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Dear reader, We at CMS have been welcoming investors to Russia for nearly twenty years and we appreciate the importance of high-quality, accurate information to the success of business here. To help you, we have put together this introductory guide to the Russian legal system and the principal laws and regulations that are of interest to investors in this exciting, developing market. It is of course no substitute for the expert advice tailored to your project that our specialists will be pleased to provide to you on request. Russia is changing every day and, although this guide describes the laws as at 1 April 2011, please contact us to check that it remains up-to-date. We would also recommend that you subscribe to our free CMS news service through which you will receive our newsletters, articles and invitations to our seminars and events. You can do this by contacting any lawyer at CMS, or the CMS Marketing Department. We wish you every success.
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Jean-François Marquaire Managing Partner email@example.com
Political and administrative structure Legal environment 4 6
Common forms of business structures for foreign investors
Types of structures Registration, liquidation and reorganisation of business structures Shareholders’ and participants’ agreements Strategic industries 8 19 21 21
General approach Corporate taxation Taxation of individuals Special tax regimes Incentives Double taxation treaties 23 24 30 32 34 35
General approach Trade between Customs Union and third countries Mutual trade between the Customs Union members 37 38 40
General approach EE requirements Energy service agreements Energy audit mechanisms Incentives 41 42 43 44 44
Doing Business in Russia
Content Anti-monopoly issues General approach Scope of application of the Competition Law Anti-competitive practices and restriction of competition Liability 45 45 46 48 Banking sector Banking industry Legislative and regulatory framework Licensing and operations Deposit insurance The anti-money laundering law 50 50 51 52 53 Lending in Russia Lending documents and governing law Jurisdiction Currency controls Security interests Security trusts and syndication Enforcement Bank guarantee and suretyship Insolvency considerations Other lending related issues 55 55 56 56 57 57 57 58 58 Currency control General approach Foreign currency transactions Import and export of foreign currency Sanctions 60 60 61 62 Corporate bankruptcy General approach Insolvency concept Bankruptcy procedures 63 63 64 2 .
Employment General approach Formalising the employment relationship Managing employment relationships Terminating an employment contract Specifics of employing foreign nationals 69 69 73 74 74 Real estate and construction Contractual aspects Planning and construction issues Latest trends 78 83 85 Intellectual property General approach Rights over the results of intellectual activity and means of individualisation Violations of intellectual property rights 87 88 92 3 Doing Business in Russia .
The executive branch The executive branch of power is headed by the Government of the Russian Federation (“Pravitelstvo”). He succeeded Vladimir Putin. who is the head of government. He is Commander-in-Chief of the Russian armed forces. Both appointments must be endorsed by the State Duma (“Gosudarstvennaya Duma” – the lower house of the Russian Parliament). adopted on 12 December 1993 (as amended). The current President was elected for a fouryear term in 2008. The President determines the main trends of Russia’s domestic and foreign policy and represents the country in both domestic and foreign affairs. the President is the Head of State. who led the country for the previous eight years. and also appoints the Chairman of the Central Bank of Russia. The President appoints the Prime Minister. he has the right to dissolve the Duma. the Presidential mandate will be extended to six-year terms. The President has broad authority to issue decrees and directives that in practice have the force of law and. The current President. took office on 7 May 2008. however. Dmitry Medvedev.Introduction Political and administrative structure The President Under the Constitution of the Russian Federation. under certain circumstances. beginning with the 2012 presidential election. The Government is required 4 .
If a bill is rejected by the Federation Council. or the Supreme Arbitration Court. However. The President has the right of final veto. This court also resolves jurisdictional disputes between the federal and regional authorities. The judicial branch The judicial system is split into three branches: (i) the courts of general jurisdiction. Duma members are currently elected for four-year terms. The head of this branch is the Supreme Court of Russia. which. regional legislatures. the Constitutional Court. Decisions of the lower courts can be appealed through the intermediate courts. their shareholders). they will be elected for five-year terms. federal arbitration courts and the Supreme Arbitration Court of Russia. The legislative process consists of several stages. can be overridden by a resolution passed by two-thirds of the members of the Duma and the Federation Council. A major reform of the executive branch took place in 2004. the Supreme Court.to enact the decisions made by the President and the laws adopted by Parliament. arbitration courts of appeal. beginning in 2012. The Supreme Arbitration Court is the court of last instance in the resolution of economic disputes. and may interpret and clarify the provisions of the Constitution. unless they fall under the jurisdiction of the magistrates’ courts or martial courts. Bills are first considered by the State Duma and must pass three readings before being passed to the Federation Council. and to reduce bureaucracy levels. commercial courts). bills are considered by the Federation Council. The aim was to create a clearer and more efficient structure. if exercised.e. The commercial arbitration courts deal with economic disputes involving individuals engaged in business activities. (ii) the arbitration (“arbitrazhnie”) courts (i. and (iii) the Constitutional Court. The legislative branch The Federal Assembly (“Federalnoye Sobra niye”) represents the legislative branch of power in Russia at the federal level. the Government. and disputes between legal entities and their participants (i. civil and administrative cases involving individuals who are not engaged in business activities. Bills may originate in either legislative chamber. The judicial system is also divided into a federal system and a system of local courts in each Russian region. After being adopted by a majority of the State Duma’s members. The upper chamber of Parliament is called the Federation Council (“Soviet Federatsii”). it must be signed by the President. There are 166 seats occupied by representatives of the executive and legislative branches of each of the 83 Russian regions. or they may be submitted by the President. up to the Supreme Court. a Conciliatory Commission may be established. The Constitutional Court has jurisdiction to decide on the constitutionality of federal (and regional) legislation and regulations. The arbitration court system consists of (in an increasing order of hierarchy) the arbitration courts in Russia’s regions. When a bill is adopted by the Federation Council.e. This consists of representatives of the Duma and Federation Council who review and amend the bill before it is presented to the Duma again for consideration. 5 Doing Business in Russia . Cases are heard by the district court. The State Duma is the lower chamber of Parliament and counts 450 deputies elected by proportional representation who are at the pith of the legislative process in Russia. The courts of general jurisdiction deal with criminal.
The Constitution sets out a general list of powers that are of exclusive federal jurisdiction. The Constitution. Many important market-oriented reforms have been implemented. however.htm http://www. There remain. collect regional taxes. Some powers are jointly exercisable by the federal and regional authorities. Legal regulation The main legislative act governing foreign investments is Federal Law No.gks. Orders of the Government and the decisions of various ministries are used to support. The head of the executive branch of each region is appointed by the legislative body of that region on the recommendation of the President of Russia. the provisions of primary legislation. including business relations. Regional powers include the authority to manage municipal property. provided those laws do not contradict the Constitution or existing federal laws. Foreign investment Facts and figures The Russian Government has stated on several occasions that it aims to encourage foreign investment and to create a stable and attractive investment climate. and interpret.Introduction Federal structure The Russian Federation consists of 83 “constituent subjects”. FDI slumped by almost half in 2009 to USD 16 billion and continued to decline in 20102 to USD 13. if Russia is a signatory to an international treaty containing provisions contrary to the provisions of any domestic legislation. The Constitution states that general principles of international law and international treaties are part of the Russian legal system. continued in 2008. Legal environment General background The Russian legal system operates under the provisions of civil law. According to the Federal Service for State Statistics1. 160-FZ “On Foreign Investment in the Russian Federation” dated 9 July 1999 (the “Foreign Investment Law”). for example.gks.8 billion in 2007.ru/free_doc/new_site/business/invest/in_inv1. During this period significant reforms were enacted in almost every area of law.8 billion.htm 6 . The Constitution grants the regions a degree of autonomy over their internal economic and political affairs.e. Presidential Decrees. many gaps and ambiguities in current legislation that may hamper decision making on the part of businesses. 1 2 http://www. the provisions of the international treaty will prevail. This law states that foreign investors and investments will be treated no less favourably than domestic investors and investments. The regional authorities are then allocated all residual powers. establish regional budgets. The legal structure developed at a rapid pace during the 1990s.exe/Stg/d01/ 40inw24. which was mainly due to high oil prices. Bringing the country in line with the standards of a modern market economy is a key priority for the present administration. subject to certain wide-ranging exceptions. i. The Constitution also gives regional bodies the authority to pass laws. federal laws and the regional laws form the foundation of the Russian legal system.ru/bgd/free/b04_03/IssWWW. Although this trend. and to maintain law and order. which are not included in these two lists. foreign direct investment (“FDI”) into Russia reached a record high of USD 27. there is a civil code which sets out the foundation of civil law and civil relations. Consequently. regions within the federation.
Exclusions/restrictions In addition to so-called “strategic industries” (please see the Common forms of business structures for foreign investors chapter on page 21). or in order to ensure state security and/or defence. Given how slowly the legal culture has developed in Russia. Federal Law No. the Central Bank of Russia has the right to use reciprocity as a criterion to specify the types of business that subsidiaries or branches of foreign banks may be licensed for to operate in Russia. Insurance companies in which foreign shareholders own more than 49% of the charter capital may not engage in certain types of insurance business. such as tax deferments. life assurance. including. the Federation of Independent Trade Unions of Russia. Lobbying One of the main transformations of the last 15 years has been the redefinition of the relationships between business and the State. customs benefits. a ceiling on the total amount of foreign bank capital. stocks and bonds. businesses do not concentrate their lobbying efforts on attempting to influence the drafting of new laws or the actions of those drafting them. There are not many legally recognised lobbying associations with a large membership base. health and rights of third parties. foreign investors are entitled to receive compensation for their investment and other losses. Some of the sectors concerned are commented on separately below. unless this is provided for by federal law.Exceptions/restrictions may be introduced to protect the Russian constitutional system. the Chamber of Commerce and Industry. Prominent examples of associations that do exist are: The Association of Russian Banks. in the acquisition of existing Russian-owned companies and in joint ventures. branches of foreign banks are not able to carry out any banking activities on the Russian market). In the banking sector. Additionally. In practice. Foreign investors are protected against nationalisation or expropriation. operation licences and the right to engage in certain kinds of activity. however. businesses try to receive de facto special treatment. In these cases. restrictions on foreign investment exist notably in the insurance and banking sectors. By and large. in portfolios of government securities. 4015-1 “On Insurance” dated 27 November 1992 currently prohibits foreign investors from owning more than 25% of the total market for domestic insurance. and the Russian Gas Association. Instead. etc. the morality. Russian legislation may introduce special regulations for the promotion of foreign investment. direct investment in new businesses. as a percentage of the total bank capital in Russia. can be imposed by federal law. for example. foreign investment is permitted in most sectors of the Russian economy: for example. 7 Doing Business in Russia .
or “closed”. 8 . the changes represent a significant improvement in the general business environment. Russian legal entities The two most common types of Russian legal entity are a limited liability company and a joint-stock company (which may be either “open”. whilst others are part of the ongoing development of Russian business law. as well as limited and unlimited partnerships. provided that he has the legal status of an individual entrepreneur. An individual is also entitled to conduct commercial activities in Russia. including limited liability companies. Overall.Common forms of business structures for foreign investors Types of structures Russian legislation provides for several types of business structures. representative offices. The Russian authorities acknowledge that responding to the needs of business is essential if the country is to move forward economically. The legal framework for individual entrepreneurs is also set out in the Civil Code. joint-stock companies. Some of these have been implemented specifically as a response to the global economic crisis. meaning publicly held. There have been significant developments in Russian corporate law since 2008. A basic description of each of these is set out in Part I of the Civil Code of 1994 (the “Civil Code”). meaning privately held). branches.
