Doing business in Russia

General

Russia is a Member State of the Eurasian Economic Union (EAEU). Russia shares its customs and border regime with Armenia, Belarus, Kazakhstan and Kyrgyzstan.

The customs legislation is codified. It consists of the Customs Code of EAEU, and corresponding EAEU acts, treaties, federal laws, orders of the President, ordinances of the Government and numerous regulations of the Federal Customs Service. As an EAEU member, Russia also is a member of multiple free trade agreements (e. g. between EAEU and Singapore, Vietnam or Serbia).

Federal customs service

The Federal Customs Service is a united centralised organisation, which is answerable to the Government of the Russian Federation. It is responsible for control of imported and exported goods in the Russian Federation; the collection of customs payments, anti-dumping and compensations duties; the compilation of statistics; the prevention and restraint of cross-border fraud and the violation of the currency control regulation. The Federal Customs Service is a huge organisation employing tens of thousands of people and is responsible for the major source of state revenues. It is often criticised for being a difficult and unpredictable organisation. Yet, as governmental e-services spiked in Russia in recent years, many of the services are provided via the Federal Customs Service website, accelerating the decision-making process and making it more transparent.

Import

Goods may be imported into the Russian Federation through the entry points on the Russian border. Some goods, however, e. g. alcohol, tobacco or meat, can be imported only through specially designated places.

As a general rule, goods entering the Russian Federation can be imported without any restrictions. There is, however, a rather narrow list of goods which can only be imported with the authority of a licence granted by the Government such as, e. g. alcohol, encryption systems or military objects. In some cases the Government imposes quotas or special duties on particular goods. This normally includes such goods as meat, fish or products of agriculture.

Since accession to the WTO, number of import quotas has been gradually falling, quotas being effectively replaced by import tariffs. Still, at the moment this report is being written quotas are imposed on several categories of goods, like metal or meat.

In 2021, however, several important changes in customs legislation come in force. Firstly, from 1 January 2021, customs duties are to be paid simultaneously with customs reporting unless the goods are imported from another EAEU Member State. Also, new rules are set for expertice of imported items of cultural and artistic values and some medical products. In February 2021 (with a follow-up in April 2021) new rules for filing a customs declaration come into force, and from 1 March 2021, additional marks in paperback documents will not be made in case of electronic customs declaration filing.

Since spring 2022, the authorities have legalized parallel imports into the Russian Federation at the federal legislative level, protecting Russian companies that import goods without the permission of the copyright holder from possible civil, administrative and criminal liability.

The Constitutional Court spoke in favor of allowing parallel imports in Russia several years ago. The Constitutional Court Resolution of 13.02.2018 No. 8–P stated that such a mechanism can be used to import vital goods: medicines, equipment for life support of the population, and the like.

However, until the beginning of 2022, arbitration courts in most cases still recognized parallel imports as illegal. Thus, the Arbitration Court of the Moscow Region prohibited individual entrepreneur Marina Lobanova from selling Swiss Curaprox toothbrushes without the permission of the copyright holder (case No. A41–54785/2021). The individual entrepreneur was ordered to pay 400,000 rubles in favor of the foreign company. This compensation was awarded because Lobanova sold goods in Russia on Wildberries t

at were intended for shipment only to the Czech Republic, Germany, Estonia, Great Britain, Italy, Kuwait and Thailand. The appeal recognized this approach as legal.

The situation changed after February 24, 2022, when Western countries-imposed sanctions against Russia, and some foreign companies on their own initiative refused to supply goods to the Russian Federation. Then the authorities decided to quickly legalize parallel imports:

· March 8, 2022 – Federal Law No. 46–FZ was adopted. In paragraph 13, Part 1 and Part 2 of Article 18, the Government of the Russian Federation or another body on behalf of the government is granted the right to determine the list of goods that can be imported through parallel imports. March 29, 2022 – Resolution No. 506 of the Government of the Russian Federation was adopted, according to which the Ministry of Industry and Trade was approved as the body responsible for forming the list.

· April 19, 2022 – Order No. 1532 of the Ministry of Industry and Trade was issued and a list of specific goods that can be imported under this scheme was determined.

· July 21, 2023 – a new Order No. 2701 of the Ministry of Industry and Trade was approved, which comes into force in November. It specifies the list of goods that can be imported under parallel import.

In its acts, the Ministry of Industry and Trade compiled a list of goods that can be imported into the territory of the Russian Federation without the permission of the copyright holder. Over the past year and a half, this list has been updated more than five times, and now it includes products from several hundred foreign enterprises.

