Doing business in the Russian Federation - EY

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  • Doing business in the Russian Federation

  • This book has been prepared by the Ernst & Young practice in the Russian Federation in order to provide the busy executive a quick overview of the taxation, forms of business organization, and business and accounting practices in Russia. Making decisions about foreign operations is complex and requires an intimate knowledge of a countrys commercial climate, with a realization that the Russian business and regulatory environment continues to evolve on multiple fronts. You should expect opinions on Russian matters to vary widely. Companies doing business in Russia, or planning to do so, are strongly advised to obtain current and detailed information from experienced professionals. This book reflects information current as of 1 August 2010.

    Ernst & Young provides assurance, advisory, tax and legal, and transaction services in the principal cities of the world. Additional copies of this brochure may be obtained from Ernst & Youngs Moscow office:

    Ernst & Young Sadovnicheskaya Nab., 77, Bld. 1 115035, Moscow, Russia Tel: +7 (495) 755 9700 Fax: +7 (495) 755 9701

    Preface

    1Doing Business in the Russian Federation Preface

  • 2 Doing Business in the Russian Federation Contents

    Preface . . . . . . . . . . . . . . . . . . . . . . . . .1General business information . . . . . . .5

    Time . . . . . . . . . . . . . . . . . . . . . . . . . . .5Public holidays . . . . . . . . . . . . . . . . . . .5Financial system . . . . . . . . . . . . . . . . .6

    Bank regulators . . . . . . . . . . . . . . . . . 6Stock exchange and securities regulating authority . . . . . . . . . . . . . 6

    Currency control . . . . . . . . . . . . . . . . .7General principles . . . . . . . . . . . . . . . . . 7Restrictions on operations between residents and non-residents . . . . . . . . 7Liability for violation of currency law . . . . . . . . . . . . . . . . . . 7

    Companies . . . . . . . . . . . . . . . . . . . . . .9Corporate forms . . . . . . . . . . . . . . . . .9

    Russian legal entities . . . . . . . . . . . . . 9Branch and representative offices . . . . . . . . . . . . . . . . . . . . . . . 12Registration of businesses in Russia . . . . . . . . . . . . . . . . . . . . . . 12

    Mergers and acquisitions . . . . . . . . .13Antimonopoly control . . . . . . . . . . . 13Restrictions on strategic companies . . . . . . . . . . . . . . . . . . . . 13Shareholder agreements . . . . . . . . 14

    Taxes at a glance . . . . . . . . . . . . . . . .14Ernst & Youngs annual tax survey . . .14

    Tax audits . . . . . . . . . . . . . . . . . . . . . 14Tax disputes . . . . . . . . . . . . . . . . . . . 16Impact on investment . . . . . . . . . . . 17Tax Rates . . . . . . . . . . . . . . . . . . . . .18

    Corporate profits tax . . . . . . . . . . . . .18Taxpayers . . . . . . . . . . . . . . . . . . . . . 18Rates . . . . . . . . . . . . . . . . . . . . . . . . 19Tax base . . . . . . . . . . . . . . . . . . . . . . 19 Taxable income. . . . . . . . . . . . . . 19 Exempt income . . . . . . . . . . . . . . 20 Deductible expenses . . . . . . . . . 20 Interest . . . . . . . . . . . . . . . . . . . . 20 Depreciation . . . . . . . . . . . . . . . . 21 Other expenses . . . . . . . . . . . . . 21Loss carried forward . . . . . . . . . . . . 21Dividend income . . . . . . . . . . . . . . . 22Capital gains/losses . . . . . . . . . . . . . 23Tax reporting and payment . . . . . . . 23 Separate subdivisions . . . . . . . . 24Tax accounting . . . . . . . . . . . . . . . . 24Foreign tax relief . . . . . . . . . . . . . . . 24Transfer pricing . . . . . . . . . . . . . . . . 24Value-added tax (VAT) . . . . . . . . . .25Taxpayers . . . . . . . . . . . . . . . . . . . . . 25Registration . . . . . . . . . . . . . . . . . . . 25Rates . . . . . . . . . . . . . . . . . . . . . . . . 25Taxable operations . . . . . . . . . . . . . 25Place of supply of goods and services . . . . . . . . . . . . . . . . . . . 25The moment tax arises upon a sale . . 26Non-taxable supplies . . . . . . . . . . . . 26Imported goods . . . . . . . . . . . . . . . . 26Calculation of VAT . . . . . . . . . . . . . . 26Withholding of VAT on acquisitions from FLEs . . . . . . . . . . . . . . . . . . . . . 27Tax reporting and payment . . . . . . . 27

    Assets tax . . . . . . . . . . . . . . . . . . . . .27Taxpayers . . . . . . . . . . . . . . . . . . . . . 27Tax rates . . . . . . . . . . . . . . . . . . . . . . 27Tax base . . . . . . . . . . . . . . . . . . . . . . 28Tax exemptions . . . . . . . . . . . . . . . . 28Tax reporting . . . . . . . . . . . . . . . . . . 28

