I am obliged to Derek Bloom of Coudert Brothers, Attorneys at Law, Ul. Nikoloyamskaya 54 (formerly Ulyanovskaya), Moscow 109004, RUSSIA for providing me with a copy as well as English translation of the Russian law.

Approved by the State Duma on September 11, 1998,
and Signed By President Yeltsin on October 29, 1998

The objectives of this Federal Law shall be to diversify forms of investment in capital goods on the basis of leasing operations, to protect the ownership rights and the rights of the participants in the investment processes, and to ensure investment efficiency.

This Federal Law shall define specific legal, organizational and economic features of leasing.

Article 1. Application of this Federal Law

This Federal Law shall apply to the leasing of that property which comes within the category of non-consumable things (with the exception of parcels of land and other natural objects) being transferred to individuals and legal entities for temporary possession and use.

Article 2. Basic Concepts Used in This Federal Law

The following basic concepts shall be used in this Federal Law:

Leasing shall be understood to mean a form of investment activity whereby property shall be acquired and transferred, for a fee, to individuals or legal entities under leasing agreements for a certain term and on certain conditions stipulated by the agreement, and under any such arrangement the lessee shall have the right to buy out the property so leased.

A lease transaction shall be understood to mean a series of contracts necessary for the performance of a leasing agreement by the lessor, the lessee and the seller (supplier) of the subject matter of leasing.

Article 3. Subject Matter of Leasing

1. Any non-consumable things, including enterprises and other bodies of property, buildings, structures, equipment, transportation systems, other movable and immovable property which may be used in pursuit of business may be the subject matter of leasing.

2. Parcels of land and other natural objects may not be the subject matter of leasing. Nor may leasing cover property which has been prohibited by federal laws from circulating freely or which has been allowed to circulate subject to special procedures.

1. The following shall be parties to leasing:

The lessor shall be an individual or legal entity which shall, using borrowed funds or funds of its own, acquire property into its ownership in the course of performance of a lease transaction and make it available to the lessee as the subject matter of leasing for a certain fee, for a certain term and on certain conditions for temporary possession and use with or without subsequent transfer to the lessee of the right of ownership to the subject matter of leasing.

The lessee shall be an individual or legal entity which shall, based on the leasing agreement, be bound to accept the subject matter of leasing for a certain fee, for a certain term and on certain conditions for temporary possession and use, all in accordance with the leasing agreement.

The seller (supplier) shall be an individual or legal entity which shall, based on the sale and purchase agreement with the lessor, sell to the lessor at an agreed time property which is manufactured (purchased) by it and which is the subject matter of leasing. The seller (supplier) shall be bound to transfer the subject matter of leasing to the lessor or the lessee in accordance with the terms and conditions of the sale and purchase agreement.

2. Any of the parties to a leasing arrangement may be a resident of the Russian Federation or otherwise, and also may be a business entity involving a foreign investor and pursuing its activities in accordance with the legislation of the Russian Federation.

Article 5. Leasing Companies (Firms)

1. The leasing companies (firms) shall be commercial entities, whether residents of the Russian Federation or otherwise, which shall perform, in accordance with their constitutive documents, the functions of lessor and which shall have obtained, pursuant to the procedure established by the legislation of the Russian Federation, permits (licenses) to engage in leasing activities.

2. Legal entities and individuals, whether residents of the Russian Federation or otherwise, and also citizens registered as individual entrepreneurs without a separate legal identity may become founders of leasing companies (firms).

3. A leasing company (not being a resident of the Russian Federation) shall be a foreign legal entity engaged in commercial activities in the Russian Federation in accordance with the procedure established by the legislation of the Russian Federation.

4. Leasing companies shall be entitled to borrow funds of any legal entities, whether residents of the Russian Federation or otherwise, in order to engage in leasing activities.

Article 6. Leasing Activities

1. Leasing activities shall mean the performance of the lessor’s functions under a leasing agreement.

2. Leasing activities shall be carried out under an appropriate permit (license) by leasing companies and individuals who carry on leasing business and are registered as individual entrepreneurs which permit shall be obtained in accordance with the procedure established by the legislation of the Russian Federation.

3. Non-residents of the Russian Federation shall be licensed to engage in leasing activities after they shall have registered in the territory of the Russian Federation for tax purposes.

Article 7. Forms, Types and Classes of Leasing

1. The principal forms of leasing governed by this Federal law shall include domestic leasing and international leasing.

In domestic leasing, the lessor, lessee and seller (supplier) shall all be residents of the Russian Federation. Domestic leasing shall be regulated by this Federal Law and the legislation of the Russian Federation.

