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Doing business in Russia

A brief legal guide to investing in Russia

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1. Russia at a glance ........................................................................................ 4

2. Setting up a business ................................................................................. 8

3. Incentives for foreign direct investment (FDI) ..................................12

4. Taxes ...............................................................................................................16

5. Employment .................................................................................................21

6. Immigration .................................................................................................26

7. Environmental protection .......................................................................29

8. Real estate ...................................................................................................33

9. Construction ...............................................................................................36

10. Resolving disputes ...................................................................................39

11. Intellectual property ..................................................................................41

12. Dentons in Russia ......................................................................................48

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Contents

Section 1Russia at a glance

Some statistics about Russia*

Capital Moscow

Population 144 million, urban 74.2%

Area 17,098,242 sq. km.

Government type Semi-presidential federation

Legal system Civil law system; judicial review of legislative acts

Currency Ruble (RUB)

GDP $3.862 trillion: world rank 7th

GDP per capita $26,900: world rank 72rd

GDP composition Agriculture 4.7%, Industry 32.5%, Services 62.1%

Inflation rate 7%

Interest rates Central Bank discount rate 10%, Commercial Bank prime lending rate 12.59%

Exports $281.9 billion - petroleum and petroleum products, natural gas, metals, wood and wood products and chemicals, and a wide variety of civilian and military manufactures

Export partners Netherlands 10.5%, China 10.3%, Germany 7.8%, Italy 4.4%, Turkey 5%, Belarus 4.3%

Imports $191.6 billion - machinery, vehicles, pharmaceutical products, plastic, semi-finished metal products, meat, fruits and nuts, optical and medical instruments, iron, steel

Import partners China 21.6%, Germany 11%, US 6.3%, Belarus 4.3%, Italy 4.4%, France 4.8%

*2016 rounded estimates, GDP statistics at purchasing power parity; source: The World Factbook.

Moscow

St. Petersburg

Novosibirsk

Yekaterinburg

Kazan

Novgorod

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World Bank ‘Ease of Doing Business Rank’ (2017)

Transparency International ‘Corruption Perception Index’ (2016)

35 131190 176outof

outof

Russia’s most valued industries (based on top 10 exports)Source: Worlds Top Exports

FDI Inflows by Country (top 10 countries)Source: The Central Bank of Russia

Cyprus

Luxembourg

Netherlands

Ireland

Bahamas

Bermuda

Germany

United Kingdom

Singapore

British Virgin Islands

150

125

100

75

50

25

0

147.971

48.108 48.066

30.851 29.94019.859 18.528

17.548 14.873 14.834

1 Mineral fuels including oil: US$134.7 billion (47.2% of total exports)

2 Iron, steel: $14.1 billion (4.9%)

3 Gems, precious metals: $8.9 billion (3.1%)

4 Machinery including computers: $6.8 billion (2.4%)

5 Fertilizers: $6.6 billion (2.3%)

6 Wood: $6.5 billion (2.3%)

7 Aluminium: $6 billion (2.1%)

8 Cereals: $5.6 billion (2%)

9 Electrical machinery, equipment: $4 billion (1.4%)

10 Copper: $3.3 billion (1.2%)

USD$ million

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US$ million

FDI Inflows by Sector of ActivitySource: The Central Bank of Russia

Wholesale and Retail Trade; Repair of Motor Vehicles Financial and Insurance ActivitiesPublic Administration and Defence; Compulsory Social SecurityInformation and CommunicationReal Estate

75.871

72.974

42.825

17.908

16.600

FDI into Russia: US$461.7 billion, rank comparison to the world: 19thSource: the World Fact Book

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Setting up a businessSection 2

2. Setting up a business

2.1. Main rules

2.1.1. International business access: Foreign investors may do business in Russia either by acting through foreign companies, by establishing representative offices or branches of foreign legal entities, or by incorporating legal entities in Russia.

2.1.2. Types of companies: The two types of legal entities most commonly used in Russia are the limited liability company (LLC) and joint stock company (JSC). In addition to LLCs and JSCs, Russian law recognizes other forms of legal entities (general and limited partnerships, manufacturing cooperatives, etc.), although in practice these are infrequently encountered and are therefore not addressed in this overview.

2.1.3. Differences between LLC and JSC: The LLC is the most popular type of company due to the relative simplicity of its formation and flexible rules on corporate governance, raising capital and other requirements. The legal form of the LLC is well suited for both wholly owned subsidiaries of foreign investors and joint ventures. You would use a JSC if you intend to list your company on a stock exchange or if it is required by law, such as for a bank or an insurance company and some other activities provided by Russian law. JSCs can be incorporated as public joint stock companies or private joint stock companies. Public JSCs are more strictly regulated than private JSCs in relation to corporate governance rules, disclosure rules and other corporate issues. The rules on private JSCs are more flexible in relation to governing bodies and

their competence, rules on shareholders meetings and shareholders’ rights. The advantages of an LLC in comparison with a JSC include: (1) an LLC is cheaper and there are fewer formalities, (2) it is flexible, and (3) it can conduct almost any kind of business (though not banking, insurance and some other activities provided by Russian law, which should be done only by JSCs).

2.1.4. Timelines: The timelines and procedures for the incorporation of LLCs and JSCs are in principle similar. The incorporation of both LLCs and JSCs typically takes between five to eight weeks (including preliminary preparation of the necessary documents, state registration and post-registration formalities). The incorporation of a JSC, however, must be followed by the registration of its shares, which may take two to four months.

2.1.5. License usually not required: Usually you will not need administrative consent to set up and run a company (save for specific activities provided by law).

2.1.6. You can have foreign officers and executives: For most types of businesses, you will be able to appoint foreign officers and executives (see: Section 6, Immigration). Officers do not need to be residents of Russia.

2.1.7. Ways of buying a business: If you wish to buy a business as a going concern, you can generally (1) acquire the shares of the company running the business, or (2) acquire the enterprise

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or part of it or selected assets (using a company that you set up) (see: Section 4, Taxes).

2.1.8. Branches and representative offices: Instead of setting up a local legal entity, foreign investors may choose to operate in Russia through a branch (able to undertake any commercial activity) or a representative office (unable to undertake any commercial activity) of a foreign company. These are not separate legal entities under Russian law and may act only on behalf of the company they are representing. Parent companies bear full liability for the activities of their branches and representative offices.

2.1.9. Closing a business: Liquidation of a company or branch or representative office is usually a time-consuming process: liquidation

can take more than six months for LLCs and JSCs, and the same amount of time for branches and representative offices.

2.2. Recommendations

2.2.1. Take legal advice at the outset: Overall, the general principles underlying the incorporation of a Russian company are similar to those found in other European jurisdictions, especially in relation to general requirements for the charter, corporate name, registered address and share capital. Nonetheless, the paperwork necessary to incorporate a Russian company is often seen as cumbersome, since the incorporation documents are subject to rather strict formal requirements.

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2.2.2. Legalization of documents: The process of setting up a company can sometimes become challenging due to the need to legalize foreign documents.

2.3. Things to watch out for

2.3.1. Branch or representative office setup: Branch and representative office setup is a time-consuming process and the state fee is quite high (RUB 120,000 or approx. EUR 1,734). Moreover, the requirements for legalization, translation and the period of document validity (one year from execution) of the documents to be provided are quite tough. The process can take several months due to legalization and other transactional issues.

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Incentives for foreign direct investment (FDI)

Section 3

3. Incentives for foreign direct investment (FDI)

3.1. Main rules

3.1.1. Foreign investment forms: Under Russian legislation, foreign investors are free to choose the form of their investment activities. As a general rule there are no special procedures for FDI. However, transactions involving entities of strategic significance for Russian national defense and state security require special preliminary governmental approval.

