Debt Securities

This legislation introduced the concept of secured and unsecured bonds. Secured bonds must be fully secured with a third-party guarantee or suretyship, or with a pledge (or a mortgage) over the issuer’s and/or third party’s securities or immovable property.

Two specific types of securities were introduced in 2003 to facilitate mortgage securitisations. Pursuant to the MBS Law, Russian banks and certain other entities may issue mortgage-backed bonds and mortgage-participation certificates. Such securities must be backed by loan receivables secured by mortgages over real estate. Besides bonds, some Russian companies use promissory notes and bills of exchange for debt financings. Under Russian law, promissory notes and bills of exchange are treated as securities.

An RDR is a registered issuable security without a nominal value, which certifies both the right to a specified amount of shares or bonds of a foreign or Russian issuer of RDRs and the provision of services in connection with the realization of rights by a Russian holder of an RDR. RDRs are documented bearer securities and are stored centrally by the issuer. Exchange bonds differ from ordinary bonds. They can be issued through a simplified procedure. Maturity of exchange bonds may not exceed 36 months. The issuance, prospectus and placement report do not need to be registered. However, some conditions must be set out. Mutual investment funds are considered to be a property complex and not legal entities. Mutual investment funds are managed by a management company, which acts on behalf of the founders pursuant to a trust agreement. An investment unit is a registered security issued by a management company certifying the share of its holder in the ownership right to the property composing an investment fund and property coming about through the management.

Banking

The foundations of the Russian banking system are provided in the

Banking Law and Federal Law No.86-FZ On the Central Bank of the

Russian Federation, dated 10 July 2002 (the “Bank of Russia Law”).

The primary regulatory body governing the banking sector of the

Russian Federation is the Bank of Russia. The Bank of Russia is one

of the few institutions under the control of the Russian legislative

(rather than executive) branch. The State Duma must not only

approve the nomination of the chairman of the Bank of Russia, but

also approve the resignation of the chairman.

The Bank of Russia and the Government share authority over

monetary policy.
The Bank of Russia is responsible for circulating

monetary funds and ensuring the stability of the Russian ruble. As

part of its regulatory role, the Bank of Russia establishes state

registration, accounting, reporting and licensing rules for credit

organizations, sets minimum reserve requirements for lending

operations, mandatory ratios (capital adequacy, liquidity, etc.) and

requirements on the amount of charter capital. The Bank of Russia

maintains regional offices throughout the Russian Federation.
Licensing and Banking Supervision

A credit organization must be registered in the Russian Federation

further to a specific procedure and must be licensed by the Bank of

Russia. Newly established banks can receive licenses permitting a

limited scope of operations. A bank that has held a license for a

period of two years or more is…1….(deprived, entitled, added) to apply for licenses permitting an extended scope of operations.

The Bank of Russia has..2…(controlling, expanding, limiting) powers over Russian Banks: it approves the appointment of the senior management of all credit organizations, holds …3….(additional, non mandatory, mandatory) reserves placed by credit organizations, and monitors credit organizations’ compliance with applicable requirements. If a credit organization fails to …4….(admit,comply, submit) with these requirements the Bank of Russia is entitled to exercise various sanctions, which range from a warning and fine to..5… (suspension, cancellation, annihilation)of certain banking operations and …6…(permutation,variation, revocation) of its banking license,

which triggers the dissolution or bankruptcy of the credit organization.

Deposit Insurance

Federal Law No. 177-FZ On the Insurance of Deposits of Individuals

in the Banks of the Russian Federation, dated 23 December 2003 (the

“Deposit Insurance Law”) establishes an insurance system for the

deposits of individuals. It …7..(acts, circulates, stipulates)that all banks accepting individual deposits must be members of the deposit insurance system.

Member banks have to make contributions to a special deposit insurance fund. These contributions are calculated as a percentage of the average daily…8…(section, balance, share) of individual deposits maintained with a particular bank, and beginning from the 4th quarter of the year 2008 are subject to an upper limit of 0.1%. All individual depositors with deposits in member banks are

entitled to 100%...9…. (tendency, compensation, inclination) for aggregate amounts up to RUB700,000 (approx. USD23,000) for each bank. However, the

deposit insurance would not cover e-money deposits.

Taxation

Over the past 14 years Russia has been engaged in a significant reform

of its tax system, which has been implemented in phases. This reform

has improved procedural rules and made them more favorable to

taxpayers, has reduced the overall number of taxes, and has reduced

the overall tax burden in the country.

The Tax Code sets forth three levels of taxation: federal, regional and

local. Currently, federal taxes include VAT, excise taxes, profits tax,

personal income tax, mineral extraction tax, state duty, special tax

regimes, and several other taxes. Regional taxes include corporate

property tax, transportation tax, and gambling tax, while local taxes

include land tax and individual property tax. Social security

contributions are payable to the State Pension Fund, Social Security

Fund, and Federal Medical Insurance Fund.
Corporate profits tax.

Starting…1…. (from, with, in)1 January 2009, the maximum tax…2.... (index, rate, rating) for all companies was reduced to20%-Chapter 25 of the Tax Code, which is currently …3….(pay, payable, payment) at a rate of 2% to the federal budget and 18% to regional budgets. The regional authorities may, at their

discretion, …..4…… (increase, deduct, reduce) their regional profits tax rate to as low as 13.5%.

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