    Other taxes . . . . . . . . . . . . . . . . . . . .28Excise tax . . . . . . . . . . . . . . . . . . . . . 28Transport tax . . . . . . . . . . . . . . . . . . 28Mineral extraction tax . . . . . . . . . . . 28Other taxes . . . . . . . . . . . . . . . . . . . 28

    Miscellaneous tax matters . . . . . . . .28Taxation of Russian-source income of FLEs without PE in Russia . . . . . . 28 Withholding tax . . . . . . . . . . . . . 28 Russian source income . . . . . . . 29 Tax rates . . . . . . . . . . . . . . . . . . . 29 Treaty relief . . . . . . . . . . . . . . . . 29Taxation of reorganization of companies in Russia . . . . . . . . . . 30

    Customs . . . . . . . . . . . . . . . . . . . . . . .30Overview . . . . . . . . . . . . . . . . . . . . . 30Import duties . . . . . . . . . . . . . . . . . . 30Import of technical equipment . . . . 30Export duties . . . . . . . . . . . . . . . . . . 31Customs value . . . . . . . . . . . . . . . . . 31Customs coding . . . . . . . . . . . . . . . . 31Customs procedures . . . . . . . . . . . . 31 Release for domestic

    consumption . . . . . . . . . . . . . . . . 31 Bonded warehouse . . . . . . . . . . 31 Temporary importation . . . . . . . 32 Customs regime of processing . . 32

    Contents

  • 3Doing Business in the Russian Federation Contents

    CIS free trade regime . . . . . . . . . . . 32Customs Union of Russia, Belarus and Kazakhstan . . . . . . . . . 32

    Special economic zones . . . . . . . . . .33Financial reporting and auditing . . . .34

    Sources of accounting principles . . . 34 Regulatory bodies . . . . . . . . . . . 34 Books and records . . . . . . . . . . . 35 Methods of accounting . . . . . . . 35 Fundamental concepts . . . . . . . 35Significant accounting concepts for investors . . . . . . . . . . . . . . . . . . . 36 Foreign currency transactions . . 36 Fixed assets . . . . . . . . . . . . . . . . 36 Inventories . . . . . . . . . . . . . . . . . 36 Investments . . . . . . . . . . . . . . . . 36 Bank transactions . . . . . . . . . . . 36 Tax liability . . . . . . . . . . . . . . . . . 36Capital and reserves . . . . . . . . . . . . 36Net income . . . . . . . . . . . . . . . . . . . . 36Disclosure, reporting, and filing requirements . . . . . . . . . . . . . . . . . . 37Disclosure requirements . . . . . . . . . 37Reporting and filing requirements . . 37Audit requirements . . . . . . . . . . . . . 38Differences between international financial reporting standards (IFRS) and Russian statutory accounting principles . . . . 38

    Individuals . . . . . . . . . . . . . . . . . . . . . 41Income tax . . . . . . . . . . . . . . . . . . . . .41

    General . . . . . . . . . . . . . . . . . . . . . . 41Who is liable? . . . . . . . . . . . . . . . . . . 41

    Definition of resident . . . . . . . . . . . . 41Object of taxation . . . . . . . . . . . . . . 41Tax rates . . . . . . . . . . . . . . . . . . . . . . 42Tax collection procedure . . . . . . . 42Capital gains and losses . . . . . . . . . 43Personal allowances . . . . . . . . . . . . 43

    Payroll taxes . . . . . . . . . . . . . . . . . . .44Social contributions . . . . . . . . . . . . . 44Exemptions . . . . . . . . . . . . . . . . . . . 44Social contribution rates . . . . . . . . . 45Compulsory pension insurance . . . . 45Social contribution changes from 2011 . . . . . . . . . . . . . . . . . . . . 45Workplace accident insurance . . . . 45

    Employment . . . . . . . . . . . . . . . . . . . .46Russian Labor Code . . . . . . . . . . . . . 46Recruitment . . . . . . . . . . . . . . . . . . . 47Termination . . . . . . . . . . . . . . . . . . . 47Remuneration . . . . . . . . . . . . . . . . . 48Immigration . . . . . . . . . . . . . . . . . . . 48

    Company registration with employment service and monthly reporting on job vacancies . . . . . . . . . . . . 48Highly Qualified Specialists (HQS) . . . . . . . . . . . . . . . . . . . . . 48 Submission of foreign labor needs forecasts (quota applications) . . . . . . . . . . . . . . . 49

    Work permits . . . . . . . . . . . . . . . 49 Work visa . . . . . . . . . . . . . . . . . . 49 Notifications . . . . . . . . . . . . . . . 49 Enrollment/De-enrollment . . . . 49

    Sanctions for non-compliance with the immigration legislation . . . 49

    Appendices . . . . . . . . . . . . . . . . . . . . 51Appendix 1: Useful addresses and telephone numbers . . . . . . . . . . .51

