President Dmitry Medvedev says Russia will scrap capital gains tax on long-term direct investment from 2011.
Mr Medvedev told the St Petersburg International Economic Forum that long-term direct investment was "necessary for modernisation".
He also said that he would ask the government to create a special investment public-private fund, which he said, should be implemented "within a year".
Mr Medvedev also said the number of "strategic" companies, in which foreign investment is restricted and which cannot be privatised, would fall from 280 to 41.
The BBC reports the Russian economy was hit hard by the global economic crisis. It shrank by 7.9% in 2009.
The economy is forecast to return to growth this year, expanding by about 4%. But Russia is also set to run a budget deficit for several years to come.
The BBC reports many investors are wary of Russia because of corruption and the dominant role the state plays in business.