Charter capital and contributions The charter capital of a limited liability company is divided into participatory interests (“doli”). In certain cases however.Limited liability company A limited liability company (“obshchestvo s ogranichennoy otvetstvennostyu”) is designated by the abbreviation “OOO” before or after its name. This register sets out the names of the participants and the number of participatory interests they have in the company.e. Each holder of a participatory interest is referred to as a “participant”. the company is obliged either to reduce the number of participants or to re-register as an open joint-stock company or production cooperative within a year. property or other tangible or intangible rights having monetary value). provided that all the par1 ticipants agree. although it is expected to be increased to RUB 500. provided that the holding company is not itself wholly owned by (i) a legal entity or (ii) an individual. as a result of debt-for-equity-swap mechanisms introduced in December 2009. Exemptions from import duties and import VAT may be available for certain types of equipment contributed to the charter capital of a company by a foreign participant. This shortfall may also be a ground for the company’s compulsory liquidation if its assets do not cover the minimum charter capital amount. Unlike the shares issued by a jointstock company. as used throughout this guide. Failure to comply with this requirement may result in an obligation for the company to decrease its charter capital. Since 1 July 2009 all limited liability companies must maintain a register of participants. The establishment of a limited liability company is mainly governed by the Civil Code and by Federal Law No. Generally. 14-FZ “On Limited Liability Companies” dated 8 February 1998 (the “LLC Law”). 9 Doing Business in Russia .000 (EUR 12. As a general principle. Net asset requirements A limited liability company is required to maintain the value of its net assets at not less than the amount of its charter capital. The minimum charter capital of a limited liability company is currently RUB 10. the responsibility of participants for the company’s liabilities is limited to the value of their participatory interests. securities. An amendment to the Civil Code requiring the minimum charter capital to be paid in cash only is under review. Contributions to the charter capital of a limited liability company may be made in cash or in kind (i. increases in the charter capital can be made by setting-off contributions against any existing monetary debt that the company owes to an existing or new participant. A founding participant may not be released from the requirement to contribute to the charter capital.500). these participatory interests are not classified as securities. If the number of participants in the company exceeds 50. It is the simplest form of a Russian company and is often used by foreign investors who want to set up a wholly owned subsidiary. and therefore they do not need to be registered with the Federal Service for Financial Markets (the “FSFM”). the corporate At the notional exchange rate of RUB 40 = EUR 1. any asset contributed to the charter capital must be independently valued.000 (EUR 2501). However. Participation A limited liability company can be wholly owned by another commercial company (“khozyaystvennoye obshchestvo”).
resulting in participants having unlimited liability for the obligations of the company (e. members of the management board must obtain a power of attorney from the general director in order to conclude transactions on the company’s behalf. bearing in mind however.g. distributing profits and approving the annual reports and balance sheets of the company must be made by the participants’ meeting. the board of directors (which is optional). which may include appointing/dismissing the general director or approving major transactions and interested-party transactions. Management structure The managing bodies of a limited liability company are: . Extraordinary participants’ meetings may be held at any time. a participant’s voting power at a participants’ meeting will normally correspond to the proportion of the company’s charter capital it holds. As per a decision taken by the participants’ meeting. The annual participants’ meeting must be held no earlier than two months before and no later than four months after the end of the company’s financial year. decisions are adopted by a simple majority of the votes of all participants in the company. A limited liability company can also have a management board. The charter defines its authority. . changing the charter capital. A board of directors is an optional supervisory management body of a limited liability company. the general participants’ meeting. Participants’ meetings must be convened according to the procedure set out in the company’s charter and the LLC Law. the management board (which is optional). By law. in companies with more than 15 participants). The general director is the only person who can represent the company without a power of attorney. Major decisions such as amending the company’s corporate documents. Unlike the general director. the general director’s authority may be transferred to a management company (in whole only). that certain majorities are fixed by law. Although there are no restrictions preventing a foreign national from being appointed as a general director. Subject to provisions to the contrary in the company’s charter. Different majorities may be specified in a company’s charter. failing which the general participants’ meeting will not be able to approve the company’s annual reports and balance sheets (as they must first be approved by the internal auditor). . The general director acts on behalf of the company.Common forms of business structures for foreign investors veil can be pierced. enters into transactions on its behalf. however. the general director chairs the management board. 10 . The general director’s powers may be limited by the company charter and his employment contract. represents its interests. The general director manages the dayto-day running of the company and deals with all other issues not falling within the authority of the general participants’ meeting and the board of directors (if there is one). Audit The charter may provide for an internal auditor (an individual or a commission). the general director. and .g. In some cases a company must have an internal audit (e. issues powers of attorney and hires and dismisses employees. when a participant gives binding instructions to the company that lead to the insolvency of the company). All decisions (except approval of the company’s annual reports and balance sheets) may be adopted without holding a meeting. work permit regulations need to be complied with (please see the Em ployment chapter on page 74). Generally.
may agreements in relation to the prospective sale of participatory interests in a Russian limited liability company be governed by non-Russian law and do these agreements need to be notarised? Right to withdraw Since 2009.An external auditor may also be appointed by the participants’ meeting to audit the company’s financial and business activity. for the transfer of company-owned participatory interests to participants. for the sale of participatory interests from one participant to another. The “actual value” of the exiting participant’s participatory interest is calculated in accordance with accounting data as provided in the LLC Law. If certain turnover or asset value thresholds are exceeded. A participant may transfer its participatory interest to third parties. or if the company conducts certain regulated activities. or . Where notarisation is not required the transfer of title to the participatory interests is effective when the transfer is recorded in the Unified State Register of Legal Entities. do preliminary sale and purchase agreements and other documents dealing with the disposal of participatory interests have to be notarised. for the sale of company-owned participatory interests to third parties. pay the exiting participant in kind provided that the participant agrees to this. binding agreements in which the parties agree that they will enter into a transfer agreement in respect of the participatory interests in the future). an external auditor has to be appointed. Since 2009 the position is that: (i) a participatory interest transfer agreement must be notarised and (ii) a participatory interest is transferred upon notarisation of the transfer agreement. If a participant exercises this right.e. If such consent is not given. The company’s charter and/or participants’ agreement may vary this statutory procedure. 11 Doing Business in Russia . and . the charter or a participants’ agreement may specify that a participatory interest transfer requires the consent of the other participants and/or the company. Further. The introduction of the notarisation requirement resulted in a number of uncertainties relating to “preliminary” sale and purchase agreements (i. The company is then obliged to pay the exiting participant the “actual value” of its participatory interest in cash. The procedure for selling participatory interests and for determining their offer price is set out in the LLC Law. his participatory interests will be transferred to the company on the date when the withdrawal notice is served on the company. subject to a statutory pre-emption right in favour of the other participants. The charter may also give the company a pre-emption right. By way of exception notarisation is not required: . however. The company may. . The following issues remain unanswered: . The statutory payment procedure and timing may be varied in the company’s charter. a participant has had the right to withdraw from the company (without the consent of the other participants or the company) only if this right is expressly provided for in the company’s charter. the charter may prohibit the transfer of participatory interests to a third party or make such transfer subject to the consent of the other participants or the company. the company itself is obliged by law to purchase the relevant participatory interests. Transfer of participatory interests Participatory interests are freely transferable between participants. However.
000) irrespective of the type of jointstock company. Charter capital and contributions The charter capital of a joint-stock company is divided into shares (which may be split into ordinary shares and preference shares). although this is expected to be increased to RUB 5 million (EUR 125. The charter capital may be increased by issuing shares or increasing the nominal value of shares already issued. 12 . which appear either before or after the company’s name.Common forms of business structures for foreign investors Expulsion of a participant Participants owning at least 10% of the company’s charter capital may bring a court action to expel any participant which grossly violates its obligations or prevents or materially impedes the company’s activities. Failure to comply with this requirement may result in an obligation for the company to decrease its charter capital. the general shareholders’ meeting. the responsibility of shareholders for the company’s liabilities is limited to the value of their shares. An open joint-stock company (“otkrytoye aktsionernoye obshestvo”) is designated by the letters “OAO”. In certain cases however.000 (EUR 2. such as corporate bonds. As with limited liability companies. when a shareholder gives binding instructions to the company knowing that this will lead to the insolvency of the company). This shortfall may also be a ground for the company’s compulsory liquidation if its assets do not cover the minimum charter capital amount. Other types of securities. For an open joint-stock company the minimum charter capital is currently RUB 100. Each capital increase must be filed and registered with the FSFM. Open and closed joint-stock companies The legislation governing Russian joint-stock companies is found in the Civil Code and Federal Law No. . resulting in the shareholders having unlimited liability for the obligations of the company (e.g. Net asset requirements and creditor protection A joint-stock company is required to maintain the value of its net assets at not less than the amount of its charter capital. Management structure The managing bodies of a joint-stock company are: . As a general principle.500) and for a closed joint-stock company it is RUB 10. At least 5% of the founding capital of any joint-stock company must be allocated to a reserve fund. Since 2010. and a closed joint-stock company (“zakry toye aktsionernoye obshestvo”) by the letters “ZAO”. a joint-stock company can either be “open” or “closed”. the corporate veil can be pierced. These shares are securities for the purposes of Russian securities legislation and must be registered with the FSFM. However. As mentioned above. contributions to the charter capital may be paid in cash or in kind. Since December 2009. This fund is created specifically to cover losses and to redeem bonds and shares of the company. 208-FZ “On Joint-stock Companies” dated 26 December 1995 (the “JSC Law”). an amendment to the Civil Code requiring the minimum charter capital to be paid in cash only is under review. must be paid in cash only. it has been possible to pay for new shares issued in a closed subscription by way of a debt-for-equity swap.000 (EUR 250). the general director. joint-stock companies have been obliged (in certain cases) to file quarterly information on the value of their net assets with the Unified State Register of Legal Entities in addition to other filing obligations.
Extraordinary meetings may be called by the board of directors. A joint-stock company can also have a management board. the external auditor. upon a decision of the shareholders’ meeting. Audit Joint-stock companies are required to appoint an internal auditor (commission) to audit the company’s financial and business activity. In companies where a management board is also established the general director is the chairman of the management board. They may be re-elected any number of times. A foreign national may be appointed as general director of a joint-stock company subject to compliance with work permit regulations (please see the Employment chapter on page 74). the internal auditor of the company or by shareholders owning at least 10% of the voting shares in the company. at its own initiative. Subject to certain exceptions shareholders may adopt decisions without holding a meeting. The annual shareholders’ meeting must be held no earlier than two months before and no later than six months after the end of a company’s financial year. Before the annual general shareholders’ meeting. unless the company’s charter stipulates that this decision falls within the authority of the board of directors. for any reason. Voting majorities for certain decisions may be set out in the charter subject to those majorities that are fixed by law.the board of directors (which is optional for joint-stock companies with fewer than 50 shareholders with voting shares). Members of the board of directors are elected by an annual/extraordinary shareholders’ meeting and serve as directors until the next annual shareholders’ meeting. The general director is the only person who can represent the company without a power of attorney. the members of the management board must obtain a power of attorney from the general director in order to conclude transactions on the company’s behalf. the management board (which is optional). there is a legal procedure in order to avoid deadlocks relating to the appointment or dismissal of the general director when. or . In contrast to a limited liability company ordinary resolutions are passed by a shareholders’ meeting at a majority vote of the shareholders attending the meeting (not a majority vote of the total number of shareholders in the company). the internal auditor (commission) prepares a report on the company’s annual report and balance sheet. Additionally. Open joint-stock companies are subject to a statutory annual audit by an external auditor. . the internal auditor (commission) may audit the company at any time: . One voting share gives one vote. the board of directors fails to agree on this matter. Unlike the general director however. . and . The authority of the general director may be transferred to a management company if the shareholders so decide. He is appointed and dismissed by the shareholders. If the latter is the case. The general director is responsible for the day-to-day running of the company. The board of directors is responsible for the general management of the company and has the authority to take decisions on almost any issue except those within the exclusive authority of the shareholders’ meeting. The internal auditor’s report is then communicated to the shareholders who are entitled to attend the meeting. This requirement also applies to closed 13 Doing Business in Russia . upon demand of a shareholder or a group of shareholders holding at least 10% of the voting rights in the company.