In international leasing, the lessor or lessee shall be non-residents of the Russian Federation.

Where a resident of the Russian Federation acts as the lessor, that is, where the subject matter of leasing is in the ownership of a resident of the Russian Federation, any applicable international leasing agreement shall be regulated by this Federal Law and the legislation of the Russian Federation.

Where a non-resident of the Russian Federation acts as the lessor, that is, where the subject matter of leasing is in the ownership of a non-resident of the Russian Federation, any applicable international leasing agreement shall be regulated by federal laws applicable to foreign economic operations.

2. The principle types of leasing governed by this Federal Law shall include the following:

long-term leasing, that is, a leasing arrangement in effect for three or more years;

medium-term leasing, that is, a leasing arrangement in effect for a period from one-and-a-half years to three years; and

short-term leasing, that is, a leasing arrangement in effect for less than one-and-a-half years.

3. The principal classes of leasing governed by this Federal law shall include finance lease (financial leasing), lease-back and operating leasing.

Finance lease (financial leasing) shall be that class of leasing whereby the lessor shall bind itself to purchase into its ownership from a certain seller property designated by the lessee and to transfer to the lessee such property as the subject matter of leasing for a certain fee, for a certain term and on certain conditions for temporary possession and use. In such case, the term, for which the subject matter of leasing is transferred to the lessee, is commensurate in duration to, or exceeds, the term of full depreciation of the subject matter of leasing. The subject matter of leasing shall pass into the ownership of the lessee after the expiration of the effective term of the leasing agreement or prior to its expiration; provided, however, the lessee has paid in full the amount determined by the leasing agreement, unless the leasing agreement provides otherwise.

Lease-back shall be a variety of finance lease, whereby the seller (supplier) of the subject matter of leasing shall simultaneously act as the lessee.

Operating lease shall be that class of leasing whereby the lessor shall buy property at its risk and peril and transfer the same to the lessee as the subject matter of leasing for a certain fee, for a certain term and on certain conditions for temporary possession and use. The term, for which such property is leased, shall be determined on the basis of the leasing agreement. Upon the expiration of the effective term of the leasing agreement and on condition that the lessee has paid to the lessor in full the amount provided for by the leasing agreement, the subject matter of leasing shall be returned to the lessor, and in such case the lessee shall not have the right to claim the transfer of the right of ownership to the subject matter of leasing. In the case of operating lease, the subject matter of leasing may be leased on several occasions during the entire period of depreciation of the subject matter of leasing.

4. A lease transaction may include conditions concerning extra services.

Extra services shall be services of any kind rendered by the lessor prior to the commencement, or in the process, of use of the subject matter of leasing by the lessee, to wit:

the acquisition from third parties of intellectual property rights (know-how, license rights, rights in trademarks and other marks, software rights, and so forth);

the acquisition of inventory needed in the process of installation/assembly (supervision over installation/assembly), start-up and adjustment work;

the performance of installation/assembly (supervision over installation/assembly), start-up and adjustment work in relation to the subject matter of leasing, and personnel training;

the provision of post-warranty servicing of, and repairs to, the subject matter of leasing, including routine and medium repairs and overhaul;

the preparation of production premises complete with utility supply lines and conduits; and the provision of services associated with the installation (assembly) of the subject matter of leasing; and

other work and services without which the subject matter of leasing may not be used.

The list, extent and value of extra services, if any, shall on an obligatory basis be set out in relevant leasing agreements.

Article 8. Subleasing

1. Subleasing shall be a special class of relations arising out of the assignment to a third party of the rights to use the subject matter of leasing, which arrangement shall be executed in the form of a subleasing agreement.

2. In the case of subleasing, the party arranging subleasing shall accept the subject matter of leasing from the lessor under the leasing agreement and transfer it for temporary use to the lessee under the subleasing agreement.

3. No third-party assignment by the lessee of its obligations to make leasing payments to a third party shall be allowed.

4. Where the subject matter of leasing is subleased, the obligatory requirement for such arrangement shall be the lessor’s written consent.

5. International subleasing shall be a variety of international leasing governed by this Federal Law.

One specific feature of international subleasing shall be that the subject matter of leasing shall be moved across the customs border of the Russian Federation only for the effective term of the subleasing agreement.

Article 9. No Combination of Obligations by Parties to Leasing Agreements

Within the system of interconnected and interdependent agreements which give effect to leasing, the following parties to a leasing agreement shall not be allowed to combine obligations with respect to a specific subject matter of leasing:

the lessor and the lessee under a leasing agreement; and

the creditor and the lessee of the subject matter of leasing, except in the case of a lease-back arrangement.

