Doing business in the Russian Federation

Transcription

1 Doing business in the Russian Federation Disclaimer: This document has been compiled for informational purposes only. No rights or obligations may be derived from its content. The embassy cannot be held accountable for incorrect information or omissions.

2 Geography and climate Russia is vast, extending over much of the northern part of Eurasia: with an area of 17,075 million km 2 (6.6 million mi 2 ), it is the largest country in the world. To the west, it borders Ukraine, Belarus, Poland and the Baltic countries; to the north, Finland, Norway and the Baltic republics; and to the south, Georgia, Azerbaijan, Kazakhstan, Mongolia, China and North Korea. Russia has a coastline on three oceans: the Arctic, the Atlantic and the Pacific. Russian topography is very diverse: from tundra in the north to semi-arid desert in the south, with a full variety of forests and grasslands from west to east. The climate is diverse, with arctic and subarctic zones in the north and subtropical areas in the south. The majority of the country, however, has a continental climate. The Russian Federation comprises 83 federal subjects, which are grouped into eight federal districts that are administrated by envoys of the president. There are 11 cities with a population of over 1 million: Moscow (the capital), St Petersburg, Novosibirsk, Nizhny Novgorod, Yekaterinburg, Samara, Omsk, Kazan, Chelyabinsk, Rostov-Na-Don and Ufa. Population Russia s well-educated workforce is an important asset for long-term growth, and its relatively low-cost and generally highly skilled workers are one of the main attractions for investors. Russia s population is approximately 140 million, of which over 60% are of working age, 16% are below it, and a little more than 20% are above it. Approximately 54% of the population is female and 46% male. Statistics show that Russia s population is steadily declining, but the government is trying to remedy this through immigration policies and federal programmes to stimulate birth and reduce mortality. Russia is home to 160 ethnic groups. The majority of people are Russian (almost 80%), with Tatar (almost 4%) and Ukrainian (2%) being the next largest groups. Language There is one official language: Russian. Russian is the most widely spoken Slavic language, and it is co-official in many former Soviet republics. English and German are the most commonly studied foreign languages in Russia. English is compulsory in most schools. Religion The dominant religion is Russian Orthodox almost 80% of Russians identify with this religion. The second most widespread religion is Islam, with centres in Tatarstan, Bashkortostan, Dagestan and other regions. Other religions include Protestantism, Judaism, Roman Catholicism, and Buddhism. Education The Russian educational system is free. Primary and secondary education in Russia is compulsory and is seen as being very in-depth: 97% of children receive either a nine year basic or eleven year complete compulsory education. There are currently around 1,100 institutions of higher education in Russia. About 23% of the population has completed higher education, and Russia has one of the highest rates of people with doctorate degrees in the world.

3 Living standards Although an estimated 14.7% of Russia s population receives income below the minimum subsistence level, income levels in big cities approach those in Central and Eastern Europe. The income of senior and middle management in Moscow and St Petersburg almost reaches that of their counterparts in developed countries. Economy Russia is a so-called BRICS country and is as such considered a high potential emerging market with above average growth rates. Leading sectors include energy, utilities and mining (5% of world s total proven oil reserves, more than one third of the world s gas reserves, fourth largest power market, extensive nuclear power sector) and metallurgy (fourth largest steel producer in the world, third biggest exporter of metal products, second largest aluminum and titanium producers, world s largest nickel producer, accounting for 5% of Russian GDP, 17% of the country s industrial output and 14.2% of total exports). Currency The currency of the Russian Federation is the Russian Rouble. One Rouble is subdivided into 100 kopecks. The ISO 4217 code for the Rouble is RUB. Cash, traveller s cheques and credit cards are all accepted in Russia, but cash remains the preferred method of payment. Credit and debit cards have grown significantly in popularity in recent years, and cash machines are now numerous. Euros and dollars can be exchanged at official exchange offices. Living conditions Living standards in Russia vary between the regions and the main cities. Prices in Moscow and St Petersburg are the highest in Russia. For foreign business people in particular, Moscow is one of the world s most expensive cities. Newly built housing in Russia s cities meets international standards. Rents are equal to or higher than those in other major world capitals such as New York, London and Tokyo. Hotel accommodation is also very expensive. Business climate The business environment in Russia has been steadily improving since the transition from a centrally controlled planned economy to a free market, though the economic crisis has had a significant impact on the business climate. In recent years, many reforms have been implemented, the tax system has become fairer and more transparent, Russia has become increasingly integrated with global markets, and customs have improved appreciably. At the same time, the operating environment remains hazardous on a number of fronts, with many foreign investors scared off by poor legal safeguards, as well as high levels of bureaucracy and corruption. The government has made fighting corruption a key priority. Under the crisis conditions businesses began closing down their investment programmes, and they encountered difficulties in repaying credit. The main problem, especially for small companies, is the availability of financial resources, the commercialisation of science-intensive developments and the support of exports. Russian Business Culture

