Since Russia began to emerge from a socialist system, it has on the whole been perceived to be a less immediately attractive investment option when compared to the other East European economies. Quite apart from the obvious deterrent of political instability, there have been other difficulties to face: an inadequate legal framework, alien business culture and poor communications infrastructure are often quoted. There are also few investment incentives.
During the last year, there have been more positive signs that Russia will mature into a full market economy, with the currency stabilizing, steadily falling inflation and membership of the World Trade Organisation nearing reality. Furthermore, the Government began to address some of the legal inadequacies - anti-monopoly, and property and investor protection laws were passed, together with a Civil Code regulating company and contract law.
With regard to tax law, the present regime is complex and contradictory, with a large number of separate laws regulating some forty taxes. A Tax Code is under preparation which seeks to rationalise the tax system. It promises to iron out inconsistencies, reduce the number of taxes by half and limit the amount of penalties and interest which might apply in a given situation, but is unlikely to be introduced before 1997. However, the removal of much of the political uncertainty and the appointment of reformers in the Government suggest that reforms will continue in all spheres.
One positive development in relation to tax is the Russian tax authorities' increasing recognition of its international tax responsibilities and an extension to its network of double tax treaties. Together with treaties concluded by the USSR, which Russia continues to honour, there are now 25 treaties in force with a further eighteen which may pass through all the formalities and be effective from 1 January 1997.
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