Parallel import of which goods is permitted:

· Any brands of clothing and footwear.

· Rubber and rubber products, soap, detergents, plastics.

· Salt.

· Pharmaceutical products from O. B. and Carefree.

· Electronics from Apple, Samsung, HP, Intel, Siemens, Asus, GoPro, Panasonic, Electrolux.

· Household appliances from Electrolux, Miele, Siemens, Dyson, Philips and Zanussi.

· Equipment for various industrial sectors.

· Game consoles XBox, PlayStation, Nintendo.

· Children's goods Hasbro, Mattel, Logitech and Nintendo.

· Cars of various classes and spare parts for them: Tesla, Land Rover, Chrysler, Bentley, Hummer, Rolls-Royce, Toyota, Skoda, Volkswagen and others.

Goods are considered to originate in a country where they were wholly produced or largely processed. Documentary evidence, in the form of a certificate of origin, is normally required. The certificate must clearly state that goods originate in a particular country and the certificate must contain a written statement of the sender of the goods that they comply with a relevant criteria of origin. The statement must be witnessed by the state authorities of the sender's country.

As a result of «counter-sanctions» after 2014 sanctions from EU/EEA and other countries, some products originating in the EU/EEA and/or some other countries which imposed sanctions on Russia are either only available to be imported in moderate amounts for personal use only or completely banned. This applies mostly to foods and delicacies (e. g. meat, dairy, fruits, vegetables, etc), but the list is subject to change. So-called «counter-sanctions» were originally imposed in 2014 by an order of the President, and originally were to expire on 6 August 2015, but the order has been renewed annually ever since.

Customs payments include customs duty, VAT, excise, and a fee for the registration of goods.

Customs duty is usually charged as an ad valorem duty. An obligation to pay the duty arises the moment goods cross the customs border.

The principle method of the valuation of goods is the transaction method, based on the price actually paid for the goods. Once this method cannot be applied. In particular when there is no documentary evidence, or the information provided does not appear to be true, or when buyers acquire limited rights over goods or their rights depend on unpredictable circumstances, or when a transaction takes place between connected persons, customs officers can use other methods of valuation, for example those based on the price with identical or analogous goods, prices on internal market for similar products or even methods based on assumed production costs and delivery expenses and others. However, such valuation, as well as classification of goods to some extent, may be challenged in commercial courts.

Due to the Covid–19 pandemic, reduced customs duty rates are currently applied to products of critical import and medical products that help fight the coronavirus (thode include some foods like potatos or rice and products of medical use like thermometers, endoscopes and some medicines). However, those reduced rates and reliefs expire on 31 March 2021.

Imported goods, generally, are subject to VAT. There are some exceptions; certain medical equipment is an example. Imported technological equipment contributed into a charter capital of a Russian company is also exempt of VAT. The VAT rate is 20%; for some goods such as some items for children, certain medicines and food the VAT rate is 10%.

A fee for the registration of goods depends on their customs valuation and is relatively small. From 1 August 2020, mininum fee for the registration of goods is RUR 775 (€8.46) and the maximum fee is RUR 30,000 (€327.42).

Some goods such as products of medical use, alcohol or oil are subject to excise. The excise rates are determined by the relevant legal acts.

Anti-dumping measures are taken when goods are imported into Russia at a price below that at which they are normally sold in their country of origin. A decision on the imposition of anti-dumping duties follows a special anti-dumping investigation and is made by the Government of the Russian Federation. Anti-dumping duties are most applicable towards machinery, machinery detais and some foods. Rates of anti-dumping duties are set by EAEU commission. For example, on 25 February 2021, expires an anti-dumping duty on steel pipes from Ukraine, and on 18 August expires an anti-dumping duty on truck tyres imported from PRC.

The compensation duties are imposed by the Government when the production of goods imported into Russia has been subsidised by a foreign state. The rate of compensation duty cannot be higher than an amount of the subsidy as related to one article of goods.

Export

As a rule, an export from the Russian Federation does not require any permissions or licences. In some cases, however, the Government imposes restrictions (quotas) and/or licences on the export of certain goods. Restrictions may normally be imposed on the export of oil, gas, certain natural resources, valuable sorts of timber, fish or sea products. Apart from these, the Government may restrict exports for security reasons and in compliance with international obligations.

Generally, export duty is an ad valorem duty. However, goods exported from Russia to EAEU are not subject to export duties as EAEU Treaty effectively provides for single market for EAEU Member States.