4 Russian business culture is quite distinct from that in western nations. This is due largely to a history of collectivism, which has shaped a nation where co-operation and collaboration are standard practice in businesses, and where fierce competition, even amongst rival companies, is not as prevalent. Business and social etiquette Russian business customs tend to be formal. Introductions are respectful, business cards are exchanged, and suits are worn. If you attend a meeting with a traditional Russian business, the same level of people should be represented on each side of the table, i.e. vice president from X and vice president from Y, deputy director from X and deputy director from Y, etc. As a courtesy, agendas are often circulated in advance. The handshake is used both on meeting and taking leave, primarily among men. Structure and Hierarchy Hierarchical structures are widespread in Russian business. Even though hierarchy is prevalent, most employers still seem to promote a flexible and democratic work environment, where everybody has a voice. Showing respect for seniority and recognizing the hierarchical structure is vital for establishing and maintaining strong business relationships. Work Relationships in Russia Relationships between business partners and co-workers in Russia tend to be somewhat more personal than in the west where distance and formality are the norm. Things like hugging after a meeting or asking about personal matters such as family are considered acceptable during business dealings. Meetings often involve drinking vodka, eating sweets, and talking about everyday life. In situations of conflict try to avoid taking an official stance and remember that Russians are people orientated and will respond to a more personal approach. Business Practice in Russia Business cards are essential. If possible, ensure that one side is printed in Russian and the other in English. It is perfectly acceptable to bring a gift to your first meeting. Popular gifts include chocolates, a local souvenir from your home country, or an item that displays your company logo. Russians aren't always punctual. Don't be alarmed if a business partner is minutes late for a meeting. Generally, the head of the organization should open a meeting, and introductions should be made in order of importance. Although many principal concerns are discussed in an informal environment, final negotiations will be conducted in the office. Signing documents is an essential business practice in Russia. As a rule, Russians have little faith in unsigned agreements Trade Channels There are mainly two options for doing business in Russia. You can cooperate with a local importer or act as your own importer and wholesaler. Usually, it is easier to start your business with the support of a local importer, as he can do all the certification and registration work for you, which is complex if you are new in the market. Another advantage of working with a Russian partner lies in the specific understanding of the Russian market. Local distributors can contact clients directly and can also arrange information support. It is an important advantage if your distributor is already working within the energy sector.

5 Of course, conducting business through your own importing company also has many advantages. You can decide your own selling strategy and it is easier to control the marketing and the distribution of your product. However, it is absolutely necessary to have very experienced staff. Besides, one should not underestimate the administrational and cultural hurdles which are often insurmountable for foreign companies that try to enter the Russian market on their own. A good strategy to combine the advantages of both ways is the establishment of a representative office, which can support the importer during the process of marketing and the process of acquiring clients. In general, it is recommended to start with the Moscow region. As a rule, Russian distributors continue creating vertically integrated holdings for a better cooperation with the regions, taking into consideration the saturated Moscow market. Surely one of the most important factors for successful business in Russia is the important task of finding a reliable partner, who will be able to help you deal with the authorities and any other problems you might encounter. Having a good partner is essential, because Russia is a country where relationships are of particular importance, and a foreigner will find it hard to work with Russians without fostering personal contacts. In the energy sector, where the number of potential clients is rather limited, it is essential to have good connections. There are different ways to find a business partner. You may consider Russian or foreign trade fairs or consulting agencies. Consulting agencies are the most expensive way to find a partner, but they offer professional and efficient help. Consulting agencies also often help with partner due diligence research. It is not so easy to check a potential partner s background in Russia, because there are almost no open sources (business directories, internet sites). It is not compulsory for Russian companies to publish their financial records, or make their credit history available. Furthermore, Russian accounting standards do not clearly indicate the key numbers and, therefore, do not give reliable information about the past performance of prospective partners. But consulting agencies in Russia know how to access the necessary information. Paying Taxes in Russia Russia has a uniform income tax of 13% for residents (on most types of income). Tax on dividend income for residents is 9%. Non-residents pay an income tax of 30% for all types of income. A resident is defined as one who spends 183 days or more per year in Russia in a calendar year. Russian tax residents must pay income tax on their worldwide income. Nonresidents (fewer than 183 days/year in Russia) pay income on work in Russia, plus property and investment income made within Russia. An employer is obliged to deduct each month the amount of tax and national insurance due from a salaried worker. A self-employed individual is obligated to make advance payments on income tax that will be offset on filing an annual report. In the case of a new business, the advance payments will be calculated on the basis of the business owner's estimate. The advance payments will be made at least 3 times per year. The standard rate of Russia corporate tax is 24%. The tax on company profits is made up of 2 rates: 6.5% Federal Tax and 17.5% Regional Tax. Small and medium sized companies and individuals meeting certain criteria can choose an alternative simplified tax system. The

6 simplified tax system substitutes profit tax, individual tax, VAT and property tax. The tax rates are 6% on profit, or 15% on profit before expenses. Importing and exporting Generally, if goods are exported or imported between a foreign company and a Russian company, the Russian company is responsible for the customs clearance procedures. In order to import goods into Russia and clear them through customs, an importer has to make all customs payments due under the chosen customs regime and comply with other customs legislation requirements (e.g., certification requirements). The import of certain goods (e.g., pharmaceuticals, meat, etc.) requires licences. Russia has several special economic zones that offer customs benefits. Basic import regulations Although most products can be freely imported into and exported from Russia, some products such as pesticides, weapons, self-defence items, explosives, precious metals and stones, radioactive materials, narcotics and psychotropic substances require a license. For all other products, customs regulations and tariffs are one of the first and main concerns for companies doing business in the Russian Federation. Goods must be declared upon import to Russia in accordance with the customs regime selected (e.g. import for internal consumption, temporary import, etc.) As a rule the goods are declared by the Russian importer or a customs broker. When the goods cross the Russian border the carrier submits to the border authorities basic documentation on the goods. Following this, internal transit of the goods continues on under customs control to the customs terminal at the final destination where they are cleared through customs. The list of documents required can be impressive and their correct preparation requires experience, the main documents being: - Cargo customs declaration (CCD): The CCD is a uniform document used to declare the goods to Customs and contains basic information on the goods (description, weight, number of units, etc.), the customs regime selected, the importer, consignor and consignee, the class and customs value of the goods, their country of origin and the transportation of the goods. - Declaration of customs value: This document confirms the value of the goods and serves as a basis for the calculation of the customs payments. There are various methods to calculate the customs value, and Customs may request additional documentation depending on the method used. The customs value includes the cost of transport. - Transportation documents: These depend on the type of transport (road, rail, air, sea): bill of lading, FIATA bill of lading (combined transport bill of lading), railway bill, airway bill, truck waybill (CMR). - Commercial documents:

7 The commercial documents (contract, commercial invoice, pro forma invoice, insurance certificate, etc.) are important for the calculation of the customs value. - Certificate of origin: A certificate of origin is required to benefit from preferential customs tariffs. Certificates of origin are issued by special institutions in the country of the manufacturer. - Certificate of conformity: For a number of goods the importer needs to submit documents confirming that the goods meet Russian safety standards and technical regulations (see section on certification below). - Deal (Transaction) Passport: The deal or transaction passport is a document issued by the Russian bank of the importer and is required under Russian exchange control regulations. Transaction passports are used to monitor cross-border payments. Useful sources of information Government resources Official presidential site Official governmental portal (Russian) Official site of the parliamentary lower house (Russian) Official site of the parliamentary upper house Central Bank of Russia Ministry for Economic Development of the Russian Federation National Priority Projects Associations and business groups The Association of European Businesses The Russian Union of Industrialists and Entrepreneurs The Russian Chamber of Commerce and Industry project aimed to become means of investment exchange between Russia and global investors Other Independent guide to Russia