Investors From ‘Friendly Countries’ To Have Easier Access To Russian Markets and Investment Capital
Investors and businesses from friendly countries will have easier access to the Russian market, according to the ‘Strategy for the Development of the Financial Market 2023-2030’ which has been approved by the Russian Cabinet.
The strategy outlines plans to improve tax conditions for foreign investors, including the development and the issuance of securities in Russia by foreign investors. The Moscow stock exchange and its brokers have supported the initiatives, noting that the main plus is in increasing liquidity. The Russian stock market is likely to appeal most to investors from Asia and the Middle East.
The Russian regulatory authorities plan to simplify Russian access of investors and companies from friendly countries to the Russian stock market, stating “Against the backdrop of sanctions restrictions, it is necessary to create incentives for non-residents to invest in Russian instruments. It is required to improve tax conditions for foreign investors, including in the field of remote identification, the document says. It is also planned to develop the issuance of securities by companies from friendly countries on the Russian market.”
This specifically excludes countries considered unfriendly towards Russia, and includes: Albania, Andorra, Australia, Austria, Bahamas, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Micronesia, Monaco, Montenegro, the Netherlands, New Zealand, North Macedonia, Norway, Poland, Portugal, Romania, San Marino, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Taiwan, Ukraine, the United Kingdom and the United States.
The foreign investor strategy was developed jointly with the Russian Central Bank. Details of the implementation rules will be further worked out with the professional community, the regulator said.
Vladimir Gusakov, the Managing Director for interaction with issuers and authorities of the Moscow Stock Exchange has said that the legislation already allows foreign companies to raise capital in the Russian market, but it is important to create additional incentives, including tax incentives, for issuers from friendly countries. This will increase the attractiveness of the domestic financial market as a whole and create new investment opportunities for Russian investors.
Investment income taxes could also be reduced, although this has not yet been confirmed. Ivan Chebeskov, Director of the financial policy department of the Ministry of Finance, has previously stated that the tax on investment income could be reduced from 30 to 13%.
In addition, an important step will be direct access for banks and brokers from friendly countries to the Russian stock exchange market, as well as introducing a market for derivatives. Such a bill was adopted in the first reading in December 2022.
Larger brokers have also supported the plans of the regulator and the Cabinet. In the absence of American and European investors, who previously accounted for 80% of the volume of transactions, any foreign capital will be welcome, according to Valery Yemelyanov, an expert on the stock market at BCS Mir Investments. According to him, the main advantage of the arrival of new participants is an increase in market liquidity. The more investors, the higher the turnover of trading, and the prices are closer to a fair representative trade value.
This is especially relevant when it comes to clients living in different countries with different ideas about cycles and goals, currencies for spending funds and calculating profitability, Yemelyanov said. They will not simultaneously and run away en masse with one piece of negative news, since the share of Russian shares in their portfolio will be equal to a couple of percent of their total, and they will be able to calmly sit out any local issues.
In fact, “Russia is a country of high positive real rates and dividends” said Yemelyanov. In his opinion, dividend stocks and liquid bonds of the Ministry of Finance and state-owned companies are of primary interest to foreigners. However, it would be useful to reduce the tax on dividends and coupons for non-residents, he said.
In general, foreigners, if they are not tax residents of the Russian Federation, are subject to a 30% tax on investment income and coupons, and 15% on dividends. For citizens of those countries that have agreements to avoid double taxation with Russia, rates can be zeroed or reduced.
Such agreements are now in effect with almost all CIS states. But there are exceptions: it is important to check whether the country has an agreement with Russia and how it works. For example, the agreements with Belarus do not provide for tax exemption for income from the sale of securities.
Foreign investors interested in the Russian market may contact us at firstname.lastname@example.org for analysis and opinion. Our associate, Paul Goncharoff, is based in Moscow.
This article has been translated and edited from the original piece, titled
На фонде событий: инвесторам из дружественных стран упростят доступ на рынок РФ that appeared in Izvestia newspaper on January 24.
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