An open joint-stock company is a “public company”. Issue and transfer of shares The shares of a joint-stock company. be introduced through shareholders’ agreements (please see the Shareholders’ and participants’ agree ments section below on page 21). in certain cases. However. Redemption of shares When a shareholder does not agree with certain decisions taken at a shareholders’ meeting it may require the company to purchase its shares. This is only possible in the following cases: . When issuing new shares all joint-stock companies must prepare and file with the FSFM a copy of the decision to issue shares. existing shareholders have the benefit of statutory pre-emption rights. a decision has been taken to reorganise the company. However. the report on the results of the share issue and. Expelling a shareholder The general rule is that a shareholder may not be expelled from a joint-stock company. when the charter capital is increased by issuing additional shares. charter amendments limiting the rights of the shareholder in question have been adopted. Share sales to third parties are subject to statutory pre-emption rights of other shareholders in the company (and the company itself if so provided in the charter). The statutory procedure and terms for exercising pre-emption rights may not be varied in the company’s charter. Restrictions can however. In joint-stock companies with more than 50 shareholders the register must be kept by an independent registrar. A shareholder that has acquired more than 95% of the voting shares may expel/“squeeze out” the minority shareholders. the prospectus for the share issue. and . There are no statutory pre-emption rights or restrictions on the transferability of shares in the company whether to other shareholders or third parties. For ease of comparison between the three types of Russian companies described above please refer to the comparative table below. 39-FZ “On the Securities Market” dated 22 April 1996. The shares will be redeemed at a price fixed by the board of directors (or the management board). . The register may be kept by the company itself or by an independent company duly licensed by the FSFM. 14 .Common forms of business structures for foreign investors joint-stock companies that they meet certain legal criteria. Shares are freely transferable between shareholders unless a shareholders’ agreement provides otherwise. are treated as securities and as such are subject to the registration requirements of Federal Law No. Share transfers take effect when recorded in the register of shareholders that all jointstock companies are required to maintain. there is one exception in the case of an open joint-stock company. whether open or closed. It may make both closed and public offerings of its shares. Shares of a closed joint-stock company may not be issued to more than 50 shareholders. This price may not be less than the market value of the shares as determined by an independent appraiser in accordance with the methods prescribed in the JSC Law. a major transaction has been approved.
COMPARATIVE TABLE: OAO. closed . unless otherwise provided in the company’s charter unlimited 1 to 50 1 to 50 . ZAO AND OOO RUB 100. preference shares . ordinary shares . board of directors (optional) ZAO and OAO with fewer than .000 (EUR 2. Transfer of shares/ participatory interests between shareholders/ participants 50% before the registration of the company .000 RUB 10. the remaining 50% within one year of the registration of the company Activities Term Number of shareholders/ participants Minimum charter capital Type of interest in charter capital Issue of financial instruments Subscription for shares any types of activities (subject to licensing requirements) unlimited term. . . participatory interests . the remaining 50% within one year of the registration of the company only after the charter capital has been fully paid up after notification of creditors and repayment of debts mandatory decrease in certain cases . cash Contributions to the charter capital . . in kind . closed subscription . general participants’ general shareholders’ meeting meeting general director . unless otherwise provided for in unless the charter a shareholders’ agreement provides for participants’/ company’s consent or unless provided for in a participants’ agreement . bonds . without restrictions. . .000 (EUR 250) . other convertibles . public subscription subscription . 15 Doing Business in Russia .500) (EUR 250) . . bonds N/A Capital increase Capital decrease Managing bodies . OAO (open joint stock company) ZAO OOO (closed joint (limited liability stock company) company) RUB 10. . without restrictions. . 50% within three months of the Payment of the charter capital registration of the company . . management board 50 shareholders) (optional) management board (optional) . general director board of directors (optional for .
subject to shareholders’ pre-emption rights can be subject to company’s pre-emption right under the charter . including the reorganisation of the company. . subject to participants’ pre-emption right can be subject to company’s pre-emption right under the charter can be restricted by the charter can be subject to participants’/ company’s consent subject to mandatory notarisation a participant may only withdraw from the company if this is provided for in the company’s charter . Responsibility of the company Responsibility of shareholders/ participants . . a shareholder . and the conclusion of major transactions .Common forms of business structures for foreign investors Transfer of shares/ . charter amendments which limit their rights. Exiting the company (redemption/ withdrawal) . shareholders may require the company to redeem their shares when they do not agree with certain decisions. . . . participants owning a shareholder may not be may not be at least 10% of the expelled from expelled from company’s charter capital the company the company may bring a court action except in the to expel any participant course of a which grossly violates its squeeze out obligations or prevents procedure by a or materially impedes the shareholder who company’s activities has acquired more than 95% of the voting shares in an open joint-stock company the company is not liable for the obligations of the shareholders/ participants liability is limited to the value of their shares/participatory interests (unless it can be demonstrated that their binding instructions to the company lead to its insolvency) 16 . participatory interests to third parties without restrictions . . Expulsion of a shareholder/ participant .
It may also assist in other commercial and legal transactions between the parent and Russian organisations. but. including foreign currency accounts and rouble accounts. however. nor may it register title to immovable property in its own name. A representative office should also have a chief accountant. in practice. However. the latter remains responsible for the liabilities of the representative office. As a representative office is merely an extension of a parent foreign company.Other business structures – representative office and branch Although foreign individuals and legal entities can set up wholly owned subsidiary companies and may participate in the various forms of partnership prescribed under Russian law. This does not prevent it. as a matter of civil law. an accredited representative office enjoyed a range of benefits that were not available to branches or companies. and it assists with obtaining multi-entry visas. a representative office’s lack of its own separate legal identity limits the types of business activities it may undertake. At one time. carry out representative functions on behalf of the parent company. negotiating the terms and conditions of agreements on behalf of the parent company and facilitating the conclusion of agreements by the parent company. This confers certain practical benefits. A representative office may have a number of different types of bank accounts. There is no requirement for either the head of the office or the chief accountant to be Russian nationals although an accountant who understands the intricacies of Russian tax and accounting law is a practical necessity. a representative office may not formally import goods for purposes other than its own needs. having a work permit should assist in avoiding unwanted difficulties with Russian federal and local migration authorities. 17 Doing Business in Russia . Representative office Status A representative office is not a separate legal entity. Management A representative office is managed by the head of the office who is authorised to conduct the business of the office and to represent the foreign company under a power of attorney. including arranging marketing and advertising in Russia. rather. it is an office set up to represent the interests of the parent company. A representative office may. These accounts enable the representative office to make payments in Russia to both residents and non-residents subject to certain currency control restrictions established by Central Bank regulations and other applicable legislation. from conducting business in Russia (and many representative offices do so) and being treated by the tax authorities as a separate profit centre from the parent company. in practice. However. For example. These benefits have been gradually withdrawn. a representative office and/or a branch remain effective first-entry vehicles into the Russian market. A representative office may also experience difficulties in obtaining licences and permits to conduct certain types of business. such as the right to import and export personal effects free of customs duty and VAT. There has been considerable debate about whether accredited employees of a representative office require work permits. including the rental of property. foreign employees of a representative office may still obtain personal accreditation. but.
or to import or export goods. trade associations or other non-profit organisations. There are also non-commercial organisational forms that may be used for charities. they must hold work permits in order to work in Russia (please see the Employment chapter on page 74). but functions may be wider.Common forms of business structures for foreign investors Table showing main differences between a representative office and branch Business structure Formation Representative office Two-step accreditation procedure (accreditation with accrediting body followed by registration in the register held by the State Registration Chamber of the Russian Ministry of Justice. Usually able to obtain requisite licences and permits Taxation Foreign staff Will constitute a permanent establishment for Russian tax purposes and is subject to Russian taxation accordingly May benefit from the highly qualified specialist regime Maximum accreditation Three years or renewal term Branch Status A branch is also an office set up to represent the interests of the parent company. 18 . in addition. Unable to hold title to property. unless the latter is the accrediting body) Technically restricted to representation. In addition to carrying out the functions of a representative office a branch may formally carry out profit-making activities. May be unable to obtain certain permits Capable of constituting a permanent establishment for Russian tax purposes and is subject to Russian taxation accordingly May not benefit from the highly qualified specialist regime (please see the Employment chapter on page 76) Branch Single-step accreditation procedure with the State Registration Chamber of the Russian Ministry of Justice Capacity Wider capacity. As a branch is merely an extension of a foreign parent company the foreign company remains responsible for the liabilities of the branch. Other business structures The Civil Code provides for a range of other business structures including simple partnerships (which are not legal entities) as well as full and limited partnerships and additional liability companies that are legal entities. Foreign employees of a branch should also be personally accredited like the employees of a representative office and. Five years Management Management issues are the same as those concerning representative offices (Please see the relevant paragraph above).
on the other. if signed abroad. 19 Doing Business in Russia . however. and . tax registration. regardless of their organisational/legal form and the type of economic activities they conduct. Registration takes approximately two months to complete (i.e. The most practical approach is to execute the company charter and the supporting documents in Russia on the basis of a power of attorney (except for the application as stated above). The applicant must be the chief executive of the founding parent company or the new company’s founder himself (if an individual). Registration of a Russian legal entity Federal Law No. state registration (in the Unified State Register of Legal Entities). Scope of registration A company is duly registered under Russian law once it has undergone: . A distinction should be drawn between the registration of legal entities (limited liability companies. and the accreditation and registration of representative offices and branches. for the company to be fully operational). legalised. social security and compulsory medical insurance). the next step is to register the chosen vehicle with the relevant authorities. A newly established company may well need to intervene to speed up the process. Before documents are submitted for state registration the new company must have identified its future premises (as the address is set out in the documents to be filed for state registration). Foreign documents must also be accompanied by a certified Russian translation. the premises will be leased to the company. be given to other authorities in the near future as part of the current reform of the Civil Code. . but may take longer as the process is quite unpredictable. the Federal Tax Service is often late in forwarding documents to the Federal Service for State Statistics and the three social funds. 129-FZ “On State Registration of Legal Entities and Individual Entrepreneurs” dated 8 August 2001 establishes a single procedure for the registration of legal entities. The registration application must be notarised and. as well as for forwarding documents to the Federal Service for State Statistics and the three social funds.Registration. and both open and closed jointstock companies) on the one hand. State registration may. For instance. liquidation and reorganisation of business structures Having decided on the type of business structure to use in Russia. registration with the Federal Service for State Statistics and the three social funds (pension. The application to register the company can be filed by the applicant in person or can be sent by mail (the latter adding significant time to the registration process and being unreliable). upon registration. Payment of charter capital At least 50% of the charter capital must be paid prior to state registration for a limited liability company and within three months of state registration for a joint-stock company. It should have a lease agreement or a letter from the owner or landlord guaranteeing that. Registration mechanics The tax authorities are responsible for the state and tax registration of companies. It is not possible to appoint an attorney to sign the application which means the process of establishment takes longer where the chief executive/founder is unable to file/collect documents in person.