3.1.2. Unfavorable changes to legislation: The “regime of stability” provides for a guarantee against unfavorable changes in Russian legislation for some foreign investors (please see the next section for details). The “regime of stability” prescribes that these changes cannot be applied to foreign investors for the payback period of up to seven years. This guarantee will apply in the event of unfavorable changes to legislation which increase the tax burden, or if restrictions which did not exist when the investment project started are established.

3.1.3. Compensation: Foreign investors enjoy special protection against nationalization (requisition) unless it is mandated by law. They are entitled to equivalent compensation from the state for related losses if property is nationalized.

3.1.4. Customs charges: Foreign investors enjoy customs charge privileges only if they invest in a priority investment project listed by the Russian authorities.

3.1.5. Free transfer of income: You are free to transfer your income from investment activities to a foreign country after payment of all taxes.

3.1.6. Restrictions: Foreign investors are not allowed (unless they receive special governmental approval) to conduct activities in some special areas which are considered important for national defense and state security.

3.1.7. Favored treatment: As a rule, Russian legislation provides equal incentives for residents and non-residents doing business in Russia. The state also provides a set of incentives for foreign investors that are standard in Europe. Moreover, Russian regional authorities may establish some additional guarantees and incentives on their territories for foreign investors.

3.1.8. Special tax regimes in the Far East and Siberia: The laws currently enacted envisage three special tax regimes for investors considering opportunities in the Russian Far East and Siberia: regional investment projects (RP), priority social and economic development areas (SDAs) and the free port of Vladivostok (FPV). A. Regional investment projects: Under the RP regime, qualified investors may enjoy a 0%-10% corporate income tax rate for the first five years commencing from the year in which they earn the first profit attributable to a particular RP, and 10%-17% during the next five years. Investors involved in the mining business (gold, coal, ferrous and non-ferrous mineral ore, etc.) are exempt from minerals extraction tax (MET) until they earn the first profit attributable to the RP. Reduced MET rates apply over the next 10 years, gradually rising from 0% to 100% of a standard MET rate every two years. Investors can also be eligible for property tax incentives. The law sets the following thresholds for capital investments and timeframes for investors to be eligible for the RP regime:

• Investment of at least RUB 50 million (or approx. EUR 722,500) over a three-year period

• Investment of at least RUB 500 million (or approx. EUR 7.2 million) over a five-year period.

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B. Priority social and economic development areas: The federal law “On SDAs” constitutes a legal framework to accelerate the development of certain territories across the Russian Federation. So far, 22 SDAs have been established which will retain this special status for 70 years. SDA residents are eligible for:

• Reduced 0%-5% CPT rate for the first five years commencing from the year in which the first profit was earned; 13%-20% in subsequent years, depending on the region;

• Reduced MET rates in a manner similar to the RP incentive;

• Accelerated procedure for VAT reimbursement;

• Reduced 7.6% SSC rate for 10 years;

• A regional tax incentive may also be granted.

C. The Free Port of Vladivostok (FPV): The federal law “On the Free Port of Vladivostok” provides for a special customs, labor and immigration, taxation and industry regulatory regime for FPV resident companies. On the taxation side, FPV residents are generally eligible for the same corporate income tax, VAT and social security incentives as under the SDA regime. The taxable assets of an FPV resident are also exempt from property tax for five years commencing on the date they are put into operation; a rate of 0.5% applies over the next five years.

3.1.9. Other investment incentives: Investors are generally eligible for RP incentives in any other constituent members of the Russian Federation In addition, investors considering investments of more than RUB 750 million (approx. EUR 10.8 million) into an industrial production project can also seek to enter into a Special Investment Contract (SPIC) with the Russian Government for a period of up to 10 years. This will enable them to enjoy tax benefits similar to those enjoyed by RP participants. Notably, SPIC contracts could include “grandfathering” provisions concerning

the stability of the investor’s tax burden for the project’s lifecycle.

3.1.10. Special Economic Zones (SEZ): The following types of SEZ are established in Russia for a period of 49 years:

• Technology and innovation zones;

• Manufacturing zones;

• Tourism and recreation zones;

• Port and logistic zones.

SEZ residents may take advantage of different combinations of benefits, such as reduced corporate income tax and social security rates, exemption from property and land tax, and, in some cases, customs incentives.

3.2. Recommendations

3.2.1. Start planning early: Planning and timing are essential when applying for incentives, so do not wait until you are about to make your investment. Start the preparation process early, before any work on the project starts. Current Russian legislation provides a lot of opportunities to reduce the tax burden on your inbound Russian investments. Analyze which of them suits you most at the planning stage of a project and make sure the project schedule allows for the necessary actions to meet the requirements for applying for the planned tax incentives.

3.2.2. Consider all potential incentives at the outset: Your investment project may qualify for more than one kind of incentive, so you should consider all available incentives at the outset.

3.3. Things to watch out for

3.3.1. World Trade Organization (WTO): Russia is a member of the WTO and has committed to implementing its treaties and regulations.

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3.3.2. Foreign states and international organizations: You should pay attention to the special provisions of Russian law prescribing that investments made by foreign states, international organizations and organizations under their control into Russian companies are subject to preliminary approval by the Government of Russia and the Federal Antimonopoly Service.

3.3.3. You must apply before you invest: Some investment incentives are only available if you apply for the incentive before you invest.

3.3.4. Sanctions concern: When planning your investments you should also consider the sanctions issue, since several sectors of the Russian economy and several companies are under EU and US economic sanctions in 2017.

3.3.5. Compliance with the tax incentive requirements: The Russian tax authorities tend to follow a quite formalistic and unfriendly approach when examining a taxpayer’s activities during field or in-house tax audits. As a result, any formal or minor incompliance with the tax incentives terms could cause financial losses and, most probably, an overall setback for the project. Make sure you are compliant!

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TaxesSection 4

4. Taxes

4.1. Rates and other important information

Corporate Income Tax (CIT) 20%, where 3% goes to the Federal Government and 17% goes to the constituent members of the Russian Federation

Value Added Tax (VAT) 18% (0% on export sales of goods and certain types of works (services); 10% - basic foodstuffs, medical goods and certain children’s goods)

Personal Income Tax (PIT) 13% flat rate for Russian tax residents on their worldwide income / 30% on Russian sourced income for non-residents

Property Tax (PPT)The tax rate may not exceed 2.2% of book value of taxable assets (2% of cadastral value of immovable property). The exact rates are set within this limit by the regional authorities.

Social Security Contributions (SSC) 30% of the annual income of an employee within established thresholds, with subsequent regression to 15.1% on remuneration above the thresholds

Withholding tax on dividends payable abroad (subject to reductions/exemptions under international tax treaties and domestic regulations)

15%

Withholding tax on interest and royalties payable abroad (subject to reductions/exemptions under international tax treaties and domestic regulations)

20%

Tax penalty interest 1/300 of the key rate of the Central Bank of Russia (currently 8.25% p.a.) for the first 30 days of delay and 1/150 of the key rate from the 31st day after the due date

Statute of limitations on tax matters three years

Tax depreciation of real estate 15 - 30 years; a one-time deduction of 10% (30%) of the acquisition value of a particular object is generally possible.

4.2 Compliance

Tax registration Tax authorities

CIT, VAT, PIT, PPT and SSC returns and reporting Quarterly

CIT, VAT, PIT and SSC payments Monthly

PPT payments In accordance with regional laws

Notifications Annual notifications of controlled foreign companies (CFC); transactions subject to transfer pricing (TP) control

Average tax dispute six months to 2.5 years

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4.3. Main rules

4.3.1. Different ways of buying a business have different tax consequences: The basic options for acquiring an existing business in Russia are: (1) a share deal or (2) an asset deal. Each has different tax effects on the projected financial forecasts and transfer of historic tax risks and liabilities to you as the buyer that require careful consideration.

