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Home / Legal and Regulatory Support / Legal Reviews / Review of changes in the Russian legislation in 2003

Review of changes in the Russian legislation

October 2003

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This material is provided through the support of the US Agency for International Development (USAID) and the Department for International Development (DFID) under agreements with the Russian Microfinance Center and Fund "FOR A." This review is for information purposes only. Neither the authors of this review nor the Russian Microfinance Center shall be liable for any damage to any organization's property due to any use of explanations, conclusions and interpretations of effective legislation contained herein.
Author: LEGEM PERFERRE
Edited by: Russian Microfinance Center

Banking

On 11 November 2003, the Russian Government will meet to discuss measures aimed at the development of financial markets in Russia. It is expected that representatives of the Ministry of Economic Development and Trade, the Federal Commission on Securities and the Central Bank will speak at the meeting. As part of financial market reform, a change of regulation and oversight was proposed. In particular, proposals include setting up a special government agency, 'mega-regulator', with a remit to supervise all financial markets.

Financial and Tax Supervision

In October, the State Duma Committee on Budget and Taxes considered the federal bill "On currency regulation and control" and prepared the text for its second reading.

The overall objective of the new draft law is to liberalize currency regulations. According to the new bill, no restrictions will be imposed on operations with foreign currency, with a few exceptions expressly mentioned in the law.

Laws on entrepreneurship and entrepreneurial activities

According to the Federal Law "On state registration of legal entities," the Ministry of Taxes and Levies will be in charge of registering individual entrepreneurs after 1 January 2004.
In October, the Government approved the following documents pursuant to this law:
- Procedures of forwarding documents related to individual entrepreneurs to local MTL agencies;
- Procedures of maintaining the single state registry of individual entrepreneurs and disclosing information contained therein;
- Procedures of storing and archiving information on legal entities and individual entrepreneurs.

Civil Law

On 16 October, the Government met to discuss ways to support SME.

A report by the Ministry of Anti-Monopoly Policies looked at the main barriers to SME development and highlighted some of the defects of the current system of SME support, such as:
- deficiencies of the normative and legal framework regulating such activities;
- inconsistent and insufficient funding of SME support efforts.

The meeting discussed proposals to improve SME support, in particular:

establishing criteria for categorizing companies and entrepreneurs as SME: according to the Ministry of Economic Development, they should include legal entities with no more than 100 employees, or individual entrepreneurs employing no more than 99 people.
amending tax legislation - the idea is to improve SME taxation and to simplify tax reporting;
providing SME with better access to finances.

A number of ways to improve SME access to finances were proposed, namely:

1. Establishing a mechanism of state guarantees to share the risk between the state, credit institutions, and SME. The state will provide guarantees to an authorized bank to enable it to attract finances, while the bank, in its turn, will deposit the funds with regional commercial banks by opening targeted credit lines or providing guarantees for SME credits. The guarantees will be used to support active SME - asset owners with a credit history. Credit guarantees may be combined with subsidizing credit rates to ensure cheaper credits for SME.

2. Extending microfinance services to SME, micro-businesses and start-offs in particular.The state will support the establishment and development of credit cooperatives, mutual credit societies, and other non-bank credit institutions offering microfinance services to SME.

3. A system of recording credit histories is needed to facilitate SME access to bank credits.

As a follow-up to the meeting, the Government instructed the Ministry of Anti-Monopoly Policies, the Ministry of Economic Development, the Ministry of Finance, the Ministry of Industry, Science and Technology, and executive authorities concerned:

to draft, jointly with the Russian Development Bank, amendments to the federal law "On the 2004 Federal Budget" to provide guarantees to the said bank enabling it to attract finances in the domestic market for SME credits;
to draft and submit to the Government, by 15 November 2003, jointly with the Russian Development Bank, the procedures, terms and conditions of SME credits;
to develop proposals by 15 December 2003 concerning new functions of the Federal SME Support Fund, pursuant to the transfer of some of its credit-making functions to the Russian Development Bank, and the transfer of its function of supporting SME innovations and infrastructure to the Foundation for SME Support in Science and Technology;
to submit to the Government, in the 1st quarter of 2004, a legislative proposal designed to harmonize the Federal Law "On state support of SME in the Russian Federation" with the other current legislation.

