Russia Adopts New Investment Law

April 30, 2020

President Vladimir Putin signed a package of laws (informally referred to as the Investment Code) on 1 April to encourage further investment in Russia. The primary tool that the new legislation offers to investors is an individual investment regime that includes tax, customs, and regulatory benefits and is available to eligible projects for a term from six to 20 years.

The new legislation is made up of the Federal Law “On the Protection and Promotion of Capital Investments and the Development of Investment Activity in the Russian Federation” (the Investment Law) and related amendments, the Tax Code and the Budget Code, to allow the stabilization of the tax regime for eligible investors and to allow budgets at all state levels to support the eligible projects.

It became effective on 1 April 2020 except for certain provisions that will gradually come into force during the next 12 months.

Although the adoption of a comprehensive law incentivizing business to more actively invest in Russia has been on the legislative agenda for over two years, it is this spring that the Investment Law in its current form was adopted in an expedited way. The hope is that the Investment Law will encourage investors to start new projects despite the economic downturn caused by the coronavirus (COVID-19) pandemic.


In 2018, President Putin instructed the Government to develop tools that would promote the increase in the share of private investment in the GDP.

The initial draft of the Investment Code was prepared by a joint working group of the Russian Union of Industrialists and Entrepreneurs, the Ministry of Finance, and the Ministry of Economic Development. This draft was very broad in scope and received significant criticism.

In November 2019, after the Russian legislators made significant revisions to the initial draft, the State Duma, the lower chamber of the Russian parliament, adopted the revised draft in the first reading. Again, the draft faced significant criticism, in particular, due to the excessively high admission barriers for eligible investors and the lack of clarity as to the relationship between existing investment mechanisms (e.g., public-private partnership, special economic zone and special investment contact) and the new procedures proposed in the draft. The Investment Law received support from the President, and in March 2020 the State Duma adopted the draft in a modified and shortened form to address some of the criticisms.

Scope of New Regulation: Investment Agreement

The Investment Law, in its final form and due to its much reduced scope, does not suspend or replace other laws that regulate investment in Russia (including federal laws governing capital investments, foreign investments and foreign investments in the so-called “strategically important enterprises”), nor does it replace the laws governing the already existing investment mechanisms such as public-private partnerships, product sharing agreements, special investment contracts, special economic zones, and zones of accelerated development.

The Investment Law establishes the new instrument for incentivizing investment – an agreement on protection and promotion of investment (the Investment Agreement). The parties to an Investment Agreement are (a) the investor, and (b) the public party (being the Russian state, region, or municipality acting through respective authorities, the Public Party).

Either party can initiate the creation of an Investment Agreement. A private company can initiate this by submitting an application to a relevant authority and the state can initiate it through public tender. Information on all Investment Agreements entered into in Russia will be publicly available through a public register; a regulation on this register is to be adopted by the government.

Eligible Projects

As a general rule, only new investment projects are eligible, and there is no retrospective application to projects initiated prior to enactment of the Investment Law. However, the Investment Law has a transition period allowing an investor that took a final investment decision after 7 May 2018 on a project that otherwise meets the eligibility criteria to apply for an Investment Agreement up until 31 December 2021.

Minimum Investment Requirement. Eligible projects must meet minimum capital investment requirements. The thresholds for minimum capital investment vary by industry and are as outlined in the chart below:

Minimum Threshold
 for Capital Investment


250 million rubles

Physical fitness and sport

500 million rubles

Digital economy

1.5 billion rubles

Processing industry

5 billion rubles

Other areas

The Investment Law limits "capital investment" to the investment of investor's own funds (via charter capital contributions or the so-called “contributions to assets”). Borrowed funds and shareholder loans do not qualify as capital investments.