4.3.2. Profit repatriation and cash stripping techniques: At the outset, you should decide on how profits and cash funds from your business in Russia will be repatriated. The local civil and tax legislation provides opportunities to use most of the commonly known instruments for these purposes, such as dividends, interest payments, royalties or service fees, or a combination of the above. Meanwhile, the Russian tax authorities are very suspicious of hybrid instruments and derivatives.

4.3.3. Registration requirements: You must register your business with the tax authorities. Failure to comply with this requirement could cause tax fines and, under certain circumstances, criminal prosecution.

4.3.4. Tax rulings: Unlike in Western jurisdictions, it is impossible to obtain a binding ruling from the Russian tax authorities. You could opt to obtain an official clarification from the Russian Ministry of Finance on a particular tax issue. This document protects you from tax fines being imposed if the tax authorities dispute a tax issue or transaction and prove their position in court. Should the courts support the tax authorities, you will still be liable for paying the understated tax liabilities and late payment interest penalties.

4.3.5. Tax grouping: There is no VAT grouping concept in Russia. The law technically envisages the possibility of creating a consolidated group of taxpayers for corporate income tax purposes. At the same time, the requirements for establishing a corporate income tax group in terms of consolidated annual sales proceeds, asset value and tax payments are so strict that few companies have managed to meet them.

4.3.6. Revaluation of assets for tax purposes: It is not generally possible to step-up or change the tax book value of purchased fixed assets or securities. Accordingly, a taxable gain from alienation of undervalued assets could be substantial.

4.4. Recommendations

4.4.1. Consider you investment structure at the outset: You may take advantage of a number of beneficial tax regimes and legitimate investment structures that are tax efficient. However, you should do your planning before you make your investments.

4.4.2. Examine Tax Treaties: If properly placed in your existing corporate structure, your Russian subsidiary may apply minor or no withholding tax.

4.4.3. Examine the Target: Russian tax laws, regulations and court practice are subject to frequent change and varying interpretations. If properly organized and focused, the tax due diligence of a target could help you in assessing the target’s fair value and in subsequent negotiations of the price and seller’s tax warranties and indemnities for the transaction.

4.5. Things to watch out for

4.5.1. Material differences between the target’s management accounts and statutory financials: Do not rely on the financial performance of a target company based on its management accounts, if they contain material differences from the target’s statutory financials. Such differences may indicate that the target is involved in unlawful, aggressive tax optimization arrangements. You may obtain an independent professional opinion on the target’s actual financial position through the financial and tax due diligence of the target company.

4.5.2. Reliance on easy access to Russian Tax Treaty benefits: To enjoy benefits under the extensive Russian Tax Treaty network, your offshore investment and/or financing vehicle should have enough attributes to qualify as a “beneficial owner”

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of income being repatriated from Russia in the context of the Commentaries to the OECD Model Tax Convention. Otherwise, you may lose the right to apply Russian income tax withholding incentives, and associated tax losses could be material.

4.5.3. Be careful when buying a non-consolidated business: Russian laws set out certain beneficial tax regimes for legal entities, where shareholders that are corporate entities possess a stake of 25 percent or less. Local entrepreneurs often structure their business in a non-transparent way using a chain of entities, in order to formally meet this requirement. When taking over such a non-consolidated business, you may lose the right to apply these beneficial tax regimes, and the additional tax costs of running the business could be material.

4.5.4. Be careful when assuming a seller’s debt: If you assume debt drawn down into Russia from an offshore seller’s financing vehicle, you could face a risk of a 20% Russian income tax withholding on interest income when the debt is discharged. The historic debt financing structure of the Russian target company needs to be examined thoroughly in the course of the tax due diligence.

4.6. Exemptions and beneficial tax regime

4.6.1. Import VAT exemption for technological equipment: There is an import VAT exemption for certain types of technological equipment that has no equivalent produced in Russia as per a special list of equipment approved by the Russian Government. Normally, 18% VAT should apply on the importation of goods.

4.6.2. Exemptions from customs duties: Goods imported by a foreign investor as an in-kind capital contribution into its Russian subsidiary may be exempt from customs duties.

4.6.3. Incentives for agricultural producers: 0% CPT vs special tax regime Companies involved in the agricultural business, including fisheries, may enjoy a 0% corporate income tax

rate incentive. Alternatively, they could opt to switch to the Unified Agricultural Tax regime, which replaces corporate income tax, VAT (for 2018, new rules will apply starting 2019) and property tax with a unified 6% tax payable on net income, as well as accelerated depreciation of fixed assets.

4.6.4. Regional tax incentives: Regional authorities are empowered to regulate certain elements of regional and local taxes, namely to vary tax rates within a certain range and provide tax relief. Many regions have adopted tax incentives for investors, such as a lower corporate income tax rate (reduction of the regional portion of the tax rate to 12.5% instead of the usual 17%); special property tax exemptions or established lower property tax rates.

4.6.5. Special tax regimes in the Far East and Siberia and for investors running regional investment projects: Investors may enjoy special tax regimes aimed at developing the Far East and Siberia and other constituent members of the Russian Federation. These include regimes for regional investment projects, priority social and economic development areas and the free port of Vladivostok (for details please refer to Section 3 above).

4.7. Start-up and merger and acquisition (M&A) rules

4.7.1. Carrying forward tax losses: As a general rule, a company may carry forward prior year tax losses in chronological order for an unlimited period of time. However, in 2017-2020, tax losses that arose in 2007 and subsequent years may reduce the profit tax base only by 50%.

4.7.2. Thin capitalization rules: Interest paid by a Russian subsidiary on intra-group debt in excess of the thin capitalization threshold is not tax deductible. Excessive interest calculated under the thin capitalization rule is treated as a dividend and, if paid out of Russia, is subject to income tax withholding.

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4.7.3. Legal reorganization: Mergers, accessions and spin-offs are tax neutral events. No cross-border legal reorganization is possible.

4.7.4. Controlled Foreign Companies (CFC) regulations: The undistributed profits of a CFC that is controlled by a Russian tax resident are subject to tax in Russia on an annual basis at the 20% corporate income tax rate if the controlling person is a Russian tax resident company.

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EmploymentSection 5

5. Employment

5.1.

5.1. Rates and other important information

Minimum gross monthly salary (changes at least annually) RUB 7,800 (approx. EUR 112.7)

Minimum gross monthly salary in Moscow RUB 18,742 (approx. EUR 270.8)

5.2. Your basic obligations as an employer

• Observe the labor legislation, internal policies, collective agreements, agreements and employment contracts.

• Provide the work stipulated by the employment contract to employees.

• Ensure safety and working conditions that meet state labor protection requirements.

• Supply employees with equipment, tools, technical documentation and other property which they require to do their jobs.

• Ensure that employees receive equal pay for work of equal value.

• Pay the full wages/salaries payable to employees within the time set by the RF Labor Code, the collective agreement, internal policies and employment contracts.

• Hold collective bargaining negotiations, and also conclude a collective agreement in accordance with the procedure established by the RF Labor Code.

• Provide complete and reliable information to employee representatives as required for the purpose of concluding a collective bargaining agreement and of monitoring the agreement’s implementation.

• Familiarize employees with internal policies directly related to their work against their signatures.

• Comply in a timely manner with the prescriptions of the federal executive governmental body charged with supervision over the observance of the labor legislation and other norms of labor law, as well as other federal executive governmental bodies charged with state control (supervision) in the established area of activity.

• Pay fines imposed for breaches of labor legislation and other acts containing labor law norms.

