorised in Russia.

Obligation to Declare

Russia’s basic legal framework governing investment includes

Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation;”
Law No. 39-FZ, February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment;”
Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense;”
Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR).”

Competent Organisation For the Declaration

Bank of Russia

Requests For Specific Authorisations

Russia’s Commission on Control of Foreign Investment (Commission)was established in 2008 to monitor foreign investment in strategic sectors, such as natural resources, energy, transport, communications, defence industry. A law “On Mass Media,” took effect in 2015 which restricts foreign ownership of any Russian media company to 20 percent.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Temporary office Solutions
The Possibility of Buying Land and Industrial and Commercial Buildings: Foreign legal entities have the right to buy land, but with certain restrictions. Russian law places two primary restrictions on land ownership by foreigners. The first is on the foreign ownership of land located in border areas or other sensitive territories in terms of national security. The second restricts foreign ownership of agricultural land to more than 50%. These foreign entities may, however, hold agricultural land through leasehold rights. As an alternative to owning farmland, foreign corporations typically lease land for up to 49 years, the maximum allowable term.
Risk of Expropriation: The Law on Foreign Investments provides guarantees for foreign investors and commercial entities with foreign investments against expropriation of their property. The law prohibits nationalizations except in the case of legislation intended to protect the national interest. The company can appeal this decision and must receive compensation immediately.

At the regional level, the risk exists even so because of interference from the local government or non-application of certain judicial decisions.

Investment Aid

Forms of Aid

Russian legislation provides for different kinds of incentives for which legal entities can benefit. Among the effective incentives are: regional incentives, special economic zones, incentives regarding specific projects, such as the Skolkovo innovation centre, incentives regarding certain activities, for example IT business, different types of research and technologies works, and incentives to invest in the Asian Far East. They usually offer exemption from property, land and transport taxes, exemption from customs duties and import VAT, corporate profits tax.

Privileged Domains

Incentives aim to develop manufacturing, innovation, R&D and increase employment.

Privileged Geographical Zones

The Federal Law on Special Economic Zones in the Russian Federation dated 22 July 2005 No. 116-FZ created a platform for the strengthening of economic growth of the regions and specific areas in Russia. The main aims of SEZs are the development of: manufacturing, tourism, and recreation industries, port and transport infrastructures, technologies and new product production. The Law on SEZs distinguishes four types of SEZs:

Industrial production zones (15 SEZ)
Technical and implementation zones (7SEZ)
Recreation and tourism zones (10SEZ)
Logistics and port zones (1 SEZ)

Free-trade zones

Currently there are 33 SEZs operating in Russian territory. To know more about the SEZs, click here.

Public aid and funding organisations

Ministry of Economic Development and Trade.
The European Bank for Reconstruction and Development finances investments in Russia, especially in the form of loans.

Investment Opportunities

The Key Sectors of the National Economy: Mining sector, heavy industry, automobile industry, real estate.
High Potential Sectors: Transport and communications, agro-equipment (Russia needs to reconstitute a local production tool to deal with import bans from the EU), information technology (services in particular), automobile (spare parts and after-sales service) sale in particular), aeronautics, distribution.
Privatization Programmes: In January 2020, the Russian government published a privatization plan for 2020-22 that identified 86 federal unitary state enterprises, 186 joint-stock companies, and 13 limited liability companies for privatization over a three-year period. According to the government estimates, the plan could generate RUB 3.6 billion ($48.2 million) per year for the federal budget.
Tenders, Projects and Public Procurement: Globaltenders , Tenders & Projects from Russia
Tenders Info , Tenders in Russian Federation
DgMarket , Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: Distribution of water and electricity, export and distribution of natural gas, rail transport, postal services to individuals and long distance landline telephone.

Finding Assistance For Further Information

Investment Aid Agency: European Bank for Reconstruction and Development
The Federal Agency for Management of Special Economic Zones (RosOEZ)
Other Useful Resources: Russian Chamber of Commerce and Industry
Doing Business Guides: Doing Business in Russia - UHY

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