spin-offs and transformations of legal entities. Accreditation is limited in time (up to three years for representative offices and up to five years for branches). the balance must be paid within one year of state registration. it is divided into two main stages (which normally take up to 2–3 months to complete) while in other Russian regions preliminary approval of the location of the representative office or branch must be obtained from the local authorities (which can sometimes result in long delays). the representative office or branch is included in the State Register of Accredited Representative Offices/Branches of Foreign Legal Entities held by the SRC. then the non-paid shares/participatory interests become the property of the company. As a result of accreditation. If a founder fails to pay the total amount of its shares/participatory interests within these time limits. merger of one company with another or consolidation of several companies. subscription for shares. For a branch. there are certain additional registration requirements imposed by the FSFM. and . In addition. The parent company is responsible for organising the accreditation and various registrations (none of the bodies involved will co-ordinate the process). representative offices or branches must be locally registered with the Federal Service for State Statistics. consolidations. de-mergers. In exceptional cases. . In the case of a representative office it will generally be either the Chamber of Commerce and Industry of the Russian Federation or the SRC. the representative office or branch will have to close. . Registration of the initial share issue As shares in open and closed joint-stock companies are treated as securities. Representative offices and branches may not be reorganised into legal entities. contribution of assets or shares/participatory interests or rights in another company. passing a decision to issue shares. approving the decision to issue shares. the tax authorities and the social funds. the accreditation is exclusively given by the State Registration Chamber of the Russian Ministry of Justice (the “SRC”). Reorganisation The Civil Code only envisages mergers. Before the accreditation expires the parent office will have to apply to the accrediting authority for the accreditation to be extended. however. The share issue registration process consists of the following stages: . the prior consent of the Federal Anti-monopoly Service (the “FAS”) will be required when a company is incorporated by: . Accreditation and registration of a representative office or branch The procedure for opening accredited representative offices and branches in Russia is more burdensome than for incorporating a limited liability company. state registration of the report on the issue of the shares. All applications may be filed by a representative under the power of attorney. Anti-monopoly control As a general rule. All documents submitted to the accrediting body and registration authorities must be prepared in Russian (or translated into Russian) and legalised (where applicable). 20 .Common forms of business structures for foreign investors In all cases. . Failing that. provided in either case that certain asset value or revenue thresholds are exceeded (please see the Antimonopoly issues chapter on page 49). state registration of the share issue. In Moscow and Saint Petersburg. or . the formation of a company is not subject to merger control.
. The latter can demand early execution or termination of the current obligations of a company participating in the reorganisation (e. 42 sectors of the economy are currently deemed to be strategic. such as a bank. It involves an audit by the tax authorities and notification of the company’s creditors. please see the Corporate bankruptcy chapter on page 64. by the decision of its shareholders/participants. such as pipelines. 21 Doing Business in Russia . excluding Internet access services. including: . On the face of it. The choice of jurisdiction also depends on the existence of suitable double taxation arrangements with Russia. . For more details. the maintenance of ports and airports. nuclear power. which came into force on 7 May 2008. Historically. . Liquidation A legal entity can be liquidated: . (with limited exceptions). the courts held this type of agreement to be valid only when it repeated Russian company law provisions. including fixedline telecommunications. For this reason Russian joint ventures have often been structured off-shore with the Rus- Federal Law No. Under the Strategic Industries Law. by the court in the circumstances listed in the Civil Code. Closing branches or representative offices is almost as cumbersome as voluntarily liquidating a company. the scope of issues that may be regulated in a shareholders’ agreement for a joint-stock company appears to be more limited than those that can be regulated in a participants’ agreement of a limited liability company. 160-FZ “On Foreign Investment in the Russian Federation” dated 9 July 1999. communication services. 57-FZ “On the Procedure for Foreign Investments in Commercial Organisations of Strategic Importance for the National Security of the Russian Federation” (the “Strategic Industries Law”). sian company being a wholly owned subsidiary of a joint venture company established in a foreign jurisdiction where shareholders’ agreements are well regulated and enforceable. The Strategic Industries Law does not regulate foreign investments insofar as they are already governed by other federal laws or by international conventions ratified by Russia. . may ask the company being reorganised to repay a loan ahead of time). This legislation is still fairly new and remains unclear in some respects. Strategic industries The foreign investment law2 and other regulations have been amended by Federal Law No. voluntarily.Company reorganisation is a complex process that may take between 3–12 months to complete. The only major difference is that there is no requirement to notify creditors of the closure of representative offices or branches. through bankruptcy. a creditor. 2 Shareholders’ and participants’ agreements 2009 marked a turning point in Russian corporate law as the LLC Law and the JSC Law were amended to allow participants and shareholders to enter into agreements regulating their rights in the relevant company. natural monopolies. Voluntary liquidation of a company is complex and time consuming as it involves an audit by the tax authorities and notification of its creditors.g. military technology. or . companies with a dominant market position in Russia. aircraft and the space industry.
Restrictions on state and international organisations The Strategic Industries Law prohibits foreign states. acquiring directly or indirectly 10% or more of the voting shares of a Strategic Company operating on federal subsoil plots. Restrictions on private foreign investors Under the Strategic Industries Law transactions resulting in privately operated foreign investors or Russian corporate groups with a foreign element gaining control over a strategic company must be cleared by the FAS. . 22 . and subsoil use. 135-FZ “On the Protection of Competition” dated 26 July 2006 (please see the Antimonopoly issues chapter on page 45). the amendments will mean that the restrictions imposed by the Strategic Industries Law will no longer apply to some activities). . If a foreign investor already owns directly or indirectly over 50% of a Strategic Company’s voting shares. international organisations and organisations controlled by them from gaining control over a Strategic Company. and . Among other things. acquiring directly or indirectly more than 5% of the voting shares of a Strategic Company operating on federal subsoil plots. acquiring directly or indirectly more than 50% of the voting shares in a Russian company operating in a sector deemed to be of strategic importance (a “Strategic Company”) which does not conduct geological surveys on the subsoil and/or explore and extract minerals on federal subsoil plots (i. or . However. If prior approval is obtained. One example of this is when foreign investors acquire at least 5% of the shares in a Strategic Company.e. international organisations and organisations controlled by them must obtain prior approval from the FAS when: . if the acquirer gains effective control over the company.Common forms of business structures for foreign investors television and radio broadcasting. they are aimed at reducing the number of regulated activities (i. acquiring directly or indirectly less than 50% of the voting shares in a Strategic Company that does not operate on federal subsoil plots. acquiring directly or indirectly more than 25% of the voting shares of a Strategic Company that does not operate on federal subsoil plots or otherwise acquiring the right to block decisions of that company’s management bodies. acquiring control of a Strategic Company as a result of a change in the number of voting shares in that company. . not “operating on federal subsoil plots”). The clearance procedure is similar to the merger control procedure provided by Federal Law No. the transaction must be conducted within the timeframe set out in the approval. Amendments to the Strategic Industries Law were considered in first reading in the State Duma on 23 March 2011. then the transactions referred to in the preceding paragraph do not require prior approval from the FAS. this exception does not apply to transactions involving a Strategic Company operating on federal subsoil plots. It also provides that foreign states. It should also be noted that a limited number of transactions only require post transaction notification which must be made within three months of the change of control taking effect. if adopted. .e. Foreign investors are deemed to “gain control” over a company if they are: .
The Tax Code sets out all general tax princi- 23 Doing Business in Russia . new tax-return forms and various notifications. the “Tax Code”). tax legislation is being developed on a technical level. For instance. but is changing rapidly. two fundamental and very long-awaited draft laws – one concerning transfer pricing rules and the other regulating tax consolidation issues – are being actively discussed. Also. For example. Both draft laws have now passed the first of three legislative hurdles in the State Duma (the lower house of the Russian Parliament). It is also noteworthy that in recent years. Core legal framework Part I of the Tax Code dated 31 July 1998 has been in force since 1 January 1999. the Government’s attempt to attract foreign investment into the Russian economy has been one of the main forces behind changes to tax legislation. as well as new requirements for electronic documents filed with the tax authorities are currently being elaborated. Some progressive tax concepts are currently being introduced into legislation. There is no doubt that the tax policies of the majority of Russian companies will have to be substantially revised once the draft laws are signed into law. and Part II dated 5 August 2000 has been in force since 1 January 2001 (together. new accounting standards.Tax system General approach Trends The Russian tax system is relatively new.
It may also cause a need for both federal and regional tax filings. if there is: .Tax system ples and applicable taxes. if the possibility of this allocation is provided for in that treaty. If there is no double taxation treaty. taxes . . Any Russian-sourced income (interests. dividends. . Regional . 24 . we have grouped our outline of the various taxes provided for under the Tax Code around the following aspects: . it is not subject to Russian profits tax. If a foreign company does not have a permanent establishment.) will subsequently be subject to withholding tax. and . As a general rule. . then the costs of a foreign company may be allocated to its Russian permanent establishment. . branch. double taxation treaties. pro- This tax structure can result in tax burdens in different locations. special taxation regimes. taxes . corporate taxation. Regional taxes and local taxes determined by the Tax Code and the local or regional government authorities. . . and . Federal taxes applied throughout Russia at uniform rates. Many taxes have a federal and a regional component (e. and . Lower-tier authorities may not grant concessions for taxes governed by a higher authority. In this chapter. as well as the rights and obligations of taxpayers and the state tax authorities. taxation of individuals. Profits tax is always levied at the individual company level. . taxes in Russia may be categorised as follows: . Russian companies that pay tax on their worldwide income. foreign companies that conduct business in Russia through a permanent establishment and/or are in receipt of income from a Russian source. which are collected locally or regionally. . a double taxation treaty between Russia and the respective country. corporate profits tax) and may have their regional component reduced at the discretion of the relevant regional authority. Permanent establishments The Tax Code defines a “permanent establishment” as a representative office. etc. it may also be considered as having a permanent establishment in Russia. tax incentives. such as VAT. Local .g. taxes Corporate profits tax Value-added tax (VAT) Excise tax Payroll-related taxes Taxes on natural resources State duties Personal income tax Corporate property tax Transport tax Land tax Individual property tax Corporate taxation Corporate profits tax Taxpayers Taxpayers are defined as: . . Please note that if a foreign company conducts activities listed in the Tax Code through an agent representing the company and acting on its behalf. According to the Tax Code. Federal . . division or any other separate fixed place of activity through which a foreign company regularly engages in certain business activities (as specified in the Tax Code) in Russia. a foreign company has the right to allocate income and expenses to its Russian permanent establishment. as well as for several tax payments when a company has branches in more than one Russian region. royalties.