• Consider representations made by trade union bodies and other elected employee representatives concerning breaches of labor legislation and other acts containing labor law norms. Companies must then take steps to eliminate the breaches discovered and inform the said bodies and representatives of the steps taken.

• Create conditions which allow employees to participate in the organization’s management in the forms envisaged by the RF Labor Code, other federal laws and the collective agreement.

• Cater for the everyday needs of employees in the performance of their jobs.

• Pay mandatory social insurance contributions for employees in accordance with federal laws.

• Compensate employees for job-related harm and moral harm as established by the Labor Code and other federal laws and regulatory acts of the Russian Federation.

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• Perform duties set out in the labor legislation, including the legislation on special assessment of working conditions, labor law norms, the collective agreement, agreements, internal policies and employment contracts.

5.3. Main rules

5.3.1. Types of Employment Contracts: The Russian Labor Code (the “Code” or “Labor Code”) distinguishes between two types of employment contract: (i) unlimited-term contracts, and (ii) fixed-term contracts for up to five years, unless a longer term is established by the Code or other federal laws (Art. 58 of the Code). There is a strong legal preference for unlimited-term employment contracts, and this preference has been confirmed by Russian courts. The employment contract must be concluded in writing.

5.3.2. Fixed-term contracts: Fixed-term employment contracts may be concluded for a maximum of five years and only under the conditions directly stipulated in Article 59 of the Labor Code. The list is extensive, but many of the conditions are industry specific and rarely referred to.

The legal ground for signing a fixed-term employment contract (with reference to the specific provision of the Labor Code) should be indicated in the employment contract and supported by documented evidence.

The main grounds for signing a fixed-term employment contract that are used in practice are the following:

• For the period of performance of duties of an absent employee

• For the performance of work outside the normal business of the employer (refurbishments, installation and adjustment, other work), and work relating to an inherently temporary (up to one year) expansion of production or services

• For persons hired to perform specific work in cases where completion cannot be determined as a specific date

• For old-age pensioners

• For directors (sole executive body), deputy directors, and chief accountants

• For persons in secondary employment (i.e., for whom the job is not the main one)

5.3.3. Probation periods: If the employment contract so provides, an employee may be engaged on a trial basis for up to three months. For general directors (individual executive body), deputy general directors, chief accountants, deputy chief accountants, heads of branches or representative offices or of other separate structural divisions of the company, a longer probation period of up to six months is allowed. This probation period must be by the employment contract. Probation periods cannot be applied to (i) pregnant women, (ii) employees under the age of 18, (iii) newly qualified university graduates, who are hired for the first time after graduation in a position corresponding to their professional qualification for one year from graduation, (iv) employees transferred from another employer, etc. (Art. 70 of the Code).

If the result of the probation period is unsatisfactory, the employer may dismiss the employee with three days’ written notice, indicating the reasons for their dissatisfaction. During the probation period the employee may also resign by serving the employer three days’ written notice.

5.3.4. Working hours: The normal working hours in Russia are 40 hours per week. Most employees work five days per week, eight hours per day with a one-hour lunch break. Some categories of employees must work reduced hours (e.g., those working in specific harmful or hazardous conditions, minors aged under 18, etc.). As a general rule, during the working day the employer must provide the employee with a break of 30

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minutes to two hours for meals and rest, which is not included in the working time.

5.3.5. Overtime: An employee may be required to work overtime only if they have consented to it in writing (except for cases specified by law, which mostly concern emergency situations). A consultation with the trade union (if any) is also generally required for overtime work. Overtime work is not permitted for employees who are pregnant or minors, and it is also prohibited in some other instances envisaged by the law. Overtime work must be paid at increased rates.

If an employee’s working hours are defined in the employment contract as “unrestricted” (nenormirovanniy rabochiy den), the employee may occasionally be required to work overtime and the above-described rules on additional pay and consultation/consent will not apply. However, such employees are entitled to at least three additional days of annual holiday.

5.3.6. Annual leave: The standard paid annual holiday is 28 calendar days. An employee becomes eligible for annual paid vacation after having worked six months continuously.

5.4. Recommendations

5.4.1. Policies: In order to be binding on the employees and enforceable, policies must be officially adopted in the Russian language by the authorized management body of the employer, and the employees must be familiarized with the policies against signature. In some cases, the opinion of the trade union must be taken into account.

5.4.2. Consider hiring an HR person/conclude a services agreement with a service provider: Russian labor law is highly formalistic and bureaucratic, so it is impossible to ensure compliance and observe even the most basic rules without a person who specializes in Russian labor law. Russian labor law prescribes that a large

amount of HR documentation be maintained, and some of this documentation must be completed on a daily basis (for example, time sheets).

5.5. Things to watch out for

5.5.1. Make sure employment documents are in Russian: Employment documents must be in the Russian language (bilingual versions are permissible, but in case of discrepancies the Russian version prevails).

5.5.2. Termination of employment is possible only on the grounds provided by law: The employer can dismiss its employees in the following circumstances:

• Winding-up of the employer

• Redundancy

• Professional incompetence of the employee

• Repeated failure by the employee to carry out their duties

• Single gross misconduct (e.g., unjustified absence from work for more than four consecutive hours, being drunk at the work place or disclosure of the employer’s sensitive commercial information or personal data of other employees)

• Theft, destruction of or damage to the company’s property (if confirmed by a court or other competent state authority)

• Presenting false documents to the employer when being hired

• Certain other circumstances

In cases of unlawful dismissal, the employer may be forced to pay employees their average salary over the period of unemployment until they are reinstated in their former position by a court.

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5.5.3. Redundancy: Employees dismissed in a redundancy situation are entitled to compensation of between three months’ base salary and five months’ average salary. When selecting employees for redundancy, the employer must try to retain certain categories of employees (including those with two or more dependents). Certain categories of employees are protected against dismissal on this ground (e.g., pregnant women or women having children under the age of three).

When the employer wishes to part with the employee, it commonly offers a settlement agreement, which as a rule implies payment of some compensation to the employee for leaving the company.

5.5.4. Statutory rights: Employees cannot waive their statutory rights, including the right to file a claim against the employer for wrongful dismissal or other breach of their employment rights. Any kind of agreement to this effect will be unenforceable.

5.6. Exemptions and beneficial treatment

5.6.1. Labor Code: The Labor Code provides for different treatment for specific categories of employees, for example, women and other employees with family obligations, employees working in Far North regions, remote workers, employees hired to a second job, chief executive officer, etc.

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ImmigrationSection 6

6. Immigration

6.1. Main rules

6.1.1. Visas and permits: Foreign citizens need a work permit and a work visa to work in Russia. This rule does not affect foreign citizens who hold a Russian permanent or temporary residence permit or citizens of certain countries, mostly members of the Commonwealth of Independent States (CIS).

6.1.2. Obtaining work permits: To obtain a standard work permit a foreign citizen must provide:

• Documents confirming higher (professional) education

• Medical certificates confirming the absence of certain infectious diseases and drug addictions

• A certificate confirming that he/she has passed a test in the Russian language, history and basic Russian laws

6.1.3. Allow sufficient time to obtain work permits: It usually takes 90–120 calendar days to obtain a work permit, but in certain specific instances it may take six to eight months. Standard work permits are valid for a maximum of 12 months and may not be extended. A new work permit must be obtained by going through the entire procedure again. Therefore, the work permit application procedure must be followed each time a new foreign employee is engaged, and if foreign employees are to continue working in Russia after the expiration of a current standard work permit.

6.1.4. Work permits for highly qualified specialists: Foreign citizens whose monthly gross salary is at least RUB 167,000 (approx. EUR 2,413) can use a simplified procedure to obtain a work permit in the manner prescribed for highly qualified specialists. This procedure offers a number of advantages: the work permit can be issued for up to three years (renewable using the same simplified procedure) and the employee

does not need to show medical certificates, pass tests in the Russian language, history and law or provide documents showing their education. It takes about three to four weeks to obtain a work permit using the simplified procedure.