Article 10. Rights and Obligations of Parties to Leasing Agreement

1. The rights and obligations of the parties to a leasing agreement, except for an international leasing agreement, shall be governed by the rules of civil legislation and this Federal Law.

2. The rights and obligations of the parties to an international leasing agreement shall be regulated in accordance with the Federal Law "On the Accession of the Russian Federation to the UNIDROIT Convention on International Financial Leasing" and the rules of national legislation to the extent that they do not contradict the rules of international law applied for the purpose of regulation.

3. The choice of applicable law shall be made by agreement between the parties to an international leasing agreement in accordance with the UNIDROIT Convention on International Financial Leasing.

4. In the case of financial leasing and mixed leasing, the lessee shall be entitled to address claims directly to the seller (supplier) of the subject matter of leasing as regards quality, completeness and timing of delivery as well as other claims arising our of the sale and purchase agreement entered into by the seller (supplier) and lessor.

5. In the case of operating lease, the lessor shall be liable for those faults of the subject matter of leasing transferred for temporary possession or use which fully or partially prevent it from being used, even though on the date of conclusion of the operating lease agreement the lessor had no knowledge of such faults.

Upon detecting such faults, the lessee shall be entitled to request the lessor to cure any such faults of the subject matter of leasing at no additional cost to the lessee, and further request a commensurate decrease of the amount of leasing payment or compensation of its expenses incurred in curing the faults of the subject matter of leasing.

The lessor shall not be liable for the faults of the subject matter of leasing transferred [to the lessee] for temporary possession and use to the extent that such faults were described thereby at the time of concluding the operating lease agreement or were known to the lessee beforehand or could have been detected by the lessee during an inspection of the subject matter or a check of its operability at the time of concluding the operating lease agreement or at the time of transfer of such subject matter to the lessee.

6. On entry of a leasing agreement into legal effect, the lessee shall be entitled to require the lessor to perform its obligations under the agreement, and in the case of the lessor’s failure to do so, to claim in court compensation of direct losses incurred in preparation for the acceptance of the subject matter of leasing, to the extent that such expenses were actually incurred.

7. In the event that the leasing market situation and the conditions of the lessor’s business change, leading to a material deterioration of the financial status of the lessor, the terms and conditions of the leasing agreement may revised subject to the consent of the parties.

Article 11. Issues of Ownership

1. The subject matter of leasing transferred to the lessee for temporary possession and use shall remain the property of the lessor.

2. The right of possession and use of the subject matter of leasing shall pass to the lessee in full measure, unless provided otherwise by the leasing agreement.

3. The right of the lessor to dispose of the subject matter of leasing shall include the right to take the subject matter of leasing from the lessee’s possession and use in such instances and pursuant to such procedure as are specified by this Federal Law and the pertinent leasing agreement.

Article 12. Accounting Arrangement Applicable to Subject Matter of Leasing

1. The subject matter of leasing transferred to the lessee under a finance lease agreement shall be accounted for on the books of the lessor or lessee as may be agreed by the parties.

2. In the case of operating lease, the subject matter of leasing shall be accounted for on the books of the lessor.

1. The lessor shall have the right of unconditional recovery of moneys and unconditional repossession of the subject matter of leasing in the following instances:

where the conditions of use of the subject matter of leasing by the lessee are inconsistent with the conditions of the leasing agreement or the designated use of the subject matter of leasing;

where the lessee engages in subleasing without the lessor’s consent;

where the lessee fails to maintain the subject matter of leasing in good order and substantial state of repair, as a result of which its consumer qualities deteriorate; and

where the lessee fails on more than two occasions in a row to make payment for the use of the subject matter of leasing after the date established by the leasing agreement as the due date for such payment.

2. A lessor shall have the right of unconditional recovery of moneys and unconditional repossession of the subject matter of leasing in designated cases provided by this Federal Law, the rules set forth by the Civil Code of the Russian Federation and also in instances stipulated by the leasing agreement.

3. The designated case shall be understood to mean the onset of such circumstance or event which shall, by a leasing agreement, be defined as indisputable and explicit violations by the lessee of its obligations set out by the leasing agreement or as an indisputable and explicit cause for the termination of the leasing agreement.

4. A designated case shall entail the actual termination of the lessee’s right to possess and use the subject matter of leasing, and the lessor shall in such case have the right of unconditional repossession of the subject matter of leasing in accordance with the procedure laid down by the leasing agreement, or to recover money.

5. Where a lessee performs its obligations in an indisputable manner, the lessee shall, once its obligations shall have been discharged, have the right to recourse to court and seek protection of its legitimate property interests.