Once chosen. as defined by the Tax Code. Deductibility of expenses Expenses are generally recognised on an accrual basis. the accounting method may not be modified during the financial year (1 January to 31 December).vided that they were incurred for the purpose of that permanent establishment. The law specifies certain non-deductible expenses: . the refinancing rate of the Russian Central Bank at the date the loan is advanced. The method applied should be clearly explained in the taxpayer’s accounting policy. income in the form of property as well as non-property rights transferred to the taxpayer by its parent company for the purpose of an increase in the net assets of the taxpayer. In the absence of comparable data or at the taxpayer’s choice. cost of assets transferred free-of-charge. multiplied by 1. Some types of expenses are subject to limitations on tax deductibility: . the maximum rate fixed for the period from 1 January 2011 to 31 December 2012 is: — for rouble loans. the reducing balance method. pension and life insurance for employees: 12% of payroll. Interest is subject to thin capitalisation rules. The types of income which are exempt from profits tax are as follows: . income in the form of property received as a contribution to a company’s charter capital. penalty payments made to the budget. income in the form of property received from a parent company. and if they are economically justified and evidenced by the requisite documentation. representative expenses: up to 4% of payroll. and . income gained from revaluation of fixed assets and securities. . . Tax base The tax base is the total income received by the taxpayer less income exempted from taxation and expenses. . a subsidiary or an individual. employee remuneration not provided for in relevant labour contracts. and . multiplied by 0. Two depreciation methods are available for profits tax purposes: . and . interest on loans and other borrowings charged at a rate that is more than 20% above the average rate charged for comparable loans made in the same quarter. The tax authorities stringently apply these criteria.8. and . the refinancing rate of the Russian Central Bank at the date the loan is advanced (8% as at 28 February 2011). etc. medical insurance for employees: 3% of payroll. if the ownership of the recipient or the transferor in the capital of the other party is more than 50%. etc. Depreciable property includes tangible and intangible assets with a useful life of at least one year and an initial value exceeding RUB 25 Doing Business in Russia . Depreciation Taxpayers are required to maintain separate accounts for profits tax purposes.8. . and the property received (except money) is not disposed of within one year from the date of receipt. They are deductible for profits tax purposes if they are related to the taxpayer’s income. and — for foreign currency loans. . the straight-line method.
or from a foreign company are taxed at a flat rate of 9%.Tax system 20. The useful life of depreciable fixed assets is determined. Losses Losses can be carried forward and be offset against future taxable profits for ten years. An investment is considered strategic when: . Carry back is not allowed. 1 At the notional exchange rate of RUB 40 = EUR 1. The government is working on an amendment to the transfer pricing rules. the share or depository receipts have been owned for at least 365 days on the day dividends are declared. e. in all other cases it is ten years. Losses from the sale of fixed assets are recognised evenly over the remaining useful life of the assets. In some cases reduced tax rates apply. and . a 0% profits tax rate applies to companies (domestic and foreign) transferring participatory interests or not listed shares in Russian companies acquired after 1 January 2011 subject to a five-year detention condition. and . barter transactions. of which 2% of the tax is payable to the federal budget and the remaining 18% is payable to the budget of the region where the company is incorporated. and to impose additional tax costs when the sales price deviates from the market level by more than 20%. or owns depository receipts entitling it to receive at least 50% of the amount of paid in dividends. As a matter of example.000 (EUR 1. The Ministry of Finance is responsible for updating this list. transactions in which the price fluctuated by more than 20%.g. foreign trade transactions. within a short period of time.000) for an asset acquired after the indicated date. Transfer pricing mechanisms The Russian tax authorities are entitled to challenge the price of certain transactions. This rule concerns the following transactions: . transactions between related parties. as used throughout this guide.000 (EUR 5001) for an asset acquired before 1 January 2011. One of the most important points in the draft law is the requirement to have documentation in place to support the level of prices according to the OECD2 transfer pricing guidelines. Dividends from companies residing in lowtax jurisdictions may not be exempted from Russian corporate profits tax. 2 Organisation for Economic Co-operation and Development. Taxation of dividends Dividends received by Russian companies Dividends received by a Russian company from another Russian company. Accelerated depreciation is permitted in cases stipulated by the Tax Code. based on a classification adopted by the government. The tax base for a fixed asset includes all costs incurred in order to place the asset in service for production. Tax rate The general profits tax rate is 20% (as from 1 January 2009). . within certain limits. the recipient of dividends owns at least 50% of the payer of dividends’ capital. for leased property. Dividends received from “strategic investments” are exempt from Russian corporate profits tax. and RUB 40. These jurisdictions are identified in an official list. . For intangible assets the useful life is the utilisation period defined by any agreement. 26 . Some assets (such as works of art) are not subject to depreciation.
Tax base The following operations are subject to VAT (even if they are supplied free of charge): . if the relevant expenses are not deducted for the purpose of corporate profits tax. the taxpayer may be exempt if he applies for the exemption. Exempt supplies Certain activities. works or services. works and services within Russia. . works and services within Russia for the taxpayer’s own purposes. works and services supplied. If there is an applicable double taxation treaty. . transactions with medical equipment and medical services. an imputed price (set at the market value for identical goods.Dividends paid by Russian companies The standard 15% tax rate is applicable to dividends paid by Russian companies to foreign companies. realisation of goods. inclusive of excise duty and exclusive of VAT. and a range of other rights under a licence agreement (except trademarks).000). certain foods and children’s clothes. Tax rates The standard rate is 18%. medical goods. . imports into Russia. export of goods outside Russia. The tax should be withheld by the Russian companies paying the dividends. are exempt from VAT: . sale of scrap and waste ferrous metals. transfer of goods. . VAT Taxpayers VAT applies to companies. The taxable base is generally defined as the market value of goods. excluding VAT. databases. . If the taxpayer’s aggregated income for three consecutive months. certain research and development services. A 0% rate is applicable to the following operations: . Input VAT The VAT payable to the tax authorities is the difference between the VAT accountable for transactions subject to VAT (“output VAT”). . A reduced rate of 10% applies to books. including the following. Input VAT is only recoverable in certain cases. operations with securities and derivative financial instruments. imports of technological equipment that does not have a Russian equivalent (as per a government approved list). works and services are supplied free of charge. Whether it is recoverable no longer 27 Doing Business in Russia . inventions. transfer of exclusive and non-exclusive rights to software. periodicals. etc. certain banking transactions. works or services by more than 20%. know-how. . . they may charge additional VAT. works and services related to the transportation of goods in transit. certain services and goods supplied to foreign diplomatic missions. If the goods. and the VAT incurred on purchases subject to VAT (“input VAT”). and . then the standard tax rate may be reduced to a minimum rate of 5%. If the Russian tax authorities consider that the price deviates from the market value for identical goods. is below RUB 2 million (EUR 50. and . construction and building projects for the taxpayer’s own use. assignment of loan agreements. individual entrepreneurs and to any person importing items into Russia. and . excluding VAT) is used. .
companies which have existed for at least three years and paid taxes exceeding RUB 10 billion (EUR 250 million) over the last three years are eligible for the accelerated procedure. must be apportioned. and . as input VAT. tobacco and cars. input VAT related to expenses or assets used for “non-production activities” may not be offset. According to these rules. The tax-registered buyer is required to withhold VAT from the amount payable to the foreign seller and to remit it to the authorities. on 1 January 2010 new rules providing for an accelerated VAT recovery procedure were introduced. without the obligation to provide a bank guarantee. Under this accelerated procedure. They have to be issued in Russian and must contain the information specified in the Tax Code. works or services. oil products. Other companies can benefit from the accelerated procedure provided that they give a bank guarantee for the amount of VAT to be reimbursed. The tax-registered buyer may then offset the VAT which has been withheld and paid. Any VAT incurred on purchases and expenses which relate to activities. Excise Tax Excise tax must be paid by companies or individual entrepreneurs that are producers and/ or importers of excisable products. for example. Advance payments are included in the VAT base at the time payment is received. Any excess of input VAT over output VAT has to be refunded to the taxpayer. Corporate property tax Property tax is payable in accordance with regional regulations and with the Tax Code. Excisable products are. works or services. VAT returns must be filed within 20 days after the end of the tax period. Commissioners and agents with a Russian tax registration are considered to be tax agents in relation to goods supplied on behalf of nonregistered foreign companies. In the same way. Input VAT related to expenses or assets used for the manufacture or sale of products exempt from VAT may not be offset.Tax system depends on whether it has been paid to the supplier. Filing and payment VAT is payable on the earlier of the following two dates: . VAT is collected through a withholding mechanism. Reverse charge If a foreign company which does not have a Russian tax registration supplies goods. Commencing from Q3 2008. VAT invoices serve as the basis for the offset of input VAT. alcohol. a taxpayer may recover VAT before the tax authorities complete the tax audit and make a definite decision on VAT recovery. However. Excise tax is generally levied on the value of the product. the date of shipment or transfer of goods. the date of payment (in full or in part) for a future shipment or transfer of goods. taxpayers have the option to pay VAT in three instalments. both subject to and not subject to VAT. works or services in Russia. As a general rule. Taxpayers must file their VAT declarations on a quarterly basis. in the three months following the relevant quarter. VAT on imports can be recovered only after payment to the customs authorities. such a refund can only be made after the tax authorities have undertaken an audit. Only the part which is deemed to relate to activities subject to VAT may be offset as input VAT. 28 .
Annual returns must be filed by 30 March following the reporting period. Insurance contributions On 1 January 2010 new Russian tax legislation came into force.000 (EUR 11. permanent establishments of foreign companies having fixed assets on their balance sheets. As a result. This maximum rate is currently imposed in most regions. including Moscow and Saint Petersburg. According to this new legislation. Tax base Property tax is assessed on both movable and immovable property.e. the previous UST regressive scale has been cancelled. the Federal Mandatory Medical Insurance Fund and the Territorial Mandatory Medical Insurance Funds.575). work-in-progress.Taxpayers The following structures are taxpayers for the purpose of corporate property tax: . Taxable property includes fixed assets and “profitable investments in property” (as defined by Russian accounting standards). Payments The tax period is a calendar year. Taxpayers must file quarterly tax returns within the 30-day period following the reporting period. Tax rate The rate is set at the regional level but may not exceed 2. inventories. It also comprises leased property. Please note that 2011 is still being treated as a “transitional” period for the purpose of social contributions for several companies. This applies to Russian employers as well as to foreign companies. foreign companies owning immovable assets in Russia.g. Foreign companies that do not have a permanent establishment in Russia are only taxed on immovable property. The rules of social contributions payment also allow payments and other compensations paid under employment and civil contracts to foreign nationals temporarily located in Russia (i. those who have arrived in Russia on the basis of a visa and/or with a temporary residence permit) to be exempt from social contributions to the Russian non-budgetary 29 Doing Business in Russia . The tax base is the average annual residual value of taxable property for financial reporting purposes (and not for tax purposes). Russian companies having fixed assets on their balance sheets. replacing previous single tax assessed on the remuneration of each employee and named the Unified Social Tax (the “UST”) with insurance contributions paid to four separate non-budgetary funds: the Pension Fund. and the general tax rate has been increased from 26% to 34% for the part of the employee’s annual gross remuneration as is below RUB 463. Religious organisations and various types of public organisations are exempt from property tax. the Federal Social Insurance Fund. some tax privileges under the Tax Code are preserved during this period (e. The above organisations are required to pay property tax to the regional budget of the place they are located in. companies operating the simplified taxation system in certain field of activities pay insurance contributions at a general rate of 26%). and . financial assets (among other categories) are not subject to property tax.2%. Payroll-related taxes Taxpayers Several kinds of payroll-related taxes must be paid by employers. . Intangible assets. Advance tax payments must be calculated and paid on a quarterly basis.
3% with respect to certain types of land).000). depending on the specific water object.000 (EUR 5. Taxation of individuals Income tax Taxpayers Taxpayers are subject to Russian income tax as either tax residents or non-residents. By way of example.Tax system funds (except contributions for accidents in the workplace and work-related illness). The tax base used for calculation is the relevant land’s cadastral value (which. Mineral resources extraction tax is imposed on sub-soil users. Since 1 January 2007.500). however. payment and deposit are established by regional authorities. Water tax is imposed on taxpayers who use water to produce hydroelectricity. The tax rate is set at local levels and may not exceed 1. According to the clarifications of the Ministry of Finance.000). an individual is considered to be a tax resident if he is physically present in Russia for at least 183 calendar days during a 12-month rolling period. The methods of declaration. including oil and gas.000 (EUR 1. It applies to various types of minerals. 30 . Previously they could determine a differentiated rate on the basis of the vehicle’s useful life.5%. the regions have a right to establish differentiated transport tax rates depending on the age and/or emission class of the vehicles. Tax residents are taxed on their worldwide income.000 (EUR 3. Taxes on natural resources Taxpayers who use land either on the basis of ownership rights or rights of permanent use have to pay land tax to the local budget. They vary from 0. the tax residence status of an individual should be defined by counting the days spent in Russia within the relevant calendar year.2% to 8. The tax rates vary.000 (EUR 100) and for accreditation of foreign companies’ branches to RUB 120. 3 In addition. Transport tax This is a tax payable on registered transportation vehicles by the registered owners of those vehicles. depending on the risk category of the employee. It is based on the value of the extracted resources. the state duties for registration of a Russian company currently amount to RUB 4. Previously. Other payroll contributions Contributions to the Social Insurance Fund against industrial accidents and diseases are also payable. The transport tax rates are generally fixed on the federal level. a state duty is a fee charged on companies and individuals for taking certain legal actions. is significantly lower than its market value). and the rate varies according to the type of mineral. but the regional authorities are entitled to increase/decrease these rates by a maximum of ten times3. The maximum state duties for consideration of cases by courts of general jurisdiction and by magistrates’ courts (“mirovye sudi”) are currently RUB 60. in practice. the regions were entitled to increase/decrease the transport tax rates by five times maximum. The maximum state duties for consideration of cases by arbitration courts now amount to RUB 200.5% of the cadastral value (0. State duties According to the Tax Code.