6.1.5. Technical services visas: Employees of foreign suppliers and/or manufacturers of technical equipment produced abroad do not need a work permit to install, maintain and service such equipment. Such employees can work in Russia on the basis of a special “technical services visa.”

6.1.6. Foreign directors of Russian companies: A Russian citizen (or a foreign citizen with a Russian temporary or permanent residence permit) should be appointed as the first General Director (i.e., Chief Executive Officer) of a Russian company, as well as Head (Director) of a branch or representative office of a foreign legal entity. Subsequent General Directors and Heads (Directors) can be of any citizenship/residence.

6.2. Recommendations

6.2.1. Outsourcing: Consider outsourcing functions connected with employing foreigners: As the regulations are quite complex, it is advisable to ask a professional service provider to help with the process of employing foreigners.

6.2.2. Make sure to obtain work permits in good time: The employer must obtain a work permit for his future employee before the employee starts work in Russia. The employee must also obtain the relevant visa to allowing him/her to legally enter and stay in Russia.

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6.3. Things to watch out for

6.3.1. Allow sufficient time for official processes: Applying for a work permit and a work visa is a bureaucratic and time-consuming process.

6.3.2. Abide by the rules: Breaching the rules related to employing foreign citizens in Russia may result in administrative liability in the form of an administrative fine of up to RUB 1 million (approx. EUR 14,450) for the Russian company, branch office or representative office of a foreign legal entity or administrative suspension of the activities for a period of 14 to 90 days. A foreign citizen may be subject to administrative exclusion from the Russian Federation and prohibited from entering Russia for five years.

6.3.3. Changes in conditions: Certain changes to the conditions of an employment contract (such as the foreign employee’s position, passport details and some other changes) should be updated or a new work permit be obtained.

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Environmental protectionSection 7

7.1. Permits you might need

General

State Environment Expert Review (SEER)

If a project will have a significant impact on the environment, it is mandatory to obtain a positive report from the Federal Service for Supervision of Natural Resources. In preparing and approving the report, relevant state agencies review project documentation to confirm compliance with applicable requirements. The procedure is required, inter alia, for construction on specially protected natural sites, or for facilities neutralizing or processing dangerous waste (hazard class IV).

Air

Maximum Admissible Emissions PermitRequired if a facility emits hazardous chemical and/or biological agents into the air, which are likely to adversely affect human health and the environment. The permit is issued by the Federal Service for Supervision of Natural Resources.

Noise Permit

Required for the construction of a production facility in a residential or business zone, which will exceed maximum allowable noise levels. The permit is issued by the Federal Supervision Service for Consumers' Rights and Human Welfare. In addition to the permit, relevant environmental protection measures must be taken (e.g., construction of noise-cancelling facilities).

Forest

Forest Land Plot Lease Agreement

Required for the use of forest land plots belonging to the federal government, regions or municipalities of the Russian Federation. The agreement is made between a forest land plot lessee and the relevant state authority representing the owner of the forest land plots. As a general rule, the agreement is made for a period of 10 to 49 years.

Subsoil

Subsoil License

Required if you carry out mining activities (i.e., geological survey, exploration, development). It is issued by the Federal Agency for the Subsoil Use. This permit is also required in case of extraction of groundwater for drinking and industrial purposes.

Water

Water Use Agreement/Relevant Authority's Decision on Water Use

Required for the use of water resources in the course of certain activities such as withdrawal, sewage and construction works. The agreement is made between the water user and the relevant state authority for a maximum period of 20 years.

Permit for discharge of pollutants into the environment (bodies of water)

Required for the discharge of waste and effluent water (discharge of pollutants and other harmful substances and microorganisms into the water).

7. Environmental protection

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Waste

Maximum Admissible Waste PermitRequired if you produce/store/dispose waste (except for nuclear, biological and medical waste). The permit is issued by the Federal Service for Supervision of Natural Resources.

Hazardous Waste Treatment LicenseRequired if you collect, transport, process, dispose, detoxify or relocate hazardous waste products. It is issued by the Federal Service for Supervision of Natural Resources.

Special objects and territories

Continental Shelf License/Permit

Required in case of investment activities on the continental shelf of the Russian Federation such as conducting regional geological studies, searching for mineral resources, prospecting and mining mineral resources, performing marine research, disposing waste and other materials, laying underwater cables and other pipelines, and drilling.

Operating LicenseRequired if you operate an explosive, flammable or chemically hazardous industrial facility. The permit is issued by the Federal Environment, Industrial and Nuclear Supervision Service of Russia.

7.2. Main rules

7.2.1. Use-restricted zones: Make sure that implementation of your project does not violate any of the restrictions and requirements imposed as to the land use within the use-restricted zones, inter alia:

• Sanitary Protection Zones: These are established within a designated distance of the facility for the protection of nature and people.

• Protection Zones and Protected Areas for the Cultural Heritage Sites: These are established within a designated distance of cultural heritage site. Permissible construction/reconstruction activities within these zones are limited to those carried out for the protection of the objects of a cultural heritage.

• Specially Protected Nature Areas: These are established within nature reserves, and national parks. Any activity which is not connected with the protection or preservation of these areas is prohibited.

7.2.2. Pay-to-Pollute Principle: The applicable legislation establishes tariffs for: 1) relevant environmental permits; 2) produced/disposed substances having an adverse impact on environment.

7.2.3. Environmental protection plans: Payment of pollution fees does not excuse enterprises which conduct activities harmful to the environment from elaborating and having in place environmental protection plans (i.e., carrying out measures aimed at protection of the environment).

7.2.4. Operating permits: Make sure you identify all required operating permits for the installation you intend to operate. Take into consideration all expected types and levels of emissions from the installation (e.g., water, soil, air emissions and waste).

7.2.5. Registration of objects of adverse effect on the environment: There are special requirements for the operators of facilities at which hazardous substances are produced,

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applied, recycled and utilized. A hazardous facility must be registered with a special office and the hazard class must be assigned (from I to IV based on the types of hazardous substances which are processed at the facility).

7.3. Recommendations

7.3.1. Consider environmental risks: In order to ensure the full compliance of your investment project, legal advice alone might not be sufficient. Consider seeking an environmental due diligence review or technical/ecological advice to prevent any adverse consequences for your project.

7.3.2. Warranties: Things to do if you need to undergo the SEER

• Allow at least six months.

• Classify your planned investment carefully and take professional advice.

• Help the authorities ensure that all interested parties receive all the documents produced during the procedure.

• From beginning to end, work with and educate the local authorities and the public (including holding of public hearings when required).

7.3.3. Consider the type, location and level of operation: Certain types and levels of activities require different operating permits, as well as development within certain territories and protected areas.

7.4. Things to watch out for

7.4.1. Take care when classifying your investment: If you fail to pass the SEER because you wrongly classify your investment, this may have a serious impact. It may affect the validity of other decisions you obtain and it could delay your project.

7.4.2. Connected projects are classified as a single project: A series of technologically interconnected facilities may be classified as one project, even if different investors deliver them. It is illegal to divide an investment project into smaller parts in an attempt to avoid the need to pass the SEER. It is necessary to consider the existing sanitary protection zones of other objects nearby, as they could prevent the development of the future project.

7.4.3. Allow sufficient time to obtain permits: Due to the complexity of environment-related permits, active participation of external stakeholders, and potential appeals, the procedure for obtaining environment-related permits may take significant time and effort. You can only start operations after you obtain all required permits.