A temporary ban on the export of certain goods and equipment from Russia has been extended until the end of 2025.

The export restriction applies, among other things, to technological and medical equipment, agricultural machinery, electrical equipment, turbines, nuclear reactors, fiber-optic cables, certain types of aircraft, radar devices, batteries, and metalworking machines.

Their export is prohibited to all foreign countries, with the exception of member states of the Eurasian Economic Union.

However, a number of exceptions are provided: export restrictions will not apply to samples of medical products previously imported to Russia for state registration.

The ban will also not apply to refrigeration equipment, certain types of pumps, and a number of categories of vessels.

In addition, restrictions on the export of certain types of goods by systemically important organizations and their subsidiaries have been relaxed. The decision on the export of goods by such organizations will be made by the Government based on proposals from relevant ministries and departments.

The possibility of applying restrictions on the import of seeds of certain types of agricultural crops from unfriendly countries is extended until the end of 2025. This concerns seeds of potatoes, wheat, rye, barley, corn, soybeans, rapeseed, sunflower and sugar beet.

The lists of goods and equipment temporarily prohibited from export from Russia were determined by the Government in March 2022. The decision was made in pursuance of the Presidential Decree «On the application of special economic measures in the sphere of foreign economic activity in order to ensure the security of the Russian Federation» and is necessary to protect the domestic market.

General

It is Russian policy to welcome foreign investments. Generally, as Russia is a WTO Member State, the regime for foreign companies and the use of the received profit by them cannot be less favourable than the legal regime which is applied to Russian companies. The withdrawals limiting the rights of the foreign companies may be established by federal laws in public interests (e. g. foreigners are prohibited from acquisition of land close to the border).

The federal law «On foreign investments», enforced from 9 July 1999 provides guarantees from any adverse changes to Russian legislation. In particular, new laws increasing tax burdens do not extend to Russian companies with foreign participation of 10% or more of their capital or to any Russian company with foreign capital if such a company is engaged on a «priority project»; that is, one with a total amount of investments of at least RUR 1 billion (approximately €10,970,900) or where a foreign company purchases an equity interest of at least RUR 100 million (approximately €1,097,090). The exemption is granted during the project's yield period, of no longer than seven years.

Russia also warmly welcomes investment in its several Special Economic Zones (SEZs) across the country. Those zones are differentiated by types of preferred economy sector for investments – be it tourism, logistics, industry or technology. Even warmer the welcome is for investors from BRICS Member States.

Acquisition of control over Russianenterprise by foreign companies

Generally the acquisition of a Russian company by a foreign entity is regulated by the same rules as those applicable to domestic acquisitions. There are, obviously, some restrictions to the access of foreign entities to areas of national interest, such as cryptography, national security, trading in certain products and technologies etc. At the same time Russian law as it stands at the moment assumes the necessity for state protection over domestic companies in certain areas such as exploration of natural resources, banking, insurance and some others.

The amount of participation (quotas) of foreign capital in the banking system is fixed. The quota is calculated as a ratio of the total capital belonging to non-residents in the registered capitals of credit organisations with foreign investments and the capital of branches of foreign banks to the aggregate registered capital of credit organisations registered on the territory of the Russian Federation. Upon reaching the quota the Bank of Russia suspends the issue of licences for banking operations to banks with foreign investments and branches of foreign banks. Currently the quota is 50%, a maximum level allowed by Russia's WTO membership.

A credit organisation must obtain the preliminary permission of the Bank of Russia for:

· placement of its shares among non-residents; or

· for an alienation of its shares to non-residents.

Resident shareholders of a credit organisation must also obtain consent from the Central Bank for an alienation of their share to non-residents. Failure to obtain such permission will lead to the invalidity of the transaction.

Similarly, an insurance company must obtain prior consent from the Federal Service for Insurance Supervision to increase their share of the registered capital formed out of non-resident resources, for an alienation of their stocks to non-residents, and resident participants for an alienation of their stocks to non-residents. Such consent will not be given to insurance companies, the subsidiaries of foreign entities, or those with more than 49% foreign shareholding, or those who obtain such participation as a result of the transaction if the quota of foreign capital in the insurance system has been reached. Currently the quota is 25%.