As a result employees are not required to file tax returns for their salary. Tax payments Withholding of tax Russian companies. It may be possible to apply the relevant provisions of a tax treaty in order to exempt certain types of income from non-resident taxation. a 13% personal income tax rate has applied since 1 July 2010 to remuneration received from professional activities of non-residents regarded as “highly qualified” specialists (please see the Employment chapter on page 76). merger or reorganisation) are exempt from taxation. Taxable income This is gross income less deductions and exemptions. Gross income is defined as any economic gain. withhold and pay income tax on the payments they make to individuals. a rate of 35% applies to certain prizes. Standard tax deductions: The taxpayer receives a standard monthly deduction of RUB 400 (EUR 10) until his total annual earnings amount to RUB 40. expenditure for the creation of intellectual property rights. . irrespective of the nature of that income. In addition. bank interest (within limits). insurance receipts and interests from bank deposits in excess of specific limits. Other standard deductions are also available for certain categories of taxpayers. . Property deductions: Property deductions relate to the purchase and sale of property (mainly residential real estate). Certain statutory allowances. 31 Doing Business in Russia . . Non-residents A general rate of 30% applies to all types of Russian-sourced income except dividends (to which the rate of 15% applies). An individual entrepreneur remains personally responsible for meeting his income tax obligations. Deductions and non-taxable income A Russian tax resident can benefit from four kinds of deductions: . Tax rates Residents . unless they claim property deductions or they have other income which is subject to the obligation to file a tax declaration. Professional deductions: These are generally permitted for individual entrepreneurs and include.000). a standard flat rate of 13% applies to most types of income.Non-residents have tax imposed on their Russian-sourced income. up to a combined annual maximum of RUB 50.000 (EUR 1.250). a rate of 9% applies to dividends received from Russian or foreign companies. received by a taxpayer and subject to his discretionary disposal. state pensions (and certain other pensions). . They must calculate. Social tax deductions: Social deductions comprise educational expenditures (per taxpayer and each of his children) and medical expenditures (per family). in cash or in kind. individual entrepreneurs and permanent establishments of foreign companies are considered to be tax agents. and revalued shares (issued as a result of statutory revaluation. for example.000 (EUR 1. and .
garages. (iv) banks. 2003-1 “On the Individual Property Tax” dated 9 December 1991.3% Special tax regimes The Tax Code provides for the following special tax regimes according to which a taxpayer is entitled to pay one special tax instead of a number of separate taxes: . and . cottages.1% – 0. rooms. production sharing. The use of this system does not exempt employers and indi- 0. is considered to be the tax base. 6% if all income. the income was paid by an individual. the tax was not properly withheld. This includes: (i) foreign companies. without deductions.500) RUB 300. 15% if income less deductible expenses is considered to be the tax base. (ii) Russian companies with local branches and/ or representative offices. if the taxpayer leaves Russia. . .Tax system Tax return Individuals must file returns and pay the appropriate income tax if: .125 million). Individual property tax Taxpayers According to law No. . etc.5 million). (vii) and investment funds. Special regimes may be applicable if the necessary requirements are met. the local government authorities are entitled to set the tax rate within the following limits: Property cost Below RUB 300. property tax and VAT (subject to several exceptions). other buildings or constructions and owners of part-interests in such property rights are liable to pay individual property tax. or .3% – 2% 32 . and . as outlined below. . the combined net book value of their fixed and intangible assets does not exceed RUB 100 million (EUR 2. Tax rates The rate for this tax regime is as follows: . the income was received from outside Russia (in the case of a Russian tax resident).1% 0. the owners of houses. However. they employ less than 100 persons. As individual property tax is a local tax. Tax rates The tax rate varies depending on the total inventory cost of the property.500) Above RUB 500. the income was received from the sale of property. tax on imputed income. (v) insurance companies. The amount of tax due must be paid by 15 July in the year following the relevant tax period. .000 (EUR 7. The Tax Code includes a list of organisations that may not use the simplified tax regime. simplified tax system.000 (EUR 12. apartments.000 to RUB 500. their annual turnover does not exceed RUB 45 million (EUR 1. (iii) companies where more than 25% of the capital is owned by other companies. The simplified tax system is used as a single substitute for profits tax.000 (EUR 7. unified agricultural tax. (vi) pension funds. The tax return must be filed by 30 April in the year following the tax period.500 to 12. he must file a tax return at least one month before his departure and pay the amount of tax due within 15 days after the filing date.500) Tax rate Below 0. and . Simplified tax system Taxpayers Companies are eligible for the simplified tax system if they meet the following criteria: .
the main characteristics of the production sharing tax system are the following: . The production sharing tax system may be used if the relevant PSA (i) is concluded as a result of an auction and (ii) provides that. . provided that the share of income they receive from the sale of agricultural products is at least 70% of their overall sales income. the level of income received each month and seasonal factors. A part of “compensational production” which is granted to the investor to compensate its expenses connected with the project is also defined (in general. Production sharing Taxpayers This simplified tax system may be used by companies (investors) entering into production sharing agreements (“PSAs”) under which they are granted an exclusive right to carry out mineral exploration and mining operations on a particular subsoil area. . When this tax is applied the taxpayer becomes exempt from most taxes and contributions (except. taxes on natural resources. General PSA regime If a general PSA regime is used. state duties. not exceeding 70% of the whole amount of production or 90% when the project is implemented on the Russian continental shelf). Taxpayers Taxpayers producing. material costs. obligatory pension insurance contributions). land tax and excises paid in connec- 33 Doing Business in Russia . Unified agricultural tax This tax system is aimed at reducing the obligatory tax burden on taxpayers involved in agricultural production. individual entrepreneurs and small companies). PSAs provide for sharing the profitable production between the Russian state and the investor. Tax rate The tax rate is set at 6% of revenue less certain deductible expenses that are listed in the Tax Code and include. The tax rate is 15% on “imputed” revenue each month and is adjusted by special coefficients which are based on the type of land used. the range of goods being produced. construction and manufacturing of fixed assets (being allocated during the useful life term of the relevant assets). The unified agricultural tax substitutes profit tax. for example.g. Certain expenses incurred by the investor for the purposes of performing the PSA are subject to reimbursement by “compensational production”. . processing (including industrial processing) and selling agricultural products are entitled to use this tax system. the Russian state’s share in the profitable production will increase.vidual entrepreneurs from making obligatory pension insurance contributions. . VAT. Tax on imputed income Regional authorities have the right to impose this tax on some categories of taxpayers (e. wages costs. or withholding income tax from their employees’ compensation. . lease payments. expenses connected with certain types of insurance payments (both obligatory and voluntary). in particular. the following: . VAT (except for import VAT) and property tax. expenses relating to the acquisition. if the project’s return on investment exceeds originally agreed expectations.
The tax advantages provided for the residents of these zones are as follows: . reduced payroll-related taxes. Kaliningrad). reduced corporate profits tax. . Dubna. Tomsk. The participants in the Skolkovo initiative will benefit in particular from the following tax. Tatarstan).Tax system tion with performing the PSA are subject to reimbursement by the state. A special legislative regime regulating how it will operate has been established. unless the participant’s annual income exceeds RUB 1 billion (EUR 25 million). they are an effective means of promoting import/export business. exemption from customs duty and VAT (in several cases). Goods imported to and exported from Russia are exempted from the payment of customs duties. exemption from property tax and land tax. development. . . etc. VAT exemption. The general aim of SEZs is to attract foreign investment: as SEZs are exempt from custom duties. exemption from the obligation to keep financial accounting. 116-FZ “On Special Economic Zones in the Russian Federation” dated 22 July 2005 in order to promote economic growth in specific areas and regions of Russia. . and commercialisation of research and development activity. technical research and implementation zones (Saint Petersburg. recreation and tourism zones (Altai. . . Property tax is not payable on fixed assets used solely for performing the PSA. customs and accounting incentives: . port zones. Skolkovo innovation centre In 2010 a territorially isolated complex in the Moscow Region named the “Skolkovo innovation centre” was created for the purpose of research. . exemption from property tax and land tax. Incentives Special economic zones Taxpayers can benefit from incentives granted to special economic zones (“SEZs”) which have been created in Russia by Federal Law No. . . Special PSA regime Some additional tax privileges may apply if (i) the PSA is concluded under a procedure different from the general procedure mentioned above and (ii) the share in the production taken by the Russian state is at least 32%. The investor may be exempted from paying any regional and local taxes by the relevant local or regional authority. . 0% corporate profits tax rate applicable to income generated as a result of research. development and commercialisation for the first ten years of a participant’s registration in the Skolkovo project. Zelenograd). and . Types of SEZ Four types of SEZ are established by the legislation: . and . reimbursement of customs duties and VAT payable upon the importation of goods. . A company registered in Russia is entitled to obtain the status of a SEZ resident after entering into a special agreement with the local Agency in charge of the relevant zone. industrial production zones (Lipetsk. 34 . Buryat Republic. and . Transportation tax is not payable on vehicles used solely for performing the PSA.
The treaties generally guarantee non-discriminatory tax treatment and provide for co-operation between the tax authorities of the respective signatory countries.000. exemption from the payment of state duties for the issuance of work permits. (6) 5% for shareholdings of 10% or more. inheritance or other item. 10% if only one of these two circumstances applies. 35 Doing Business in Russia . The provisions of these treaties override Russian domestic law. (4) 5% for shareholdings of 30% or more. However. plan. otherwise 15%. otherwise 10%. Double taxation treaties Double taxation treaties exist between many countries on a bilateral basis in order to prevent double taxation.e. In order to operate in the Skolkovo innovation centre and benefit from the above-stated incentives. 10% for royalties in respect of any patent. (8) 0% for royalties in respect of literary. otherwise 15%. the tax authorities often deny the benefit conferred by a treaty. The numbers in brackets refer to the notes below the table. secret formula or 4 United Nations. otherwise 15%. (3) 5% if the initial investment is greater than USD 100. in practice. capital gain. otherwise 12%.. otherwise 10%. trade mark. The table below contains the tax rates applicable under several double taxation treaties to which Russia is a signatory. investors will have to set up Russian companies to conduct research there and they will have to follow a special procedure to obtain the relative status for these new companies. otherwise 15%. The rates apply to withholding taxes on Russian sourced income. even if all the relevant conditions are fulfilled. taxation which is levied twice on the same income.225 and if the recipient pays tax. invitations and visas for foreign employees. i. design or model. profit. (5) 5% if the investment is not less than EUR 76. artistic or scientific works including films and tapes. Tax treaties signed by Russia are usually based on the OECD Model Treaty and the UN4 Model Convention. (2) 10% for shareholdings of 10% or more. Country Dividends Interest Royalties Austria 5/15 (1) 0 0 Belgium 10 0/10 0 10 0/10 Canada 10/15 (2) China 10 10 10 0 0 Cyprus 5/10 (3) Denmark 10 0 0 0 0 Finland 5/12 (4) 0 0 France 5/10/15 (5) 0 0 Germany 5/15 (6) Ireland 10 0 0 10 0 Italy 5/10 (7) Japan 15/10 10 0/10 (8) Korea (South) 5/10 (9) 0 5 0 0 Luxembourg 10/15 (10) 0 0 Netherlands 5/15 (11) 0 Norway 10 0/10 (12) Poland 10 10 10 10 10 Portugal 10/15 (13) 5 Spain 5/10/15 (14) 0/5 (15) 0 0 Sweden 5/15 (16) 0 Switzerland 5/15 (17) 5/10 (18) 10 10 Ukraine 5/15 (19) UK 10 0 0 0 0 USA 5/10 (20) Notes: (1) 5% for shareholdings of 10% or more. (7) 5% for shareholdings of 10% or more.