Article 14. Procedure for Using Subject Matter of Leasing in Pledge

1. A lessee may pledge the subject matter of leasing only with the written consent of the lessor. Such pledge may be recorded in a separate contract between the lessee and its creditor.

2. A lessor may exercise its rights with respect to the subject matter of leasing as the subject matter of a pledge offered to a third party, whether or nor the latter is a party to the lease transaction. The risk of pledge being taken in favor of such third party shall then be regarded as an indisputable breach of the terms of the leasing agreement on the part of the lessor.

3. If the subject matter of leasing is acquired with borrowed funds and represents the subject matter of a pledge used to secure the borrowing agreement, no second pledge may be created over it.

Article 15. Contents of Leasing Agreement

1. A leasing agreement shall, irrespectively of its term, be executed in writing.

2. The title of such leasing agreement shall define the form, type and class of leasing.

3. Under a leasing agreement, the obligations of the parties, which are performed by parties to other agreements, shall arise by virtue of conclusion with other parties to the leasing arrangement of mandatory and associated agreements.

A sale and purchase agreement shall be one of such mandatory agreements.

Associated agreements shall include a borrowing agreement, a contract of pledge, a contract of guarantee, a suretyship contract, and others.

4. A leasing agreement shall contain the following material provisions:

an accurate description of the subject matter of leasing;

an indication of the extent of the ownership rights transferred thereunder;

an indication of the name of the place where the transfer of the subject matter of leasing shall take place and the description of the procedure therefor;

an indication of the effective term of the leasing agreement;

a description of the procedure to be used to account for the subject matter of leasing on the books of the lessee or lessor (as the case may be);

a description of the procedure for maintenance of, and repairs to, the subject matter of leasing;

an indication as to extra services provided by the lessor pursuant to a integrated leasing agreement;

an indication of the total value of the leasing agreement and the fee payable to the lessor;

a description of the payment procedure (payments schedule); and

the definition of the obligation of the lessor or lessee (as the case may be) to insure the subject matter of leasing against risks associated with the leasing agreement, unless provided for otherwise by the agreement.

5. Under a leasing agreement, the lessor shall be obligated as follows:

in the event of finance lease or mixed leasing, to acquire from a certain seller (supplier) into its ownership certain property for its transfer, for a certain fee, or to transfer to the lessee property acquired earlier for a certain term and on certain conditions as the subject matter of leasing; and

perform other obligations arising out of the content of the leasing agreement.

6. Under a leasing agreement, the lessee shall be obligated as follows:

to accept the subject matter of leasing as is stipulated in said leasing agreement;

to compensate the lessor for its investment costs and pay a fee thereto;

upon expiration of the effective term of the leasing agreement, to return the subject matter of leasing unless otherwise provided for by said leasing agreement or to acquire the subject matter of leasing into ownership pursuant to a purchase and sale agreement;

to perform other obligations as may arise out of the contents of the leasing agreement.

7. The leasing agreement shall, on a mandatory basis, define circumstances which the parties shall deem to be an indisputable and obvious breach of obligations leading to the termination of the leasing agreement and property settlement, and shall also establish a procedure for repossession/return of the subject matter of leasing.

8. The leasing agreement may provide for the lessee's right to extend the effective term of leasing and to preserve or amend the terms and conditions of the leasing agreement.

Article 16. Mandatory Elements and Conditions of the Leasing Agreement

1. An agreement shall be defined as the leasing agreement if it contains indications that funds are being invested in the subject matter of leasing and that the subject matter of leasing is being transferred to the lessee.

Under international finance lease, the leasing agreement shall contain a reference to a purchase and sale agreement whereby the transfer of the subject matter of leasing to the lessee shall be effected no later than six months from the date that the subject matter of leasing crossed the customs border to the Russian Federation, unless the subject matter of leasing is transported across the territory of the Russian Federation during a period in excess of six months.

2. The failure to observe the provisions set forth by Clause 1 of this Article shall prevent an agreement from being defined as the leasing agreement.

Such agreement shall not be governed by this Federal Law.

1. The lessor shall provide the lessee with the leased property in a condition consistent with the terms of the leasing agreement and fit for the designated use of such property.

2. The subject matter of leasing shall be leased together with all of its accessories and all documents (technical certificate and so forth), unless otherwise provided for by the leasing agreement.

3. The warranty service of the subject matter of leasing may be effected by the seller/supplier if provided for by the purchase and sale agreement.

4. The lessee shall effect maintenance of, medium and current repairs to the subject matter of leasing at its cost and expense, unless otherwise provided by the leasing agreement.

