Manoeuvres on the legislative field

Lawmaking is the quickest and most effective way to improve investment climate in a region

Regional authorities have to eliminate consequences of the changes in the federal laws, that are negative for the local investment climate. That’s why it is only natural that local legislative conditions have become the most important factor of investment climate changes. Regions and municipalities started to actively develop regional strategies and programs, devise new instruments and improve the ways of interaction with investors.

Investors react adequately to it. According to the poll results, they traditionally believe that the investment climate largely depends on just the legislation.

Federal innovations

Federal investment and taxation legislation have undergone great changes lately:

• There was introduced, for foreign investors in the first place, "grandpa’s reservation", that is, those changes in the Russian legislation having negative impact on the investors’ activity will not be applied to investment projects for some time;
• Providing guarantees for investment protection has been confirmed;
• Granting benefits to investors has been legalized;
• There has been introduced a possibility of getting additional benefits for the projects considered to be of top priority;
• They’ve abolished a major part of federal tax benefits, reduced the number of grounds for granting deferment and installments of tax payments and transferring the right of introducing tax benefits to regional and local level.

From the federal law “On closed municipalities” there have been withdrawn all the clauses about federal tax benefits, and it reduced investment attractiveness of the closed towns. At the same time there have been adopted the “Program of developing science towns", according to which the federal budget of 2005 is to render significant financial aid to the seven existing science towns and it improves investment attractiveness of the regions they are located in.

One of the most important peculiarities of the recently adopted federal laws regulating investment activity is a complete abolishing of social tax benefits for foreign investors but for customs benefits for equipment brought as a contribution to the authorized capital. Nevertheless, the federal investment law still has some limitations to foreign investors’ participation in privatization. Thus, the federal law does not allow to use foreign investments at the enterprises located within the boundaries of the closed municipalities. The RF government decisions limit the access of foreign investors to privatization of oil and gas companies, enterprises extracting ores of strategic materials, precious metals and gems, radioactive and rare-earth elements.

Regionals getting active

In regulating investment activity regional authorities use their own approaches, forming economic policy that takes into account their regional peculiarities.

The main among the local laws is the constantly changing Law on investment activity. Regional law-makers introduce into the latest editions of this law a number of new norms, namely on the investment projects of top priority and conditions for their realization, and on regional target.

Regional administration define different forms of state support for investors, implementing their projects on the territory of the region, according to the provisions on investment projects contest. Projects that have passed the investment contest are necessarily included into regional investment program. These provisions are quite successfully implemented in Khabarovsk and Krasnodar territories.

Of principal importance is the provision of benefits and limitations for investments envisaged in regional laws. As a rule, benefits are applied to the following taxes: regional part of profit tax, legal entities’ property tax, land and transport taxes. Indispensable condition for beneficial taxation is separate accounting of priority investment projects.

For investors it is of great importance that the region had a law on state land-survey.

In order to improve the quality and quantity registration of natural resources, to improve their multiple use, protection and reproduction it’s important to adopt a regional law on state cadastre of natural resources.

Because there was no Federal law on free economic zones, since mid nineties in some regions there have come into effect regional laws on zones of special status. Many of these zones seized existing because the regional laws contained clauses contradicting the federal law. Nevertheless such zones have been preserved in Novgorod province, there are regional laws on territorial industrial zones in Nizhny Novgorod, Sverdlovsk provinces, Republic of Bashkortostan, Buryatiya and other subjects of the Federation. These zones are set up as an experiment to create favorable conditions for the inflow and investment of domestic and foreign capital.

One of the novelties in investment legislation are regional provisions on investments insurance. According to it investments can be, and in some cases envisaged by the Russian legislation, should be insured.

Following the Federal centre policy, some regions admit foreign investor to participate in privatizations of small industrial, construction and transport enterprises, as well as trade, public catering and consumer services companies only through permission of the local authorities or authorized organizations.

All these parameters of investment legislations were systematized to the best of our knowledge and taken into account when estimating legislative risks and preparing the rating.

Novgorod province has become the leader for the third time and for the first time Moscow has dropped out of the top ten.