7.4.4. Allocation of liability: When investing in land (buying/leasing either from the state or private sellers), agree on who will be liable in case unknown issues are discovered (e.g., pollution of soil, burials, mineral deposits, protection zones established in Soviet times and not yet abolished, etc.) and write this into the sales contract. Our recommendation is to put the burden on the seller and include suitable protection/mitigation mechanisms. Although all such issues should be discovered in the course of a prior environmental audit, some might be undiscoverable or not discovered independently.

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Real estateSection 8

8. Real estate

8.1. Main rules

8.1.1. Acquisition of real estate by foreigners: As a general rule, foreigners may directly acquire real estate in Russia, with the exception of agricultural land and land plots together with property located on them in border areas and specially designated areas.

8.1.2. Registration system: To have legal effect, all rights to real estate and transactions giving rise to such rights must be registered in the Consolidated State Real Estate Register (“Register”).The Register contains information regarding the property (total area, borders, etc.), the owner of the property, the registered rights and encumbrances on it (registered leases, mortgages, trust management agreements, etc.). Upon written request and for a fee, any party may obtain extracts from the Register, containing basic information about the property’s unique characteristics, respective right thereto and its encumbrances, if any.

8.1.3. Acquisition of rights to public land for construction purposes: The lease rights or ownership titles for construction purposes to land plots owned by the state are granted at public auctions (with some exceptions provided by the Land Code). The owner of real estate constructed on public land leased for construction purposes has an exclusive right to acquire the title to the land plot (either lease or ownership) for the further operation of such real estate.

8.1.4. Governing law: Any transaction involving Russian real estate must be governed exclusively by Russian law.

8.2. Recommendations

8.2.1. Title due diligence is vital: Under Russian law the record on real estate in the register does not confirm the absence of defects in title to such real estate. Your advisors will do a proper

due diligence of the title to real estate in order to identify any defects of title and will propose the necessary protection mechanisms in the transaction documents.

8.2.2. Important issues for due diligence when acquiring real estate for development: The following key aspects shall be verified in the course of the due diligence exercise:

• Record of title in the register (this requirement is not applicable if the land plot is leased for a term less than one year);

• Historical acquisition of title to the land plot;

• Registered and non-registered encumbrances in respect of the land plot;

• Category, zoning and permitted use of the land plot shall be in line with the proposed use of the land plot; and

• Third party rights and limitations on use of the land plot.

8.3. Things to watch out for

8.3.1. Compulsory purchase of land plots for state and municipal needs: Despite the fact that the Russian Constitution generally guarantees that no person may be deprived of his property other than by a court order upon prior or equal compensation, there is a specific procedure in Russian law allowing the compulsory purchase of land plots from the land owners and/or users for state and municipal needs. There is a list of grounds in the Land Code for the compulsory purchase of land (e.g., performance of the Russian Federation’s international obligations, siting of facilities of state and municipal significance if there are no alternative sites available). The compulsory purchase of land plots for state or

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municipal needs is subject to prior payment of compensation. The compensation is calculated based on the market value of the land.

8.3.2. Compliance with tender procedure for acquisition of rights to land plots: It is a common negative practice in Russia for the rights to land plots to be granted in the absence of a tender procedure (public auction). Selling land without a tender procedure can have disastrous consequences for the buyer. Not only will the title to the land be invalidated, any real estate constructed on that land will be considered as having been built in the absence of required authorizations. Depending on the technical details of the building, it may be subject to demolition, or the court could grant the right to the structure to the owner of the land.

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ConstructionSection 9

9. Construction

9.1. Main rules

9.1.1. Right of use: A company must have the right to use the land plot before construction can commence. As the majority of land suitable for construction currently remains in public ownership, you should follow the proper procedures to obtain the rights to land (see previous section). As a general rule, except for certain cases, the lease agreement for a state- or municipally owned land plot can be executed only following a public auction.

9.1.2. Designated purpose: Land in the Russian Federation must be used for its designated purpose. The legal status of land is defined in accordance with its category, zoning and permitted use. Accordingly, when planning construction, you should ensure that the category, zoning and permitted use of the land plot allow for the corresponding construction. Otherwise, you will need to make the necessary changes to the category, zoning and/or permitted use, which can be quite a time-consuming and complex process.

9.1.3. Permits: A construction permit is required to start construction. Failure to do so may be a violation of Russian law and may result in administrative fines. To obtain a construction permit, you must apply to the appropriate state authorities and provide the set of documents defined in the City Planning Code (including the design documentation along with the expert approval of such documentation). The construction permit is issued for the period specified by the design documentation and can be extended upon application.

9.1.4. Contracts: The construction contract should be carefully drafted and negotiated. FIDIC and other international model construction contracts are not often used in Russia, and when they are used, they generally undergo major adaptation.

9.1.5. Registration: Upon completion of construction, in order to obtain the commissioning permit the company should apply to the appropriate state authorities and submit documents confirming that the development complies with the initial permit for construction and the design documentation. After the commissioning, a state registration of ownership title is performed.

9.2. Recommendations

9.2.1. Due diligence: Careful due diligence should be conducted when choosing a land plot for construction. The following issues require special attention:

• Title history

• History of the land plot’s formation and allocation and adjustment of its boundaries, especially when the existing lease rights are acquired or the land plot was granted into private ownership under privatization procedures;

• Change of the category and permitted use of the land plot and compliance with all applicable procedures;

• Any encumbrances and potential limitations in use.

9.2.2. Contractor liability: When drafting and negotiating the contract with the general contractor, special attention should be paid to the contractor’s liability for poor quality work or breach of the construction terms.

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9.3. Things to watch out for

9.3.1. Co-investment agreements: Residential construction is mostly done using co-investment agreements (agreements on new construction financed by the future property co-owners). The legislation has certain special requirements and procedures for this co-investment.

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Resolving disputesSection 10

10. Resolving disputes

10.1. Main rules

10.1.1. Litigation and arbitration: Justice in the Russian Federation is administered by two branches of courts: courts of general jurisdiction (including justices of the peace) and commercial courts. In addition, there are the Russian Constitutional Court and regional constitutional (charter) courts. The commercial state courts in Russia are called arbitrage (“arbitrazh”) courts. Such courts hear business-related disputes, as well as corporate conflicts and bankruptcy cases. Most of the remaining civil, administrative, criminal and employment cases are dealt with by the courts of general jurisdiction.

Arbitration is also recognized and used in Russia as a means of dispute resolution through an independent forum. Arbitration can be either institutional or ad hoc. The arbitration procedure can be governed by rules of arbitration or by agreement of the parties. Nevertheless, in Russia, arbitration plays a less important role than the state courts in resolving disputes.

10.1.2. Court instances/legal remedies: After being examined in the court of first instance, civil and commercial cases may be appealed to an appellate court. The judicial act as a general rule enters into legal force once that court has examined the case. However, even a judicial act that has entered into force may be further appealed to the third, cassation instance. Then the judicial act may be appealed again in cassation proceedings, to the Supreme Court. Finally, the last instance in Russia is the Presidium of the Supreme Court, which examines cases in supervisory review. In practice, the number of cases that are reviewed by the Supreme Court in cassation or supervisory proceedings is extremely low.

10.1.3. How long does it take? On the whole, litigation in Russia goes quite quickly. For example, on average, it takes about six months from the time the court receives the claim and until a writ of execution is issued, including the appeal of the case. Most court cases can go through practically

all of the appeal stages within one year. It could take much longer (up to several years) to examine individual cases, if a large number of third parties are involved or if the case is particularly complex.

10.2. Recommendations

10.2.1. Prepare and collect the documentation very well: Litigation in Russia is generally based on written evidence. Witness statements are used relatively rarely in the courts when resolving civil cases. So it is necessary to pay close attention to how document management is organized and keep all documents that may later serve as written evidence in court.