5. The overhaul of the leased property shall be effected by the lessor, unless otherwise provided by the leasing agreement.

6. Upon termination of the leasing agreement the lessee shall return to the lessor the subject matter of leasing in the same condition in which it received it with due account taken of normal wear and tear or such wear and tear as stipulated by the leasing agreement.

7. If the lessee has failed to return the subject matter of leasing or has not returned it in time, the lessor shall be entitled to claim payments for the period of the delay. In the event that said payment does not cover the losses suffered by the lessor, it may claim compensation therefor.

8. In the event that a late charge is provided to be paid to the lessor for an untimely return of the subject matter of leasing, the losses may be recovered from the lessee in full plus the late charge, unless otherwise provided by the leasing agreement.

9. The detachable improvements made by the lessee to the subject matter of leasing shall remain its property, unless otherwise provided by the leasing agreement.

10. In the event that the lessee has made, with the lessor's written consent, improvements at its cost and expense to the subject matter of leasing which improvements may not be detached without damaging the subject matter of leasing, the lessee shall be entitled to receive compensation for the value of such improvements after the leasing agreement is terminated, unless otherwise provided by the leasing agreement.

11. In the event that the lessee has made, without the lessor's written consent, improvements at its cost and expense to the subject matter of leasing which improvements may not be detached without damaging the subject matter of leasing, the lessee shall not be entitled to receive compensation for the value of such improvements after the leasing agreement is terminated.

1. The lessor may assign its rights under the leasing agreement or its interests arising out of such agreement to a third party in full or in part.

2. In the case of operating lease the lessee may not assign its rights.

3. In order to raise funds, the lessor shall be entitled to pledge the subject matter of leasing which shall be acquired in the future under the terms and conditions of the leasing transaction.

4. This Federal Law shall not govern assignments by the lessor of its rights under the leasing agreement which are not related to the subject matter of leasing.

5. Pledge and mortgage agreements concluded by the lessee with third parties without the lessor's written consent shall be null and void.

Article 19. Transfer of Right of Ownership of the Subject Matter of Leasing

1. Under finance lease, the right of ownership of the subject matter of leasing shall pass to the lessee before the expiration of the effective term of the leasing agreement; provided, however, that all leasing payments have been made, unless otherwise provided by the finance lease agreement.

2. The right of ownership to the subject matter of leasing under operating lease may pass to the lessee pursuant to a purchase and sale agreement.

1. The registration of immovable property which is the subject matter of leasing under the leasing agreement shall be effected in accordance with the procedure laid down by the legislation of the Russian Federation.

2. The subject matter of leasing which must be registered with the state agencies (transportation systems, sources of increased danger [cf. dangerous instrumentality], and other subject matter of leasing) shall be registered in the name of the lessor or lessee, as may be agreed between the parties.

3. By mutual consent of the parties, the lessor shall be entitled to direct the lessee to register the subject matter of leasing in the lessor's name, in which case the details of the owner and possessor/user of the property must be specified in the registration documents on a mandatory basis. In instances where the agreement is terminated and the subject matter of leasing is repossessed by the lessor, the state agencies which have registered the property shall be obliged to annul the registration of the possessor/user at the lessor's request.

Article 21. Insurance of Subject Matter of Leasing and Risks

1. The subject matter of leasing may be insured against the risks of loss/destruction, shortage or damage from the date of delivery of the property by the seller/supplier until the date of expiration of the effective term of the leasing agreement, unless otherwise provided by the agreement.

2. Insurance against business/financial risks shall be effected as agreed by the parties to the leasing agreement and shall not be mandatory.

3. The parties which shall perform the duties of insurer and beneficiary and the term of insurance shall be as determined by the leasing agreement.

4. In instances specified by the legislation of the Russian Federation, the lessee shall insure its liability for performance of obligations arising out of harm as may be caused to life, health or property of other persons in the course of use of the leased property.

Article 22. Risks Not Related to Insurance

1. The lessee shall be liable for safe custody of the subject matter of leasing from all kinds of property damage, and for the risks related to destruction, loss, spoilage, pilferage, early break-down thereof and error made during its installation or operation, and for other property risks from the date of actual acceptance of the subject matter of leasing, unless otherwise provided by the leasing agreement.

2. The risk of the seller's/supplier's insolvency shall be borne by that party to the leasing agreement which has chosen the seller/supplier, unless otherwise provided by the leasing agreement.

3. The risk of non-compliance of the subject matter of leasing with the designated use of such subject matter under the leasing agreement shall be borne by the party which has chosen the subject matter of leasing, unless otherwise provided by the leasing agreement.

