Doing Business in Russia 2009

Russia — country profile

General Economic Overview

Russia ranking statistics

• Largest country in the world
• 2nd: Oil exports – 243,1M t in 2008
• 2nd: Rail network (85 thousand km)
• 3rd: Reserves of foreign exchange and gold: US$ 384 bn, (as of 6 March 2009)
• 9th: FDI confidence index (AT Kearney)
• 60th: FedEx “access” index (openness to trade)
• 52nd UN Trade and Development Index
• 51st: WEF Competitiveness ranking
• 62th: AT Kearney Globalization Index
• 120th: Ease of doing business (IFC)
• 161st: Trading across borders (IFC)

Russian companies and global markets

Largest Russian Companies by Forbes (as of April 2009)

Source: Forbes

Foreign Direct Investment and Outward direct investments

• Big increase in FDI inflows into Russia within the last couple of years
• Large and rapidly growing domestic market, rich human capital, benefits of natural resources wealth and political stability are the key drivers of FDI growth. The domestic boom attracted to attract significant volumes into consumer-related segments of economy
• Global capital markets turmoil has spread to Russia effectively closing global sources of funding
• Significant outflow of foreign portfolio and other investments were registered in 2008. Nevertheless, FDI reached its maximum at the year-end of 2008. They are not likely to achieve such high results again anytime in the midterm

Foreign investments in 2008: industry breakdown

Business Environment

Business Climate

• The business environment in Russia has been steadily improving since the transition from a centrally controlled planned economy to a free market until the economic crisis occurred.
• Economic growth has been one of the fastest in the world, many reforms have been implemented, the tax system was becoming fairer and more transparent, Russia was increasingly integrated with global markets, and customs has improved noticeably in recent years.
• However, real progress remains to be made to reduce the effects of a suffocating bureaucracy and corruption. That said, corruption in Russia is no worse than in other emerging markets.

Governmental actions

• Russian government is quite proactive in taking economic policy measures with capital injections and bail out packages
• Around $200 bln in varying forms of aid to struggling banks and corporates, sourced from federal budget funds, central bank reserves and two national funds
• Russian government established $50 bln fund through state development bank VEB to refinance foreign corporate debts of Russian entities
• Government approved a list of 295 strategic companies that are able to receive state support in retail, banking, oil and gas, metals and construction and transport sectors
• Government provided up to $5 bln in tax breaks to its major oil producers as the Kremlin attempts to stimulate investment. More tax breaks is expected to follow in other sectors as well
• State Duma passed law for a provision of additional $6.6 bln in share purchases for 2009 as well as a rise in overall expenditure
• Government investing $1.3 bln program to fight unemployment in the regions to build new roads and other temporary work is focus of the program

Key findings

• Russia could recover faster from the crisis.
• Strong fiscal stimulus from the government will cushion the worst effects of the recession.
• Russian citizens are less exposed than in other countries and may be able to bounce back more quickly because: household debt is low, less than 1% of Russians own shares and thus have not been impacted directly by the fall in the stock market, the mortgagee market is insignificant in terms of GDP, saving levels are relatively good, the informal economy is noticeable and will cushion consumers.
• Government spending could provide a stimulus to Russian corporates.
• The falling rouble will help Russian competitiveness.

Table of contents

Office locations in Russia

1. Russia: country profile
1.1 Introduction
1.2 Government structure
1.3 Legal system
1.4 People
1.5 Economy
1.6 Foreign trade
1.7 Tips for business visitors

2. Business environment
2.1 Business climate
2.2 International agreements
2.3 Legal environment
2.4 Regulations for business
2.5 Property market

3. Foreign investment
3.1 Foreign investment
3.2 Privatisation

4. Banking, finance and insurance
4.1 Banking system
4.2 Foreign currency market and foreign currency rules
4.3 Specialised financial institutions
4.4 Capital markets

5. Importing and exporting
5.1 Customs policy
5.2 Import restrictions
5.3 Customs duties
5.4 Temporary import relief
5.5 Customs duty incentives
5.6 Documentation and procedures
5.7 Warehousing and storage
5.8 Re-exports

6. Business entities
6.1 Legal framework
6.2 Choice of entity
6.3 Forms of business entities
6.4 Joint-stock company
6.5 Limited liability company
6.6 Full and limited partnership
6.7 Branches
6.8 Representative office

7. Labour relations and social security
7.1 Labour relations
7.2 Working conditions
7.3 Social security system
7.4 Foreign personnel

8. Accounting and audit requirements
8.1 Accounting
8.2 Chart of Accounts
8.3 Audit requirements

9. Tax system and administration
9.1 Tax system
9.2 Direct and indirect tax burden
9.3 Principal taxes
9.4 Legislative framework
9.5 Tax treaties
9.6 Tax returns and payments
9.7 Assessments
9.8 Appeals
9.9 Withholding taxes
9.10 Tax audits
9.11 Tax penalties
9.12 Advance tax clarifications

10. Taxation of corporations
10.1 Corporate tax system
10.2 Incentives
10.3 Taxable income
10.4 Deductibility of expenses
10.5 Related-party transactions, TP
10.6 Foreign exchange
10.7 Tax computations
10.8 Energy, specifics utilities and mining
10.9 Other taxes
10.10 Branch versus subsidiary
10.11 Holding companies
10.12 Thin capitalisation rules

11. Taxation of individuals
11.1 Territoriality and residence
11.2 Taxable income
11.3 Non-taxable income
11.4 Deductions
11.5 Taxation of non-residents
11.6 Tax compliance

12. Value-added tax (VAT)
12.1 Scope of VAT
12.2 Zero rating
12.3 Exempt supplies
12.4 Taxable amount
12.5 Non-deductible input VAT
12.6 VAT incentives
12.7 Simplification measures
12.8 VAT compliance

13. PricewaterhouseCoopers in Russia

APPENDICES
Appendix A – Main macroeconomic indicators of Russia in 2002–2008
Appendix B – Tax rates
Appendix C – Corporate taxes in Russia: withholding taxes
Appendix D – Useful sources of information