Doing Business in Russia Main Legal Aspects

Transcription

1 Doing Business in Russia Main Legal Aspects International conference «Perspective for localization of automotive components production for trucks and commercial vehicles in Russia» 30 October 2013 Sweden Natalia Wilke Lawyer

2 Contents 1. Choosing a legal structure for doing business in Russia: supply agreements representative offices and branches legal entities: establishing a company, features of joint ventures 2. Organizational structure for operating and manufacturing in Russia, cost planning 3. Special preferences and conditions for car components manufactures 4. Our firm, contacts 2

3 Choosing a Legal Structure Main forms of conducting business - overview Supply Agreements and/or License agreement activity through third parties (sales representative, distributor) or direct supplies Through a subdivision of a foreign company representative office / branch Through a legal entity in Russia: subsidiary, joint venture 3

4 Supply Agreements Analysis of a Business Partner Information sources: Official open sources: Unified State Register of Legal Entities Unified State Register of Rights to Real Estate and Transactions Therewith Registers of Licenses Registers of Rospatent (IP rights) Web sites of court bodies - List of enforcement proceedings of the Federal Bailiff Service etc. Other: information from SROs, credit agencies, services of information agencies Requesting documents from a partner not considered as a lack of trust Analysis of information obtained: Legal status of the partner (registration, participant composition, share capital) Legal capacity (general and special, for example for state and non-commercial organizations) Representational authorities of the person signing the documents Valuable property Existence of required licenses, patents, certificates 4

5 Supply Agreements Advantages and Disadvantages: Rapid market entry No tax obligation in Russia (risk of permanent establishment in case of regular activity) No control and knowledge of the market Outsourcing of customs clearance services and eventual risks related to use of grey import schemes (e.g. when goods are paid by other persons than the person receiving the goods or party under the contract): Confiscation of goods and transport means being subjects of violations of law; Risks for the Russian client with regard to investigations of Russian authorities; Limitation of possibility to claim for unpaid goods. 5

6 Supply Agreements: Main Specifics Preliminary approval (corporate and/or antimonopoly) Jurisdiction: state commercial court in Russia or an arbitration court Governing law: imperative provisions of Russian law; generally: free choice of law Agreement form: Written form, in cases established by law notarization or state registration Signatures on each page, company seal, agreement date Definition of the contract subject and price: Problem by mixed contracts: contract subject (e.g. delivery of goods and installation services) and price shall be separated Important for calculation of customs payments and tax reasons Rendering of assembly and installation services may lead to formation of a permanent establishment and be subject to a respective permit (NB: installation or installation supervision?) Registered Trademarks: consent of the trademark s owners is required for delivery of goods marked by trademarks registered in Russia (official letter or License agreement) 6

7 Representative Offices and Branches No status of a legal entity Different functions: Representative office representative functions (preparation and support) Branch commercial activities No limitations with regard to financing and profit repatriation Tax registration and bank account in Russia, Russian accounting reporting Important question: is a permanent establishment formed? Some practical examples for rep. offices: Activities in favor of other group companies regular contract signing participation of employees at trainings and installation Import only for own needs (resale of goods prohibited) an Accreditation in Russia is required Rep. Office (Branch) Producer Distributor, sales representative Clients 7

8 Legal Entity Mostly - a limited liability company under Russian law (OOO) Minimum registered capital RUB Foreign company May have one or several founders Liability only to the extent of the investment amount (liability for obligations of the company with personal property is extremely rare) Registration within 5 working days from filing an application Subsidiary or JV Representation powers General Director (CEO) Financing through the participants or third parties Clients Profit repatriation: dividend payment Tax registration and tax obligations in Russia Bank accounts in Russia, Russian accounting reporting Registration of subdivisions in several regions of Russia is possible Resale of goods after customs clearance is possible 8

9 Legal Entity: Company Formation Issues to be considered when establishing a company: How will the charter capital be contributed? How will financing take place? Will investments be made in-kind; what instructions should be followed? What bodies must be established? Choice of legal form Main steps for incorporating a legal entity: the whole incorporation procedure takes at least one month Drafting and approving the foundation documents Preparing the set of documents required for state registration, legalization and translation Opening a bank account and payment of the charter capital (cash / in-kind) State registration ( One window principle) Post-registration activities: (seal, bank accounts, special permits and licenses) 1-4 weeks 1-6 weeks 2-10 days 5 business days 9

10 Subsidiary vs. Joint Venture Incorporating a subsidiary allows a foreign investor to independently conduct business and manage the company Participating in a joint venture entails the necessity to regulate the relations with the Russian partner, therefore: Careful choice of the Russian partner, including a 360 due diligence review and Preparation of proper contractual documentation are recommended. Main advantages of a JV: Accelerated access to state authorities, real estate, market, clients via use of the local presence and knowledge of the Russian partner Main risks and critical issues: Know-how protection Instability in case of a future change of goals Higher coordination expenditures, less optimal integration Valuation of contributions Non-competition obligation Exit scenarios Reporting to shareholders 10