1. Any disputes between the Russian parties to a leasing transaction shall be settled in the procedure laid down by the legislation of the Russian Federation.

2. No third party may levy execution upon the subject matter of leasing in respect of the lessee's obligations, including the instances where the subject matter of leasing is registered in the lessee's name.

3. Should any third party levies execution upon the lessor's property, such execution may only apply to such object of the lessor's right of ownership as is the subject matter of leasing. Should execution be enforced, in addition to the lessor's rights, its obligations set forth in the leasing agreement shall pass to the transferee of the lessor's rights in respect of the subject matter of leasing on a mandatory basis.

1. Any disputes between the parties to international lease transactions shall be settled in accordance with their agreement on the choice of the governing law.

2. Disputes in relation to the subject matter of leasing, where represented by registered craft and ships, shall be settled pursuant to the laws of the country where the craft or ship is registered in the name of its owner.

3. Disputes in relation to aircraft registered in accordance with the December 7, 1944 International Civil Aviation Convention (Chicago Convention) shall be settled pursuant to the laws of the country where the aircraft is registered.

4. Disputes in relation to other subject matter which may be carried from one country to another, for example, aircraft engines, shall be settled pursuant to the laws of the country where the lessee is based.

5. Disputes in relation to any subject matter shall be settled pursuant to the laws of the country where the property is located at the time when such disputes arise.

Article 25. Taking of Subject Matter From the Lessee

1. The procedure for taking by the lessor of the subject matter of leasing shall be determined by the legislation of the Russian Federation subject to this Federal Law and the terms and conditions of the leasing agreement.

2. If the lessee prevents the lessor from taking the subject matter of leasing, the lessor may exercise in court any remedies available thereto.

3. In the event that the subject matter of leasing is pledged under a fund raising agreement, the taking of the same for the benefit of the creditor shall be effected subject to the provisions of this Federal Law.

Article 26. Obligations of the Lessee When the Subject Matter Is Lost

If the subject matter of leasing has been lost or the subject matter of leasing has lost its functions through the lessee's fault the lessee shall not be released from its financial liabilities under the leasing agreement, unless otherwise provided by the leasing agreement.

Article 27. Economic Aspects of the Leasing Agreement

1. By its economic intent, leasing falls within the category of direct investment, in which case the lessee shall be obliged to reimburse the lessor for the investment costs/expenses incurred in kind and in cash, and to pay thereto a fee.

2. For the purposes of this Federal Law, the total amount of reimbursement of investment costs/expenses and the payment of the fee shall mean the total value of the leasing agreement.

For the purposes of this Federal Law, the investment costs/expenses shall mean expenditure and costs/expenses related to the acquisition and use by the lessee of the subject matter of leasing, including:

the value of the subject matter of leasing;

the amount of property tax;

the transportation and installation costs including installation/assembly and supervision over installation/assembly, unless otherwise provided by the leasing agreement;

the costs of the lessee's personnel training to handle the subject matter of leasing, unless otherwise provided by the leasing agreement;

the costs of customs clearance and payment of customs duties, charges and fees in connection with the subject matter of leasing;

the costs of storage of the subject matter of leasing until it is put into operation, unless otherwise provided by the leasing agreement;

the transportation security costs and insurance costs incurred in connection with the subject matter of leasing unless otherwise provided by the leasing agreement;

all risks insurance, unless otherwise provided by the leasing agreement;

the costs of interest payments for the use of borrowed funds and a payment respite (if any) granted by the seller/supplier;

the fee for the provision to the lessor of guarantees and suretyship, and for the confirmation of accounting and payment documents by third parties in connection with the subject matter of leasing;

the costs of maintenance and service of the subject matter of leasing, unless otherwise provided by the leasing agreement;

the costs of registration of the subject matter of leasing, and costs related to the acquisition and transfer of the same;

the costs of forming reserves for the purposes of overhaul of the subject matter of leasing;

the commission fee of the trading agent;

the costs of transfer of the subject matter of leasing;

the costs of extra services as may arise in the course of effecting integrated lease;

other costs without which the subject matter of leasing may not be used normally.

3. The investment costs/expenses must be reasonable.

4. The lessor's fee shall be the amount provided for by the leasing agreement in addition to any reimbursement for investment costs/expenses.

Article 28. Payments and Mutual Settlements Under Leasing Agreement

1. Mutual settlements between the lessor and the lessee shall be made in the form of leasing payments.

2. The amount, method and frequency of leasing payments shall be determined by the leasing agreement subject to the provisions of this Federal Law.

If the lessee and the lessor make settlements in respect of leasing payments with products (in kind) manufactured using the subject matter of leasing, the price of such products shall be agreed upon by the parties to the leasing agreement.

