Russia introduces a new mechanism to protect and encourage investment

On April 1, 2020, the long-awaited Federal Law No. 69-FZ of April 1, 2020 “On the Protection and Promotion of Investments in the Russian Federation” came into force. (“Act No. 69-FZ”) (we have previously analysed the provisions of the relevant draft law).

At the stage of submitting the draft Law No. 69-FZ to the State Duma for consideration, it was assumed that the Law No. 69-FZ would replace most of the outdated acts in the sphere of investment activity in the Russian Federation and become the new basic law in the sphere of its regulation. However, as a result of consideration by legislators, the draft law was substantially redrafted and some of the proposed amendments were removed.  For example, a whole set of measures was envisaged to systematize and control the provision of state support, from which only the proposal to create a single register of state support measures was preserved.

The Law introduces a new mechanism for concluding agreements on protection and promotion of capital investments (SZPK), which should provide certain guarantees and stability of the legal regime for the implementation of such projects in exchange for investment. In particular, depending on the amount of investment, the following benefits and/or guarantees may be provided in the SZPK for an investment project:

• compensation of expenses for energy, transport, utilities, social and digital infrastructure necessary for implementation of the investment project, as well as for payment of interest on attracted credit funds
• guarantee of stability of certain tax conditions for implementation of the investment project (property tax, transport tax, land tax, VAT, profit tax, and new taxes and charges)
• guarantee of stability of conditions in terms of regulation in the sphere of land relations, town-planning activity, and requirements for operation of the object created within the framework of the investment project, and others

SZPK may be concluded for projects with capital investments of RUB 200 mn or more. At the same time, the volume of “stabilization” obligations provided by the state under such an agreement depends on the volume of capital investments within the framework of the investment project. For the purpose of determining the amount of capital investment, no account is taken of borrowed funds (bank loans, shareholder loans) or of cash received from the state budget.

Agreements on protection and promotion of capital investments may be concluded between private entities – Russian investors and public entities (on the part of which the subjects of the Russian Federation act, in the territory of which the investment project is to be implemented). In some cases, the Russian Federation and/or municipal entities may also take part in an agreement on the public side.

SZPK may be concluded for investment projects aimed at creation (reconstruction, modernization) and operation of immovable property objects or complexes of immovable and movable property objects connected with each other, as well as for projects aimed at creation and use of intellectual activity results and/or individualization means. SZPK may be concluded in various sectors of the economy (including healthcare, education, culture, physical culture and sports, digital economy, ecology, agriculture, and others).

Only new investment projects may qualify for the conclusion of an SZPK. At the same time, new investment projects include those for which the decision on approval of the capital expenditure budget was taken before the entry into force of Law No. 69-FZ, but not earlier than May 7, 2018.

SZPKs are a temporary measure of investment activity stimulation – it is stipulated that such agreements may be concluded until January 1, 2030.

The full-fledged operation of Law No. 69-FZ and the conclusion of the SZPK will in practice require the adoption of a significant number of by-laws both at the federal and regional levels.