(9) 5% for shareholdings of 30% or more. (14) 5% for shareholdings of at least EUR 100. otherwise 10%. (18) 5% for bank loans. (19) 5% for shareholdings of at least USD 50. otherwise 15%. otherwise 15%. (12) 0% for commercial loans in connection with a delay of payment for goods. 10% if either condition is met. otherwise 15%. or information concerning industrial. otherwise 10%. or for long-term bank loans (exceeding 7 years). otherwise 15%. otherwise 15%. otherwise 15%. (11) 5% for shareholdings of 25% or more. commercial or scientific experience. commercial or scientific equipment. 36 . (17) 5% for shareholdings of 20% or more. otherwise 10%.000 and if the dividends are exempt from tax. otherwise 15%. (13) 10% for shareholdings of 25% or more. (10) 10% for shareholdings of 30% or more. (15) 0% if the actual recipient of interest is the government of the other contracting state. (16) 5% for 100% shareholdings or 30% or more interest in a joint venture.Tax system process. or industrial. equipment and services.000. (20) 5% for shareholdings of 10% or more. otherwise 10%. otherwise 5%.
with the exception of special protective. the levy of export customs duties on goods exported to third countries at the rates indicated by the law of the state where the goods were produced. replacing the Customs Code of the Russian Federation. . Significant amendments The most significant amendments introduced by the Unified Customs Code include the following: . 37 Doing Business in Russia .Customs regulations General approach The formation of the Customs Union of Russia. the creation of a common customs territory in which customs duties and other economic restrictions no longer apply to reciprocal trade between Customs Union members. . . The Unified Customs Code came into force in the middle of 2010. together with Federal Law No. 311 dated 27 November 2010 “On Customs Regulation in the Russian Federation”. and the adoption of the Unified Customs Code have transformed the Russian customs regulatory landscape. anti-dumping and compensatory measures. a common external tariff and non-tariff regulatory measures for trade with nonmember states. Belarus and Kazakhstan. the abolition of customs clearance procedures between the member states and import customs duties for goods imported within the Customs Union territory.
the Customs Union encourages its member states to compete with each other in providing the most preferential customs rules in terms of formalities. the more investors the country attracts. In addition. The fewer obstacles the country’s customs treatment creates. when importing goods to Russia (or to the customs territory of the Customs Union) a Russia-based company must fulfil customs clearance formalities for imported goods at an appropriate customs office in Russia. . Novelties The Unified Customs Code provides for the following new measures: . A new legal concept. Trade between Customs Union and third countries Importation Declaring procedures Under the Unified Customs Code. The forms and the timeframes for customs payment are determined by the legislation of the respective member state. customs payments are made (i) on the territory of the member state whose customs authorities release the goods and (ii) in the currency of this member state. . Moreover. Customs payments (VAT. was introduced to simplify the completion of customs formalities for participants in foreign trade (these operators are able to store goods at their own warehouses and release goods into free circulation before submitting a customs declaration). The following customs regimes are outlined below: (i) trade between the Customs Union and third countries and (ii) mutual trade between member states. a border post of the relevant country must fulfil the procedure of internal customs transit of the imported goods to the destination point within Russia. Belarus and Kazakhstan. running from the date of their release (this term may be extended by internal legislation to up to five years). customs payments for imported goods into Russia must be made on or prior to the day the customs declaration is submitted to the Russian customs authorities. this promotes the development of economic relations and co-operation between these countries. “authorised economic operator”. 0% VAT charged on goods exported within the Customs Union territory and/or an exemption from excise duties and indirect taxation of goods imported within the Customs Union territory in the importing state. and an extension from 12 months to three years of the period in which customs authorities may control the declared customs value for customs clearance after the goods’ release.e. under Russian law. when imported goods cross the customs border of the Customs Union in Belarus or Kazakhstan. For instance. 38 . A unified register of items of intellectual property registered in the territory of the Customs Union will be created by merging the national registers of the Customs Union members.Customs regulations . to the customs point where the imported goods will be cleared. customs duties and excises) When goods are imported into the territory of the Customs Union from third countries. Therefore. declaration procedures must be completed in the country where the importing company is registered. Practical impact The creation of the Customs Union has simplified cargo traffic between Russia. In turn. i.
Tariff preferences Goods originating from developing countries as well as the least developed countries fall within the unified system of tariff preferences of the Customs Union. quotas. a Russia-based company is obliged to verify existing limitations to import certain goods to Russia (e. Export customs duties and payment Export customs duties are to be paid to the country from which the goods originated.g. This list will be based on the information provided by each member state on these goods. customs authorities located on the boundary of the Union make corresponding notes on the export customs declaration. and . vehicles involved in international operations concerning goods. Exportation Declaring procedures When goods are exported from Russia to countries outside the Customs Union. customs duties and excise duties must be paid by separate payment orders: VAT and excise duties are to be paid to the Russian budget. Goods from the least developed countries are fully exempted from import customs duties. luggage and passengers as well as related equipment. special protective. Non-tariff restrictions Before importing goods into the Customs Union. A customs procedure of goods export is applied to exported goods. The Customs Union Commission is responsible for establishing a list of goods originating from developing and the least developed countries. to goods from third countries imported into the Customs Union. in particular: . while customs duties are transferred to a special accumulation account. 39 Doing Business in Russia . such as exemption from import customs duties or reduced customs duties rates. the Russia-based company must fulfil customs clearance formalities for exported goods at an appropriate customs office within Russia. Tariff privileges Certain goods imported into the Customs Union from third countries may be subject to tariff privileges. The Customs Union Commission is responsible for establishing a consolidated list of goods to be exported by member states to third countries subject to export customs duties under the legislation of the respective member state (which has produced the exported goods). Goods falling under this regime include. compensatory and anti-dumping measures as well as sanitary and veterinary measures. Goods from developing countries are subject to customs duties at rates which are 75% of the rates provided in the common customs tariff. goods imported by individuals for nonproduction and non-profit purposes pursuant to the customs regulations. anti-dumping and compensatory measures) and obtain all necessary authorisations and licences. Non-tariff restrictions The member states will unify non-tariff regulation measures taken with regard to third countries: special protective.VAT. Import customs duties The Customs Union member states are obliged to apply the common customs tariff and unified nomenclature of goods. When the goods leave the customs territory of the Customs Union.
Some measures of non-tariff regulation may be introduced in the form of quantitative restrictions or as an exclusive right to export and/or import certain types of goods, which require a licence to be granted by the competent authorities of the member state. Decisions on introducing, applying and cancelling measures of non-tariff regulation are taken by the Customs Union Commission. VAT Goods exported to third countries from Russia are subject to 0% VAT rate and/or are exempted from excise duties, provided that the export of goods is properly documented. state) are subject to a 0% VAT rate and/or exempted from excise duties provided that the export of the goods is properly documented. Importing goods Goods imported from the territory of one member state into the territory of another member state are subject to indirect taxation. The indirect taxes paid on imported goods are subject to deductions in accordance with the legislation of the importing state. Indirect tax rates, which are applicable to goods imported from the territory of one member state into the territory of another member state, must not exceed those applied to similar domestic goods. Works and services Works and services are subject to indirect taxes in the member state deemed to be the place where the services were rendered or the works were executed. This is the case where: . works/services are related to immovable property or movable property located in the given member state; or . services in the spheres of culture, art, education, physical training, tourism, recreation and sports are rendered in the territory of the given member state; or . the taxpayer of the given member state acquires consulting, legal, accounting, auditor, designer, marketing, research and development and some other types of services. In other cases not mentioned above, works and services are subject to indirect taxes in the member state of the taxpayer who rendered the services or executed the works. The tax base, the rates, the collection procedure and tax concessions are also determined on the basis of the legislation of the member state where the works are executed or the services are considered to be rendered.
Mutual trade between the Customs Union members
Free circulation of goods Declaring procedures and customs duties As the territories of the member states of the Customs Union form a common customs territory, there are no customs offices and customs declaration procedures between them (please note, however, that border control procedures between Russia and Kazakhstan will be abolished by July 2011). Customs duties are not applicable to reciprocal trade between the member states. Non-tariff restrictions No restrictions of an economic nature are applicable in mutual trade between the member states, except for special protective, antidumping and compensatory measures. Indirect taxation within the Customs Union Exporting goods Goods exported within the Customs Union (from a member state to another member
Until recently energy efficiency matters were almost unregulated by Russian legislation. However, on 23 November 2009 Federal Law No. 261-FZ “On Energy Saving and Energy Efficiency Increase and Amending Certain Legislative Acts of the Russian Federation” (the “Law”) was passed. The Law created a legislative, economic and organisational stimulus for energy saving (“ES”) and increasing energy efficiency (“EE”). The majority of provisions of the Law came into force on 27 November 2009. The framework nature of the Law requires the Russian Government and competent federal ministries to adopt numerous bylaws. This is a complex process and it has not yet been completed. However, due to the presence of strong political will, Russian EE legislation is being actively developed. At the end of 2010 a state programme establishing the main principles and purposes of ES policies was adopted for the period up to 2020. By example, this programme provides for a general decrease in the energy intensity of the Russian GDP to 40% by 2020. The state programme also promises that total financing for the implementation of EE measures will be equal to RUB 9,532 billion (EUR 238.3 billion1) – the majority of this coming from non-budgetary sources. Notwithstanding the above, investment in energy efficient technology in Russia is
At the notional exchange rate of RUB 40 = EUR 1, as throughout this guide.
Doing Business in Russia
currently limited when compared to developments in the rest of the world. Therefore, it should be noted that Russia offers unique opportunities for investors who want to effect projects in the EE sphere and, more particularly, for representatives of countries which already possess experience of implementing EE and ES technology. In this chapter we will summarise the Russian EE requirements in relation to various sectors and the main features of the newly introduced “energy service agreements”, as well as outline the energy audit mechanisms and incentives. Manufacturers/importers are responsible for defining EE classes for specific types of goods, and to include this information in the technical documentation attached to the goods on their tags and labels. Failure to comply with these requirements results in administrative liability3. EE requirements for the circulation of goods also cover the introduction of energy efficient bulbs. The Law prohibits the circulation of incandescent lamps exceeding 100W for the purposes of alternating current and lighting from 1 January 2011. Optional rules prohibiting incandescent lamps exceeding 75W from 1 January 2013 and exceeding 25W from 1 January 2014 are also imposed by the Law. However, these are due for revision in the future following the first results of the EE programme in Russia. More stringent rules are imposed on the public sector: from 1 January 2011 no public procurements for the supply of any incandescent bulbs will be permitted with the exception of electric bulbs for premises used by large groups of people (e.g. theatre and cinema halls, lecture auditoriums and restaurants, etc.). EE requirements for buildings, structures, installations According to the Russian EE rules buildings, structures and installations (with only a few exceptions) must comply with obligatory requirements. These requirements will be fixed by the Ministry of Regional Development in concurrence with the Ministry of Energy (the “ME”) and Ministry of Economic Development (the “MED”) under a special Decree to be adopted by the Government. The EE re3
To facilitate the efficient use of energy resources and to support and encourage ES the Law provides for several groups of EE requirements in various sectors. Below we examine how the Law applies to (i) the circulation of goods; (ii) buildings, structures and installations; and (iii) the public sector. EE requirements for circulation of goods Several categories of goods produced in and imported to Russia must contain information on their EE classes in the attached technical documentation, as well as on their tags and labels. This requirement concerns: . household energy consuming devices2 since 1 January 2011; . computers and “organisational” hardware (fax machines, copiers, etc.) from 1 January 2012; and . other goods (such as electric cookers, TVs) as defined by the relevant Government Decree from 1 December 2012.