3. A leasing agreement may provide for a deferral of leasing payments for a period not exceeding six months (180 days) from the commencement of use of the subject matter of leasing.

4. The lessee's obligations to make leasing payments shall arise from the commencement of use by the lessee of the subject matter of leasing, unless otherwise provided by the leasing agreement.

5. Leasing payments shall be made directly to the lessor.

6. The lessee shall recognize leasing payments as prime cost of the products/services manufactured/provided using the subject matter of leasing or as expenses related to its principal operations (operating costs).

Article 29. Leasing Payments

1. The consideration for the possession and use of the property leased under a leasing agreement shall be paid by the lessee to the lessor in the form of leasing payments. The amount, method, form, and frequency of payments shall be determined by the leasing agreement subject to the consent of the parties.

2. In addition to the charge for basic services (fee payable as a percentage), leasing payments shall comprise the property depreciation amount for the period covered by the effective term of the agreement; investment costs/expenses; interest payments for loans used by the lessor to acquire the property/subject of leasing; the fee for the lessor's extra services specified by the agreement; value added tax; insurance contributions for the subject matter of the leasing agreement if made by the lessor; and the tax upon such property if paid by the lessor.

3. Leasing payments shall be recognized as prime cost of the lessee's products (work or services).

Article 30. Structure of Lessor's Fee

A lessor's fee shall comprise:

a fee for the services provided in the course of performance of the leasing transaction;

interest for the use of the lessor's own funds allocated to acquire the subject matter of leasing and/or to provide extra services (as in the case of integrated lease).

1. The parties to a leasing agreement shall be entitled to apply accelerated depreciation rates to the subject matter of leasing by mutual consent.

2. Depreciation deductions shall be made by the balance holder which maintains the subject matter of leasing on balance sheet.

3. In applying accelerated depreciation rates, the uniform (line) method of calculation shall be used, whereby the rate of annual depreciation deductions approved in the established procedure shall be increased by the acceleration ratio which shall at no time exceed three (3).

Article 32. Lessor's Income and Profit under Leasing Agreement

1. The lessor's fee shall be its income under the leasing agreement.

2. The difference between the lessor's income and its expenses in running the lessor's principal operations (operating costs) shall be the lessor's profit.

1. The revaluation of the subject matter of leasing and accrued depreciation thereof shall be made by the balance holder of the subject matter of the leasing agreement pursuant to the procedure set forth by the legislation of the Russian Federation, except for the subject matter of leasing if the same is outside the territory of the Russian Federation and the balance holder thereof is a non-resident of the Russian Federation and is not registered in the territory of the Russian Federation for tax purposes.

2. The leasing agreement shall set forth the lessee's obligations to make leasing payments in the currency of payment under the purchase and sale agreement or in the currency of borrowed funds as agreed by the parties, except for international lease, if a resident of the Russian Federation is the owner of the subject matter of leasing. In such event, the lessee's obligations to make leasing payments shall be set forth by the leasing agreement in any foreign currency.

3. The obligations under the leasing agreement as expressed in foreign currency shall be re-valued by the lessor and the lessee pursuant to the procedure laid down in the territory of the Russian Federation for revaluation of the parties' obligations expressed in foreign currency.

4. Foreign exchange differences arisen out of revaluation of the parties' obligations expressed in foreign currency shall be recognized as profit/loss of the parties to the leasing agreement.

1. The lessor shall be entitled, without the license from the Central Bank of the Russian Federation, to conduct international operations involving the movement of capital, to raise funds from the non-residents of the Russian Federation in order to acquire the subject matter of leasing for the period exceeding six months (180 days), but not in excess of the effective term of the leasing agreement.

2. The leasing companies shall be entitled, without a license from the Central Bank of the Russian Federation, to conduct operations involving the movement of capital, to pay interest for the use of an installment plan extended by the seller/supplier of the subject matter of leasing regardless the date of actual receipt of the subject matter of leasing (current forex operations and operations involving the movement of capital).

