|                                                                                                                                                             |  | LENINGRAD OBLAST LAW                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | February1998by Nikolai Nemchinov & Gennady KhareynThe Leningrad Oblast has enacted a new investment law introducing substantial tax incentives and
other benefits for investors in the region.  The new law "On Investment Activity in the Leningrad
Oblast," enacted July 22, 1997, sets out local benefits for newly-established enterprises with
investments over 6 billion rubles ($1 million, as calculated prior to the ruble redenomination which
began January 1, 1998; see BISNIS Bulletin, December 1997/January 1998, Page 6).  The law
indicates the oblast administration's flexibility and willingness to accomodate investors, but U.S.
companies should remember that federal taxes are by far the greatest share of the tax burden in
Russia, and that Russian federal law supercedes local legislation in tax matters.The 1997 law expands tax privileges for new enterprises, including those with foreign
participation, beyond the provisions of the oblast's 1994 investment law.  The 1997 statute is
designed to encourage Russian and foreign investment and stimulate manufacturing in the region.  
According to the law, an investor can obtain tax breaks in the Leningrad Oblast, provided it: (1) is
a legal entity properly registered with the Russian authorities; (2) invests in the development of
industry, construction, or agriculture in the oblast; and (3) has concluded a special investment
agreement with the oblast administration.Locally-Registered Entity Required
The law grants tax benefits exclusively to legal entities registered in the Russian Federation and
the Leningrad Oblast.  Current Russian legislation permits foreign investors to set up a business in
various legal forms in Russia, including joint stock and limited liability companies, joint ventures,
subsidiaries, and branch offices.  The investor may also buy shares in an existing enterprise.  Once
registered in the oblast, the investor must enter into an investment agreement with the local
authorities to qualify for tax exemptions and other privileges.The investment law also provides for an opportunity to establish "most-favored" treatment for
some investors.  According to the law, businesses enjoying such treatment would receive support
from the oblast administration when approaching federal authorities and financial institutions. 
Furthermore, the administration may issue additional guarantees for investments in the region. 
These guarantees would include:equality of rights of all investors in the region;
  "security of investors' rights"; although the exact meaning of the law on this point is unclear, it
is implied from the statute that the oblast administration will compensate an investor for any
additional expenses, provided the investment is more than 6 billion rubles (as calculated prior to
the 1998 ruble redenomination);
  liability of the administration for legal and consulting services rendered to the investor by
authorized law and consulting firms; and
  no compulsory investment in other projects in the region.Within the framework of the investment agreement between the investor and the oblast
administration, the administration may be liable for the execution of the agreement by state and
local authorities, as well as by third parties, of any other agreed terms or for any losses  an
investor suffers, if said bodies fail to fulfill the agreement.  The oblast administration will
reimburse the investor for such expenses, if they occur, from the local budget up to maximum
amounts defined in the budget.Investment Agreement
The obligatory condition for obtaining tax privileges and most-favored treatment is the investment
agreement between the investor and the Leningrad Oblast Administration.  The agreement should
specify rights and obligations of the administration and the investor.  Although the law was
enacted July 22, 1997, it will not enter in force until the model agreement implementing the law is
ready.  A model agreement is currently being drafted by the oblast administration.  For more
information on doing business in the Leningrad Oblast, visit BISNIS at
www.mac.doc.gov/bisnis/country/regions.html# Northern.Gennady Khareyn & Dr. Nikolai Nemchinov are attorneys with McDermott, Will & Emery, LLC
in St. Petersburg.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)