The Russian legislation restricts the purchase by foreign persons of the shares of domestic enterprises in certain areas. For example, no more than 20% of ordinary shares of gas companies can be sold to foreign entities. Foreign companies and individuals or Russian companies with more than 50% of foreign shareholders may not own agricultural land. Federal Law No.57 of 29 April 2008 restricts foreign investments in those Russian companies operating in certain «strategic» areas, such as construction, production and the trade of arms and military equipment, and technologies and space related activities. Strategic areas also include construction, manufacturing and the repair of aircraft, TV and radio broadcasting and other telecommunication services (excluding the internet), research and exploration of natural resources (on lands of «federal significance»), printing if the enterprise in question can print more than 200 million pages per month and publishing houses with a circulation of over 1 million copies per edition.

On the other hand, Russian legislation provides that a foreign company, at least 25% of shares in which is possessed by a Russian resident (10% if Russian residents are in possession of total 50% of its shares) is deemed to be a controlled foreign entity. The income generated by a controlled foreign entity is subject to taxation in Russia if such income exceeds RUR 10 million (€109,140). Nevertheless, such companies may be relieved from taxation in Russia if tax rates for corporate income tax in country of domicile of such entity exceeds 75% effective average rate of Russian CIT, the entity is an active foreign company, holding or sub holding company, operates a new marine hydrocarbon field, participates in mining projects under product-sharing agreements, concession agreements, licensing agreements or other risk-based agreements (contracts) and in some other cases.

Financial services

There are a number of legal Acts regulating the stock market, banking and investments. The principal legal Act for the stock market and securities is the federal law on the securities market of 22 April 1996, and the federal law on protection of rights and legitimate interests of investors on the securities market of 5 March 1999. Investment funds are regulated by the federal law on the investment funds of 29 November 2001.

In Russia the regulation of banking, insurance and investment is carried out by Central Bank of Russia. Until 1 September 2013, the Federal Service for Financial Markets of the Russian Federation (FSFM) (formerly the Federal Commission for Securities and Stock Market) was the state agency responsible for the regulation of stock market and investment business.

Russian law as it stands at the moment regulates collective investment schemes organised in the form of a joint stock investment fund or in the form of a unit trust.

A joint stock investment fund is, generally speaking, a Joint-Stock Company (JSC) whose exclusive activity is investments. The name of an investment company must contain the words «joint stock investment fund» or «investment fund». A joint stock investment fund is regulated by general legislation on joint stock companies with amendments and exceptions applicable to the investment companies.

A joint stock investment fund must be licenced by the Central Bank. At the time of filing an application for the licence the fund must have own capital in the amount aligning with the Central Bank Directives, of no less than RUR 5 million (approximately €54,000). The fund's property used for its own purposes and assets to be invested must be accounted for separately. Investment assets must be held in trust by a management company. The management can be a limited liability or a JSC and it must be licenced by the Central Bank. The fund's activity must comply with the investment mandate approved, normally, by the meeting of stockholders, and be registered with the Central Bank. This form of investment, however, is rather unpopular.

A unit trust does not comprise a legal entity. The participants of a unit trust pool their contributions into a property complex held in trust by a management company. The participants lose ownership over their contributions, and the trust's property is owned jointly by all trust members. The management company acts in its name but it must make it known that it acts as a trustee, otherwise the participants will be personal liable.

Again a management company and the trustee of a unit trust, must be authorised by the Central Bank.

Banking

The Central Bank of the Russian Federation is the regulatory body for banking and it is authorised to issue and withdraw licences to provide banking services. The main legal act is the federal law on banks and banking of 2 December 1990.

A bank can be incorporated in the form of a limited liability or a JSC or in other forms established by company law. Banks are entitled to accept money from individuals or legal entities on deposits, operate these funds in its name and at its own expense, open accounts. Russian law provides different arrangements for the non-banking credit institutions that can provide certain banking operations.

The name of a credit institution must contain the words «bank» or «non-banking credit institution». The Central Bank may prohibit the use of a particular name if such name is already in the Book of State Registration of Credit Institutions.

A credit institution must publish its balance sheet quarterly; it must annually publish a profit and loss account, information about own capital and reserves, and annually a balance sheet and a profit and loss account together with the statement of an auditor who examined the bank's accounts.

Since 2013, Russian banks apply so-called «barrier tariffs» as a measure against money laundering. Such tariffs apply to the operations and persons banks find suspicious. The measure is, by far, dubious, and application of such tariffs may be challenged in court.

The Central Bank must be notified about an acquisition in the ownership or trust by one legal entity or individual or a group of legal entities and/or individuals of more than 5% shares in a credit institution. Prior consent from the Central Bank is required for acquisition of more than 20% of shares. Founders of a bank may not exit within three years after incorporation.

Candidates for the following positions in a credit institution must comply with certain special requirements to qualification established by law and the Central Bank's regulations: