Russia: Changes made to immigration rules to attract foreign investment

As part of the Russian government's continuing drive to improve the foreign investment climate, one of the major headaches for foreign investors – particularly new investors – is at last being seriously addressed. This concerns the question of work permits and visas.

Under current rules, an employer has to apply for an allocation (or "quota") of work permits (specifying the position and nationality of each foreigner) by 1 May preceding the calendar year in which the permits are required. While certain top positions/specialists are excluded, the ability to put foreign staff on the ground in Russia quickly has been a real challenge for new investors, while the annual renewal process and many practical issues have made ongoing compliance with the law a major problem for existing businesses. The new rules, which have swept through the legislative process with extraordinary speed, were signed into law on 20 May 2010. They will come into force on 1 July 2010 and should significantly simplify the work permit and visa process for many employers.

The most significant changes relate to the employment of "highly qualified specialists" (and their dependents), defined as those earning RUB 2 million or more per annum (approximately USD 67,500). Employers will simply be able to make an application, without a prior quota, and expect to receive work permit approval within 14 working days (although the work visa may still take 28 days). These documents will be valid for up to three years and can allow the individual to work in more than one region of Russia (the normal rules in this respect are very restrictive). Furthermore, such individuals will only be taxed on their Russian-source earnings at the flat 13% rate even if they never achieve Russian tax residency (the current tax rate on nonresidents' income is 30%).

Finally, it seems that highly qualified specialists also will be able to apply for "permanent residency" status for the duration of their contracts, although the additional benefits of doing so are not yet entirely clear. All this amounts to a minor revolution, as Russia seeks to attract business and talent to further its modernization agenda. However, there are several points to note:

- The new approach applies to employees of legal entities and branches, but not representative offices.
- The form of application – and the documentation required to accompany it – has not yet been specified. The source of medical tests and proof of "appropriate" educational qualifications have been problems in the past, although under the new rules it should be up to the employer to determine an employee's suitability for a job.
- Most foreigners are not currently formally registered with the Russian tax authorities, even though they are taxpayers. Under the new regime, "highly qualified specialists" must be tax registered by their employers, and this possibly foreshadows increased cooperation between the tax and immigration authorities.
- The tedious registration requirements on entering and leaving Russia each time appear to remain in place, although they have been partly relaxed for travel between regions.

Nevertheless, it seems clear that one important barrier to doing business in Russia is being lowered and both prospective and existing investors will want to take advantage of the changes, although perhaps only after it becomes clearer how the immigration authorities will implement the changes in practice. Detailed regulations are awaited.