11 Organizational Structure Practical Examples (I) Each company must have a CEO (General Director) and provide reporting to the tax and other competent authorities CEO represents the legal entity without a power of attorney Common representation is not allowed CEO has broad authority which is difficult to limit Foreign CEO and employees shall obtain work permit or residence permit For reporting to the Russian tax authorities a qualified financial specialist (CFO or chief accountant) is needed (during the start-up stage an outsourcing of accounting is possible) 11

12 Organizational Structure Practical Examples (II) Important points: Creation of organization s chart, in which the time framework for hiring employees is specified CEO s presence in Russia and competence Knowledge of / consultation on Russian labor law (which is different from European law and other laws) 12

13 Cost Planning Stage 1. Establishment of the Russian subsidiary and starting functioning as a legal entity: Legal support of the State registration of the company including interpretation of the documents Office / legal address rent Salary for CEO and Chief accountant (or payment for outsourcing accounting services) Stage 2: Preparing for business operations: Obtaining work permits (if applicable) Obtaining special permits (if required) Legal support with respect to concluding most important agreements and business operations Hiring first line managers and key specialists (HR, sales-and-purchase, logistics, technical, engineering and warehouse) Investments in construction of production facilities and rental payments Stage 3: Starting regular business operations (in addition to rent payments and salary of key specialists): Hiring workers, administrative personnel, increasing of technical and engineering staff 13

14 Specific Legal Framework for the Automotive Industry Industrial Assembly Processing for Domestic Consumption Special Economic Zones Tax preferences 14

15 Industrial Assembly Preferences: Reduced import duties on car components for industrial assembly for a total of 56 items from 20-5% to 10-0% Basis: an industrial assembly agreement with the Ministry of Economic Development of Russia NB: possible only on the basis of previously signed letters of intent and (for motor vehicles) on the basis of assignments of the Russian President or Government. Duration: by 2018 Obligations of the manufacturer: maintaining the determined annual minimum production capacities; launching production within 18 month (for Brownfield) or within 30 months (for Greenfield). Localization obligations: - for the automobile manufacturers - up to 30% (for residents of the SEZ total of 50%) - for the producers of car components - at least 45% 15

16 SEZ and Processing for Domestic Consumption Special Economic Zones (SEZ) 13 SEZs of various kinds, including 2 commercial-industrial SEZ - SEZ "Alabuga" (Tatarstan) and the SEZ "Kazinka" in Lipetsk Residents of the SEZ: companies based in the SEZ, investment min.10 million euros Advantages: Customs Regime "Customs Free Zone", tax incentives, infrastructure prepared Processing for Domestic Consumption Imported foreign goods are used for performing processing operations in the territory of the customs union during an established period of time, without paying customs duties When products being the result of processing for domestic consumption are released, customs duties shall be payable at the rates applicable to processed products The procedure is permitted to the foreign goods listed in RF Government Decree No. 565 of July 12, 2011 (the list includes 46 articles of goods and groups thereof, including some types of coloring substances, plastic materials, textiles, ferrous items, integrated microcircuits etc.) The advantage of the procedure should be analyzed in each particular case since due to accession of Russia to WTO certain rates of customs duties on finished goods may be reduced. 16

17 Tax Preferences and Ways of Customs Duties Reducing 1. Exemption from import VAT for technological equipment, its components and spare parts (in case no analogues are produced in Russia) 2. Exemption from import customs duties: decreasing of duties rates by the way of making amendments in the customs tariff of the Customs Union exemption from import duties for technological equipment and fixed assets brought as a contribution to the charter capital 3. Classification decisions are the mechanisms for risks minimization during customs clearance procedures 4. Local legislation supporting investments (mainly related Corporate Profits Tax, Corporate Property Tax) 17

18 The Firm, Publications, Contacts

19 Our Offices Brussels Berlin St. Petersburg Moscow Kyiv Dusseldorf Beijing Frankfurt Nuremberg Munich Shanghai 19

20 BEITEN BURKHARDT in Russia We advise, in particular, on the following issues: Corporate law: establishing representative offices and branches of foreign companies, subsidiaries and joint ventures, legal due diligence on target Russian companies in Russia, corporate housekeeping; Commercial and contract law; Taxation: advising on issues related to tax planning and structuring of investment projects, tax analysis of contractual documentation, representing clients in tax disputes; Customs: optimizing the customs registration process, support on the issues of reducing customs duties and import VAT relief, support in disputed with customs bodies; Employment and migration: advice on employment issues, obtaining permit documents and visas to perform labor activities; Real estate and construction: due diligence on real estate, legal support for greenfield and brownfield projects, drafting contractual documentation, advice on construction issues; Dispute resolution: representing clients at Russian and international courts. 20

21 Our Publications Investments in Russia Investments in Real Estate in Russia Investment Climate of St. Petersburg More brochures at Newsletters on actual topics 21

22 Contact Natalia Wilke Partner, Head of the Representative office in St. Petersburg Languages: Russian, German, English Contact details: Tel.: (0) Beijing Berlin Brussels Düsseldorf Frankfurt am Main Kyiv Moscow Munich Nuremberg Shanghai St. Petersburg 22

23 Thank you for your attention!