Exceptions. Investment projects in the following spheres do not qualify for the incentives in the Investment Law, regardless of the size of investment:

  • Gambling
  • Tobacco and alcohol
  • Liquid fuels
  • Oil and gas exploration and production (except in respect of LNG)
  • Wholesale and retail trade
  • Financial institutions regulated by the Russian Central Bank
  • Construction (reconstruction) of residential property, business (office) premises, and trade centers

Investment Agreement: Key Terms

The key incentive for private investors to enter into an Investment Agreement is the offer of stability for terms important for its business. The Investment Agreements will provide stabilization terms for, among other things (on a case-by-case basis), import customs duties, measures of state support, rules regulating land use and building and town-planning, and ecological and utilization fees and taxes.

The scope of the stabilization terms in an Investment Agreement will vary case-by-case, depending on the volume of capital investment, the sector of the economy, as well as the level (federal, regional, or municipal) at which the state is involved in the project. Investment projects implemented at the federal level with capital investments exceeding 10 billion rubles will have the right to receive the maximum level of stabilization protections offered by the Investment Law.

The term period for stabilization provisions in an Investment Agreement cannot exceed the following periods (subject to a potential extension based on certain conditions):

Capital Investment

Stabilization Terms

up to 5 billion rubles up to 6 years
from 5 billion rubles up to 10 billion rubles up to 15 years
10 billion rubles and more up to 20 years

In addition to the stabilization provisions, an Investment Agreement can provide for additional measures of state support from either the federal or a regional budget to guarantee a minimum rate of return for the investment project or to reimburse expenses related to the construction, modernization, or reconstruction of infrastructure.

Liability Under Investment Agreements

The Investment Law establishes the liability regime for violation of an Investment Agreement by either an investor or the Public Party.

Investor Liability. If an Investment Agreement envisages state support to the investor (e.g., via budgetary funds, state guarantees, funds from the National Welfare Fund, or a state-owned company), then the state has the right to demand compensation for its losses for the following breaches of the investor:

  • misrepresentation at the conclusion or performance of an Investment Agreement;
  • failure to make the investment under the Investment Agreement terms within two years;
  • failure to satisfy conditions stipulated by an Investment Agreement within two years (e.g., a failure to obtain a construction permit or to procure state registration of rights to real estate and certain other formalities);
  • violation of Russian law that leads to the suspension of the activities of an investor or disqualification of its corporate officers (which implies a temporary prohibition of such officer to perform the officer’s functions imposed as an administrative or criminal penalty); or
  • insolvency (bankruptcy) or liquidation of the investor.

Public Party Liability. If the stabilization provisions of an Investment Agreement are breached by a state authority (e.g., if a legal act negatively affecting the project or the investor is applied prior to the expiration of respective stabilization provisions term), then the investor will have the right to claim actual damages from the respective Public Party if the investor meets all of the following criteria:

  • the investor has made its investment in the full amount specified in an Investment Agreement;
  • all property rights created under the Investment Agreement (e.g., rights to real estate, certain IP rights) and requiring state registration have been registered and, where applicable, put into operation;
  • the investor reported the violation of its rights to a respective state body which signed the Investment Agreement on behalf of the state; and
  • the investor does not have any outstanding mandatory payments to the state budgets.

Possible Further Developments

While the Investment Law was drafted prior to the coronavirus (COVID-19) pandemic, the investment incentives established by the Investment Law may be implemented to help Russia's economy in a post-COVID-19 world. However, a number of provisions in the Investment Law still require the Government to enact further procedures and to provide additional clarifications.

In addition, there may be further developments with respect to certain investment concepts from the initial draft that did not make it to the final version of the Investment Law. While the Investment Law does not amount to a codification and replacement of the existing investment legislation, the idea of an "investment code" replacing many if not all existing laws has not yet been abandoned. Certain concepts that existed in the earlier drafts but not included in the final Investment Law may be further developed in the longer term as part of the next stage of refining the investment legislation in Russia. These concepts mainly relate to establishing a new "basic" (i.e., not project-specific) regime for incentivizing investment that would operate without an investor having to enter into an Investment Agreement.

Trainee associate Valeria Gaikovich contributed to this article.