10.3. Things to watch out for

10.3.1. Complaint procedure: In Russia, there are mandatory pre-trial dispute resolution steps for most monetary disputes. The claimant is required to send the complaint to the respondent before filing suit with a court. The respondent is given one month to reply to the complaint (unless the agreement stipulates a different time period), after which the claimant can file suit.

10.3.2. Limitation period: The general limitation period for civil cases in Russia is three years. However, in some instances it may be shorter. For example, the limitation period under a claim to invalidate a voidable transaction and to apply the consequences of the transaction’s invalidity is one year. A court may reject a claim for expiration of the limitation period only if the other party declares it. The court cannot apply the limitation period at its own discretion.

10.3.3. Prepare for costs of proceedings: The charge for filing with the state courts depends on the amount of the claim. The maximum charge is RUB 200,000 (about EUR 2,890). The losing party reimburses the successful party for its costs. The amount of legal fees that can be reimbursed depends on the complexity and duration of the case and is reimbursed to the winning party within reasonable limits.

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Intellectual propertySection 11

11. Intellectual property

11.1. Main rules

Intellectual property

11.1.1. General framework: The Russian Federation is a party to a number of international treaties regulating intellectual property (IP), including the Berne Convention for the Protection of Literary and Artistic Works, the Madrid Agreement Concerning the International Registration of Marks, and the Patent Cooperation Treaty. As a result, Russian IP law applies a similar logic and approach to those in most countries of the world. However, there are several important peculiarities which have a practical effect and should be considered when doing IP-related business in Russia.

11.1.2. Copyright: Copyrights gain protection as soon as they are created and do not require any special registration or marks to be recognized by law. Copyrighted works should have creative input. Software and databases are specifically protected as works of literature. However, ideas, concepts, methods, processes, systems, approaches, technical, business and other solutions, discoveries, facts, and programming languages cannot be copyrighted. As a general rule, the term of an exclusive right is the life of the author plus 70 years starting from January 1 of the year following the author’s death. However, there are many exceptions to this rule. In contrast to some other jurisdictions, moral rights (the right of authorship, the right to the author’s name and the right to the integrity of the work) cannot be waived or alienated and follow the work irrespective of the current copyright holder. In addition, Russian law also recognizes neighboring rights. Such copyright/neighboring rights apply to databases, and as such, are very relevant in today’s digital economy.

11.1.3. Patents: Russian law recognizes inventions, utility models and industrial designs as patented objects. Patents are subject to state registration with the Federal Service for Intellectual Property (Rospatent), otherwise the

respective intellectual property is not protected in Russia. Patent licensing and alienation is subject to registration as well. As a general rule, an object requires some material element to be patentable (e.g., conceptual business processes and solutions cannot be patented in Russia). In addition, technologies related to cloning, human genetic modification and commercial use of human embryos cannot be patented, nor can other categories “contradicting the public interest, principles of humanity and morals” be patented. As a general rule, the protection term for inventions is 20 years, while utility models are protected for 10 years, and industrial designs are protected for five years. Foreign applicants must be represented before Rospatent by a registered Russian patent attorney. In special cases and/or if special industries are concerned, businesses may be interested in other objects which are also protected by the Russian intellectual property law, such as selection inventions or integrated circuit topographies.

11.1.4. Trademarks: Trademarks are also subject to registration with Rospatent. Trademarks which are not registered in Russia are not protected. Trademark licensing and alienation is subject to registration as well. Only legal entities and individual entrepreneurs may register trademarks. Word, graphical, dimensional and other marks (the list is non-exhaustive, so it is possible to register “non-standard” trademarks) or their combinations may be registered as trademarks. However, there are various limitations as to what can be registered as trademarks, e.g., common words used to describe kinds of goods or common symbols or words cannot be used as trademarks. As general common sense suggests, the more “fancy” a symbol is, the more chances it has to be registered as a trademark. As a general rule, the exclusive right to a trademark is effective for 10 years starting from the date of application. This term may be renewed multiple times. Along with trademarks, the Civil Code provides protection for appellations of origin, commercial names and company names as a means of individualization.

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11.1.5. Know-how: Any information (production, technical, economic, business, etc.) can be considered know-how if such information has real or potential commercial value and the proprietor takes reasonable measures to keep the information confidential (e.g., by setting up commercial secret procedures). The right to know-how is an exclusive right which can be licensed or alienated. One practical limitation of know-how is that the exclusive right to it exists as long as the confidentiality is kept. If confidentiality is broken for whatever reason, all exclusive rights cease to exist by operation of law.

Internet

11.1.6. Internet regulation: Russian information law is notorious for administrative procedures to block websites if they contain restricted information, e.g., child pornography, drugs,

suicide, details of children who were victims of legal offenses, gambling information (unless the information is in a legitimate form provided by the Gambling Law), riot, and calls for extremist and illegitimate mass events. In case a website disseminates other information which is publicly offensive in terms of its content, but not directly mentioned as a ground for administrative blocking, it can be blocked on the basis of a court decision. Websites that infringe some other special requirements, e.g., which misuse personal data, provide online video services with infringements of established rules, provide incompliant VPN or other similar services allowing to circumvent existing blockings may also be blocked, depending on the procedure, by an administrative and/or court decision. Current legislation introduces a simplified procedure for pre-trial blocking of websites that contain allegedly pirated copyrighted material of any kind

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except for photography. Repeated infringements may lead to lifetime blocking of a website.

11.1.7. Organizers of information distribution: Russian law sets forth a broad set of rules related to obligations of organizers of the distribution of information on the Internet. An organizer is defined as a person carrying out activities to ensure the functioning of information systems and/or programs for computers, which are intended and/or used for the receipt, transmission, delivery, and/or processing of electronic messages by Internet users (e.g., instant messaging services, social networks, etc.). Organizers must notify Roscomnadzor of the commencement of their activities, store certain information on communications among users and users themselves on the territory of Russia for one year,

and provide such information to law-enforcement agencies upon request. Starting from July 1, 2018, organizers will also have an obligation to store the contents of user communication. Furthermore, organizers must provide additional encoding tools for user communication (if such tools are used) upon the request of the federal security authority.

11.1.8. Informational intermediaries: Article 1253.1 of the Civil Code provides for three kinds of informational intermediaries: (a) parties which transmit materials on the Internet; (b) parties which publish materials or information necessary to retrieve materials on the Internet; (c) parties which provide access to the material. Each kind of information intermediaries can be held responsible on general grounds if they are at fault, with exceptions for intermediaries falling under

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the “safe harbor” provisions. Depending on the situation, these provisions apply to parties which:

• Do not initiate transmission of the material in question

• Do not change it (except for natural technical changes)

• Do not know and should not have known that the material was illegal

• After receiving a cease and desist letter took timely measures to stop the infringement

11.1.9. Online video services: Specific regulation is established for audiovisual services which are defined as a site, information system or computer program that is used to form and/or organize

the distribution on the Internet of a group of audiovisual works to which access is provided for a fee and/or for watching advertisements targeting a Russian audience, and which is accessed by more than 100,000 Internet users located in the Russian Federation within a 24-hour period. The law restricts ownership of audiovisual services to Russian legal entities or Russian Federation citizens who do not hold citizenship of another state. At the same time, the law does not completely ban foreign investments in Russian companies which own audiovisual services. Only foreign persons, which own online video services with a mainly non-Russian audience (more than 50 percent non-Russian users), are allowed to invest. This rather narrow category of foreign investors can own, manage or control any stake exceeding 20 percent of shares (participatory interest) of a company owning a Russian audiovisual service only with a prior approval of the Russian Government.