    Major business and commercial organizations . . . . . . . . . . . . . . . . . 51Russian ministries, agencies, and services . . . . . . . . . . . . . . . . . . . 52

    Appendix 2: Exchange rates (as of years end) . . . . . . . . . . . . . . . .54Appendix 3: Economic performance statistics . . . . . . . . . . .54Appendix 4: Treaty withholding tax rates . . . . . . . . . . . . . . . . . . . . . . .55Appendix 5: Blacklist of jurisdictions approved by the Ministry of Finance . . . . . . . . .60

    About Ernst & Young . . . . . . . . . . . . 63Assurance . . . . . . . . . . . . . . . . . . . . . . 63Advisory . . . . . . . . . . . . . . . . . . . . . . . 63Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Transactions . . . . . . . . . . . . . . . . . . . . 64Publications . . . . . . . . . . . . . . . . . . . . 65

    International . . . . . . . . . . . . . . . 65 Local . . . . . . . . . . . . . . . . . . . . . 65

    Ernst & Young in the CIS . . . . . . . . . 66Ernst & Young worldwide . . . . . . . . . 68

  • 5Doing Business in the Russian Federation General business information

    TimeRussias time zones progress from two hours ahead of Greenwich Mean Time (GMT) in the west to thirteen hours ahead of GMT in Anadyr in the extreme north-east of the country. Moscow, the capital city, is three hours ahead of GMT.

    Time differences between Moscow and some major cities of the CIS are shown in the following table.

    City Hours ahead of or behind Moscow

    Kyiv 1St. Petersburg 0Baku +1Almaty* +3/+2Novosibirsk +3Vladivostok +7

    * Kazakhstan does not observe Daylight Savings Time.

    Flying time between Moscow and some major cities of the world, as well as time differences, are shown in the table below.

    ity Time difference

    Flying time

    London 3 3 hours 50 minutesNew York 8 8 hours 30 minutesParis 2 3 hours 45 minutesTokyo* +6/+5 10 hours 25 minutes

    * Japan does not observe Daylight Savings Time.

    Source: http://www.timeanddate.com/

    Public holidaysThe following table lists the official public holidays in Russia.

    Holiday Date

    New Year's Holidays January 15Russian Orthodox Christmas January 7Defenders of the Fatherland Day

    February 23

    International Women's Day March 8Day of Spring and Labor May 1Victory Day May 9Independence Day or Sovereignty Day

    June 12

    Day of National Unity November 4

    If any of the above holidays falls on a weekend, the holiday is postponed to the Monday (or Tuesday) following the date of the holiday. In addition, if any of the above holidays falls on a Tuesday or Thursday, it is customary for the preced-ing Monday or following Friday (respec-tively) to be an official public holiday and for the preceding Saturday or the following Sunday (respectively) to be a working day.

    Foreign organizations in the Russian Federation, such as embassies and con-sulates, also usually observe their home countries public holidays in addition to the official public holidays listed above.

    General business information

  • Doing Business in the Russian Federation General business information

    Financial system Bank regulatorsThe Central Bank of the Russian Federa-tion (CBRF) is the main regulator of bank-ing activity. The CBRF issues licenses for all credit institutions in Russia. A general license allows banks to conduct almost all types of regular banking operations, including deposit and distribution of mon-etary funds, keeping accounts, making

    payments, and issuing guarantees. Special licenses are required only for a few types of banking operations, e.g., deposit and distribution of precious metals.

    Stock exchange and securities regulating authorityThe Federal Financial Markets Service (FFMS) controls and supervises financial markets, implements government policy on the securities market, regulates the activities of participants in the professional securities market, and protects the rights of investors and shareholders.

    The major functions of the FFMS are as follows:

    Developing a regulatory legal framework for the securities market including adopting relevant regulations,

    Determining the key directions for development of the securities market,

    Registering security issuances, issuing prospectuses and results of security issuance,

    Keeping appropriate records and ensuring the disclosure of information on the securities market,

    Oversee issuers and participants in the professional securities market, including the issuance of licenses for investment funds, non-governmental pension funds, management companies, and special depositories

    Perform inspections, issue mandatory prescriptions, bring administrative actions and take other legal actions.

    6

  • 7Doing Business in the Russian Federation General business information

    Currency controlGeneral principlesThe official currency in Russia is the Rus-sian ruble. In general, payments between residents must be made in Russian rubles. Residents can use foreign cur-rency to determine the contract price but the payment should be in rubles.

    Historically the area of currency control has been a source of confusion and un-certainty for foreign investors operating in Russia, but this situation has substan-tially improved during the last few years. Still, it is important that foreign investors address any potential currency control is-sues in advance of concluding any signifi-cant transactions with a Russian resident.

    Restrictions on operations between residents and non-residentsTransactions between residents (Russian legal entities, their representative offices (branches) outside of Russia and individuals permanently living in Russia) and non-residents (foreign legal entities, their representative offices (branches) in Russia and...