3. In order to conduct international lease operations this Federal Law shall provide that:

importation into the territory of the Russian Federation and exportation from the territory of the Russian Federation (movement across the customs border of the Russian Federation) of the subject matter of leasing in order to use the same under the leasing agreement for the period exceeding six months, as well as the payment of the total amount of the leasing agreement for the period exceeding six months shall not be deemed operations involving the movement of capital in accordance with the legislation of the Russian Federation on currency control and regulation;

the parties to the leasing agreement shall be entitled to grant a respite of leasing payments for a period not exceeding six months from the moment of actual placement into operation of the subject matter of leasing;

if the subject matter of leasing is imported into the territory of the Russian Federation and exported from the territory of the Russian Federation (moved across the customs border of the Russian Federation), all types of customs taxes and tariffs shall be calculated on the basis of the total customs value of the property in question. The customs taxes and tariffs shall be paid:

as of the moment of the subject matter of leasing is imported/exported, in the amount of the paid portion of the customs value of the property which value shall be evidenced by bank documents;

subsequently, customs taxes and tariffs shall be paid at the time that leasing payments are made or within 20 days of receipt of the leasing payments.

4. The procedure/system for payment of customs taxes and tariffs set forth by this Article shall be not deemed a deferral of customs payments nor shall it be deemed an investment tax credit.

The prevention, restriction, and restraint of monopolistic activity and competition not in good faith in the leasing services market shall be the responsibility of the Russian Federation State Committee for Anti-Monopoly Policies and Support for New Economic Entities in accordance with the anti-monopoly legislation of the Russian Federation.

The following measures in support of leasing entities (companies and firms) may be provided for by the laws of the Russian Federation and adopted by decisions of the Government of the Russian Federation, or decisions passed by bodies in the executive branch of government of the constituent elements of the Russian Federation (provided, however, that such measures come within the limits of their authority):

the development and implementation of the federal program to promote the leasing operations in the Russian Federation or in an individual region as part of the program of medium- and long-term social and economic development of the Russian Federation or such region;

the establishment, by using the state-owned property, of funds to provide security for bank investments into leasing operations;

the contribution of the state-owned capital toward the establishment of infrastructure for leasing operations within individual target oriented investment and leasing projects;

the assignment of the state order to supply goods for state needs to the enterprises which conduct leasing operations;

the measures of state protectionism in the field of development, manufacture and use of high-technology equipment;

the provision of financing out of the federal budget and of the state guarantees for leasing projects (Development Budget of the Russian Federation), including those involving non-resident firms;

the provision of investment credits for the purposes of carrying out leasing projects;

the exemption, pursuant to the procedure set forth by the legislation of the Russian Federation, of banks and other lending institutions from tax on profit derived thereby from loans to the parties to leasing operations, for the period of at least three years for the purpose of performance of the respective leasing agreements;

the provision by legislative means of tax and credit benefits to leasing companies (firms) in order to create favorable economic conditions for their activities;

the creation, development, formation and improvement of legal and regulatory framework as is conducive to the protection of legal and property interests of the parties to leasing transactions;

in order to encourage the modernization of machinery and equipment and in addition to the use of the mechanism of the accelerated depreciation rates, the provision to the lessors of the right to write off as depreciation deductions up to 35 per cent of the initial value of fixed assets of which the service life exceeds three years, during the first year of the said assets’ use;

the provision to the lessees which are engaged in processing or procurement of farm produce of the right to make leasing payments with supplies of produce on such terms and conditions as may be provided for in leasing agreements;

the recognition of breeding stock as the subject matter of leasing while carrying out leasing operations in the agri-industrial sector;

the creation of the fund of state guarantees for the purpose of export under international lease of domestic machinery and equipment.

Article 37. Right of Inspection Under a Leasing Transaction

1. The lessor shall be entitled to exercise control over compliance by the lessee of the terms and conditions of the leasing agreement and other ancillary agreements.

2. The purpose and procedure of inspection shall be set forth in the leasing agreement and other ancillary agreements between the parties thereto.

3. The lessor shall be obliged to give the lessor with unhindered access to the financial documents and the subject matter of leasing.

Article 38. Lessor's Right of Financial Control

1. The lessor shall have the right of financial control over the lessee's activities to the extent of the subject matter of leasing, the formation of financial results in the lessee's activities, and the performance of lessee's obligations under the leasing agreement.

2. The purpose and procedure of financial control shall be set forth in the leasing agreement.

3. The lessor shall be entitled to send the lessee written requests to provide information required to exercise financial control, and the lessee shall meet such requests.

4. If the lessee fails to perform its obligations to make leasing payments, in order to find out and prevent such defaults the lessor shall have the right to order audits of the lessee's financial standing, to be present (without the right to vote) at , and submit its claims to, the general meetings of founders and meetings of governing bodies.

Article 39. Effective Date of This Law

This Federal Law shall take effect on the date of its publication.

The President of the Russian Federation is hereby requested to make his regulatory acts comply with the provisions of this Federal Law.

The Government of the Russian Federation is hereby instructed to make its regulatory acts comply with the provisions of this Federal Law.

B. YELTSIN

President

Russian Federation