Normative Legal Acts pending before the Duma

The Federal bill "On mutual insurance"
Introduced by the RF Government.
Adopted in its first reading.

This bill implements the RF Civil Code Article 968 "Mutual Insurance." The bill provides for citizens' right to association for mutual financial assistance in the form of insurance, and regulates the right of SME (both individual entrepreneurs and companies) to mutual insurance in the framework of mutual insurance societies. All participants of such societies act as both providers and recipients of insurance, which allows them to determine independently the society's insurance policy, the types, terms and conditions of insurance, tariffs, and procedures of formation and use of insurance reserve funds.

The bill defines the status, principles, restrictions and specific characteristics of non-profit mutual insurance societies, and their members' rights and responsibilities.

BILLS CONSIDERED IN OCTOBER 2003

Appendix 1

No	Name of the bill	Concept	Status as of 01.10.03	Progress in October	Comment

*Tax Law*

1.	"On amending Section IX of the RF Tax Code and Article 20 of the RF Law on fundamentals of the RF tax system, and on the annulment of certain RF legal provisions related to taxes and duties" (sponsored by the Government)..	On amending the Russian Tax Code by Article 30, Corporate Property Tax.	Passed its third reading.	Rejected by the Federation Council. A Conciliatory Commission was set up. Adopted by the Duma in the version proposed by the Conciliatory Commission. Endorsed by the Federation Council
2.	"On amending Chapter 21 of the RF Tax Code"	On reducing VAT from 20 to 18 percent.	Adopted in its first reading.	No changes.	The VAT reduction was adopted as amendment to another law.
3.	"On amending article 241 of the RF Tax Code" (sponsored by A.D. Zhukov, M.M. Zadornov, V.M. Reznik, and S.I. Shtogrin).	On decreasing the maximum UST rate on 1 January 2005.	Adopted in its first reading.	No changes.

*Banking*

4.	"On insuring deposits by private individuals with Russian banks" (sponsored by the Government).	Establishes a system of deposit insurance.	Adopted in its first reading.	No changes.
5.	"On amending the Federal Law on SME support in the Russian Federation" (sponsored by Duma members).	Simplifies bank credits to SME.	Introduced as lawmaking initiative	Adopted in its first reading.	The deadline for amendments is 15. 11.03.
6.	"The main directions of the 2004 monetary and credit policies" (Introduced by the Central Bank).	Considers scenarios for Russia's macroeconomic development in 2004 and proposes measures for banking sector reform.	Submitted to the State Duma for approval.	Following a decision by the budget committee, the document was sent back to the Central Bank for revision.
7.	"On the Federal Bureau of credit histories" (introduced by Duma members).	Establishes the Federal Bureau of credit histories as a special institution affiliated with the Central Bank.	Introduced as lawmaking initiative	No changes.
8.	"On amending the Federal Law on banks and banking and the Federal Law on the Central Bank of Russia" (introduced by MP V. Tarachov)	Establishes credit bureaus under the Bank of Russia.	Introduced as lawmaking initiative.	No changes.
9.	"On bureaus of credit histories" (introduced by MP I. Grachov)	Credit bureaus are commercial companies focusing on this area of activity.	Introduced as lawmaking initiative.	No changes.

*Financial and Tax Supervision*

10.	"On currency regulation and control" (sponsored by the RF Government).	A new version of the law.	Adopted in its first reading.	No changes.

*Civil Law*

11.	"On credit cooperation" (sponsored by the RF Government).	Establishes a legal framework for credit cooperatives.	Adopted in its first reading.	No changes.
12.	"On self-regulating organizations" (sponsored by a group of Duma members).	Introduce a new type of non-profit organization. Differences between the two bills are minimal.	Introduced as lawmaking initiative.	Adopted in its first reading.
13.	"On self-regulating organizations" (communist MPs).		Introduced as lawmaking initiative.	Rejected in its first reading.
14.	"On Mortgage" (sponsored by Duma members).	Abolishes the requirement that mortgage agreements must be notarized.	Adopted in its first reading.	No changes.

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