11.1.10. Mass media: The ability of foreign persons to own equity in, or otherwise control, owners or editors of Russian media or broadcasters is also significantly restricted. There is an absolute ban on foreign persons (foreign states, international organizations, organizations they control, foreign legal entities and Russian legal entities with any foreign equity participation, as well as all individuals who hold any citizenship other than Russian citizenship) registering mass media, obtaining broadcast licenses, and performing the functions of mass media editor (editorial boards). Second, foreign persons are prohibited from owning individually or in aggregate more than 20 percent of equity in Russian entities owning equity in the Russian media. This prohibition applies not only to ownership as such, but also to managing and exerting direct or indirect control over such 20 percent interest.

Please note that search engines targeted at Russia, news aggregators which disseminate information in Russian, and providers of VPN and similar services are also bound by additional rules provided by the Russian information law. In general, Russian Internet law is a very dynamic

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area and by the time you read this, more rules could appear.

11.2. Recommendations

There can be a number of recommendations depending on specific business situation. To name but a few:

Intellectual property

11.2.1. Consider agreement forms: Whenever the Russian law applies, according to the Civil Code, exclusive rights to intellectual property can be transferred from one to another person under a license agreement or an agreement on alienation of exclusive rights. Each kind of agreement should be made in writing—otherwise it will be null and void—and describe the intellectual property transferred. Unless otherwise expressly stated in an agreement, it is considered fee-based. If it is not possible to determine the fee based on the terms of the agreement, then the agreement is considered unconcluded. A license agreement must also specify the territory and period of use, otherwise the default rules of the Civil Code on the territory and period of use will be applied: the license will be deemed granted on the territory of the Russian Federation and for a period of five years. Finally, a license agreement must explicitly specify the ways in which the licensee is permitted to use the intellectual property. Sublicensing is possible if permitted by the licensor in writing.

11.2.2. Trademark registration: If you intend to register your trademark in Russia, it is highly recommended to carry out a preliminary trademark search to avoid any potential opposition or unintentional infringement of existing trademarks. The same recommendation is applicable to patents. You should also file a trademark application as soon as you have chosen a logo for your goods or services (otherwise your competitors or trademark squatters can register it before you) and make

sure you own copyright in a design before you file a logo trademark application. To avoid the risk of trademark cancellation for non-use, make sure you use your logo trademark just as it is registered. Please note that Russian law and practice also provide for partial cancellation of a trademark in respect of specific non-used goods or classes.

11.2.3. Intellectual property created for hire: If part of your business is located in Russia (e.g., R&D department or a group of local software developers) it is important to properly formalize transfer of exclusive rights in intellectual property created by local employees to the respective legal entity. In most cases, this requires establishing a proper and detailed set of contractual clauses and internal acts which clarify which intellectual property created by employees comes into possession of the entity, and when and how this occurs. This helps to protect the entity’s rights in potential disputes with employees and adds a further layer of protection in unfair competition cases, where the breach of rights relates to employees taking some of the intellectual property they created when leaving the company.

Internet

11.2.4. Information and regulatory aspects: general awareness: Russian Internet law is a rapidly developing area of legal regulation in Russia. Since 2013, a whole new area of law and regulation have appeared in order to regulate the dissemination of information on the Internet and various Internet services. If you operate or plan to launch any kind of Internet service targeted at Russian citizens, please be mindful of the restrictions which apply to foreign Internet services in terms of ownership, compliance obligations and/or restrictions related to different kinds of information. If your Internet business includes Russia in its business strategy, it would

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also be beneficial to monitor developments in Russian legislation and practice in this area.

11.3. Things to watch out for

It is more than possible to operate under Russian law in a safe and predictable way, but there still are many areas to be mindful of. To name but a few (with a focus on the digital environment):

11.3.1. Software and database registration: Software and database registration may serve as additional evidence of intellectual property creation, validity and ownership, but it is not mandatory. Once the software is registered, its alienation is subject to registration as well.

11.3.2. Website blocking: In many cases, infringements of the Russian Internet regulations entail a risk of website blocking. If your website is your company’s main asset, the provisions which set forth information restrictions and/or various compliance requirements should not be taken lightly.

11.3.3. Additional restrictions on information: In addition to explicit prohibitions of certain kinds of publicly offensive information in the Internet, there are various other rules which are equally applicable to the Internet. For instance, the Law on Protecting Children from Information Inflicting Harm to their Health and Safety states that any information production (e.g., books, newspapers, TV shows, websites, computer games) which may be intended for children, must have an age rating according to specific content criteria established by the law ( e.g., degree of violence or adult scenes). In addition, some politically sensitive topics (e.g., controversial depictions of the role of the Soviet army in Second World War) could even be subject to regulation by criminal law.

11.3.4. Personal data and its localization: In today’s digital economy, many businesses are focused on collecting and processing various kinds of personal data. Russian law provides for a number of intricate rules related to personal data processing (the general approach is quite similar to the European one), and additionally provides for very specific requirements, such as localization of personal data of Russian citizens.

11.3.5. Internet jurisdiction: As of the date of this writing, there is no unified solution to Internet jurisdiction in Russia. However, there is a general trend toward a version of the “minimum contacts” test: if the website directly targets Russian users, the chances that the Russian regulatory bodies or courts will recognize Russian jurisdiction increase. In addition, there are direct rules which allow Russian courts to recognize jurisdiction in cases related, in particular, to defamation, personal data and “the right to be forgotten”.

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Section 12Dentons in Russia

Dentons is one of the largest law firms in Russia with close to 150 lawyers and professionals in Moscow and St. Petersburg.

Established in 1991, we have advised on many of the largest, most complex and most innovative transactions, projects and disputes in Russia over the last 25 years. Our diverse our team is able to serve clients in English, Russian, French and German.

lawyers and professionals

150

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Named Law Firm of the Year in Russia at the Chambers Europe Awards 2018

Named Law Firm of the Year in Arbitration and Mediation and in Labor and Employment Law by Best Lawyers 2017

Winner of Best Law Firm in Private Equity in Russia at the PREQVECA Awards 2017

Winner of Law Firm of the Year in Russia and CEE at the American Lawyer Transatlantic Awards 2016

Winner of Law Firm of the Year in Russia at the Chambers Europe Awards 2014

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Top rankings

• Banking and Finance

• Competition/Antitrust

• Corporate/M&A/Commercial

• Dispute Resolution

• Tax

• Intellectual Property

• Employment

• Real Estate and Construction

• Restructuring and Insolvency

• Private Equity

• TMT

• Life Sciences

• Infrastructure and PPP

• Energy and Natural Resources

• Transportation

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Contacts

Dentons MoscowWhite Gardens, 7 Lesnaya St.125047 Moscow, RussiaT +7 495 644 0500moscow@dentons.com

Dentons St. PetersburgJensen House, 32-34, lit. A Nevsky Prospect191011 St. Petersburg, Russia T +7 812 325 8444stpetersburg@dentons.com

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Note on currency rates: Figures in EUR were calculated at the RUB 1 to EUR 0,01445 rate as at 1st January 2018.

^Dentons is the world’s largest law firm*, delivering quality and value to clients around the globe. Dentons is a leader on the Acritas Global Elite Brand Index, a BTI Client Service 30 Award winner and recognized by prominent business and legal publications for its innovations in client service, including founding Nextlaw Labs and the Nextlaw Global Referral Network. Dentons’ polycentric approach and world-class talent challenge the status quo to advance client interests in the communities in which we live and work. dentons.com

* The American Lawyer 2017 – Global 100 law firm ranking by number of lawyers.

CSBrand-7938-Doing Business in Russia Global V3 — 31/07/2018

© 2018 Dentons.

Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see www.dentons.com for Legal Notices.