These devices include refrigerators, domestic air-conditioners, electric household lamps (incandescent lamps less than 100W and luminous low-pressure lamps), etc.
A “per breach” penalty for company officials at the rate of RUB 10,000 - 15,000 (EUR 250 - 375); for individual entrepreneurs at the rate of RUB 20,000 - 35,000 (EUR 500 - 875) possibly followed by confiscation of goods; for legal entities at the rate of RUB 100,000 - 150,000 (EUR 2,500 - 3,750) with possible confiscation of goods.
technological.000 (EUR 1. functional. Since 1 January 2011 all commercial and industrial buildings and constructions are supposed to be equipped with water.000 . In apartments and residential buildings. One of the most important requirements in the short term will be the indication of the EE classes of apartment buildings on their facades. electrical energy. will result in administrative liability4.quirements will be revised every five years and include: . and . construction and development) and services. 43 Doing Business in Russia . The above listed federal authorities are charged with monitoring annually the market of energy efficient goods. new goods produced with highly energy effective technology).000 . natural gas. and the Federal Anti-monopoly Service. the energy meters. Public procurements All orders by state or municipal clients must be made in accordance with ES and EE requirements to be fixed by the MED with the agreement of the ME.500 .000). Energy meters Every building must be provided with an energy meter by certain deadlines. thermal energy and electrical energy meters. 4 Energy consumption reduction targets and programmes Publicly financed institutions must reduce their consumption of water. reconstruction and capital repairs. construction. works and services and preparing yearly proposals for reviewing EE requirements for public procurement. operating and capital repairs.000 (EUR 500 .000 (EUR 12. must be in place by 1 January 2012. engineering and technical solutions influencing the EE of buildings/constructions. Liability Failure to comply with EE requirements in design. requirements relating to the architectural. These EE requirements will indicate the persons (developers/builders/owners) responsible for their implementation. both collective (for the whole building) and individual (for separate apartments). coal and black oil by 15% (based on 2009 figures) within five years from 1 January 2010.250). the Ministry of Industry and Trade. natural gas. construction. and . limits on energy consumption. They include: . technological solutions influencing the EE of goods/works/services ordered. The yearly reduction of energy consumption should be at least 3%. They are entered into between a (private or public sector) customer and a contractor that provides works and services aimed at ES and greater EE in the use of energy resources A “per breach” penalty for company officials at the rate of RUB 20. maximum energy consumption limits in buildings/constructions.750). for individual entrepreneurs at the rate of RUB 40. However.000 . works (e. in practice this requirement has not yet been fully complied with. thermal energy. EE requirements for public sector One of the main priorities of the Law concerns the public sector. Energy service agreements The Law introduced a novel type of contract to Russian legislation: energy service agreements. These requirements will concern certain types of goods (e.g.600. for legal entities at the rate of RUB 500.50. as well as failure to comply with energy meter fitting requirements.g.15.30. Companies with state participation and companies carrying out regulated types of activities are obliged to adopt and implement programmes aimed at increasing EE.000 -1.
Model terms of these contracts have been established by the MED. The above companies will have to undertake their first energy audit by 31 December 2012 and subsequent energy audits at least once every five years. collecting objective data on the volume of energy used. . etc. etc. the volume of energy used and the variations of volumes used. The results of energy audits must be reflected in energy passports for each product or process comprising information on the presence of energy meters. tariff regulated companies transporting energy are able to take advantage of two incentives during a maximum five year period: either to gross up their sale proceeds by the amount of expenses incurred in reducing energy loss.) or investing in ES and EE. For example. Clauses containing the essential elements of an energy service agreement may be included in contracts of sale and purchase. As a general rule. (iii) companies with yearly energy consumption exceeding RUB 10 million (EUR 250. (ii) companies producing or transporting energy resources (oil. developing a list of possible programmes which target EE increase and evaluation. Companies. Energy audit mechanisms The Law provides for two main types of energy audit: voluntary and obligatory. the value of ESs). gas. or retain savings generated as a result of investments in EE and ES. and . . and . The tax incentives include. defining ES and increase in EE potential. 16 of the Law an obligatory energy audit must be conducted in respect of: (i) certain regulated companies.g. supply or transport of energy resources (except natural gas). . accelerated depreciation of assets belonging to the category of objects with high EE or sites classified in top EE classes. and (ii) a clause stipulating the obligation of the performing party to install and use energy meters. energy audits are deemed voluntary except in circumstances stipulated by the Law5.000).Energy efficiency These agreements must include the following obligatory conditions: (i) the volume of ES guaranteed by the contractor. All information contained in the energy passports will be included in the State Energy Register kept by the ME. The discretionary terms of energy service agreements may include among others (i) a clause determining the price for the works and services. defining EE indicators. and (iii) other obligatory conditions provided for by Russian legislation. Incentives In order to encourage private investors to participate in the EE programme the Law proposes a range of economic/tax incentives. (ii) the expiration date of the agreement (which may not be less than the term necessary to achieve the ES set by the agreement). partial compensation of interest on loans granted by Russian banks for the purpose of investing in ES and increased EE technology. 44 . 5 According to art. self-regulated organisations and individual entrepreneurs must conduct energy audits on products and technological processes aimed at: . investment tax credits up to 30% for companies investing in EE and ES technology. in particular: . subject to results attained or upon the performance of the contract (e. and financed by federal or regional budgets.
It is anticipated that the main changes will concern the regulation of cartel agreements and coordination of economic activity (including liability for the violation of related requirements). 135-FZ “On the Protection of Competition” dated 26 July 2006 (the “Competition Law”). The FAS is currently finalising the so-called “Third Anti-monopoly Package” – an extensive set of amendments to the abovementioned primary acts of anti-monopoly legislation. It also oversees the adoption of regulatory acts in the field. agreements/actions concluded or committed outside Russia. while liability for the violation of anti-monopoly regulations is established (in addition to the Competition Law) mainly by the Code on Administrative Offences and the Criminal Code. a Russian executive authority. agreements/actions concluded or committed in Russia that may influence competition in Russia. The Third Anti-monopoly Package is expected to be adopted in the first half of 2011. controls and enforces compliance with anti-monopoly legislation.Anti-monopoly issues General approach Anti-monopoly issues are mainly governed by Federal Law No. and . Scope of application of the Competition Law The Competition Law applies to: . The Federal Anti-monopoly Service (the “FAS”). between Russian and/ 45 Doing Business in Russia .
. dividing markets by: — territory. imposing unfavourable terms upon a contracting party. reducing or maintaining prices during auctions.). bonus payments or surcharges. in itself. abuse of a dominant position. . abuse of the dominant position gives rise to liability. fixing or maintaining prices/tariffs. reducing or terminating a commodity’s production. cartel agreements and concerted actions. — assortment of commodities sold. Cartel agreements and concerted actions Generally. However. impeding other business entities’ access to or withdrawal from a commodity market. cartel agreements and concerted actions involve the following violations that are expressly prohibited by the Competition Law: . the scope of application of the Competition Law is very broad. establishing membership conditions in professional or other associations if these conditions lead or may lead to a restriction of competition. supplying goods or services to the Russian market. or — rights relating to legal entities engaged in business activities in Russia. . etc. Abuse of a dominant position The general rule is that a company is deemed dominant if it has a market share of over 50%. . unfair competition. Dominance of a market is. In practice it will cover almost any agreement and may apply to any company directly or indirectly connected with the Russian market or Russia in general. . Anti-competitive practices and restriction of competition The Competition Law covers the following types of anti-competitive practices and activities which may lead to a restriction of competition: . and . increasing. . .Anti-monopoly issues or foreign legal entities/individuals and which are related to: — fixed assets (both tangible and intangible) located in Russia. establishing discriminatory conditions. in practice. Based on the above. — shares or participatory interests in Russian legal entities. dominant entities are prohibited from: .g. establishing different prices for the same commodity without technological or economical substantiation. not a violation. . unsubstantiated refusal to enter into contracts with certain sellers or buyers. The expression “legal entity engaged in business activities in Russia” includes all foreign entities carrying out any business activity of any kind in Russia (e. or — range of sellers or purchasers/ customers. and . In addition to the prohibitions outlined below in the “Cartel agreements and concerted actions” section. 46 . . dominance may be established in certain circumstances with a market share of less than 35%. fixing or maintaining “monopolistically” high or low prices. The Competition Law also provides for the rules of transaction clearance. vertical agreements and economic coordination. — volume of sales or purchases. However. and . discounts. having a representative office.
50% or 75% of voting shares in a Russian jointstock company. the establishment of a Russian company if (i) its charter capital is paid up by shares and/or tangible or intangible assets of another company and (ii) the new company. the acquisition of more than 1/3. the acquisition of more than 25%. as a result. or — more than 20% of the balance sheet value of fixed and intangible assets of the company which owns the assets (and whose assets are located in Russia). specifically. Moreover. acquires: — more than 25% of voting shares in a Russian joint-stock company. The FAS is entrusted with monitoring compliance with the Advertising Law and may hold business entities liable for violating it. official secrets or other information protected by law. (iv) quality and quantity. the distribution of false or incorrect information which may cause damage to a business entity or impair its reputation. Several of the above actions are also regulated under Federal Law No. or (v) manufacturers. exchange or other placement into circulation of a commodity in breach of third-party intellectual property rights. — more than 1/3 of the participatory interest in the charter capital of a Russian limited liability company. In particular. . may not: . . the unlawful receipt. and . . one of which is the buyer of a commodity and the other one is a supplier of a given commodity) may not contain any provisions which lead to a restriction of competition in general and. unfair competition includes: . use and disclosure of commercial secrets. 50% or 2/3 of the participatory interest in the charter capital of a Russian limited liability company. misleading information in respect of the (i) nature. reorganisation (in the form of merger or accession). . 38-FZ “On Advertising” dated 13 March 2006 (the “Advertising Law”). . of a commodity. Transaction clearance Transactions subject to clearance The following transactions may require approval from the FAS or a notification to the FAS: . impose on the purchaser a restriction on the sale of competing products. and . Unfair competition Unfair competition is not permitted under Russian competition legislation. such a “vertical agreement” (an agreement between business entities that do not compete with each other. (iii) consumer properties. an incorrect comparison of the commodities produced by a business entity with those produced or sold by other business entities. the acquisition of indirect control over a Russian company or a foreign company with any business activity in Russia. the sale. . the Competition Law also prohibits any economic coordination exercised by one business entity over the activities of other business entities if the coordination results in any of the prohibitions outlined in the Cartel agreements and concerted actions section above. (ii) manner and place of production. . establish resale prices for a commodity. 47 Doing Business in Russia .Vertical agreements and economic coordination If the parties to an agreement do not compete with each other.
mandatory directions issued by the FAS to cease a violation. Thresholds The transactions mentioned above require merger clearance (prior or post transaction) from the FAS if the respective thresholds established by the Competition Law and summarised in the tables below are met. It is only possible to benefit from the Leniency Programme if the FAS is not aware of the reported infringement. the requirements are different (please see the Banking sector chapter on page 51). However. The Code on Administrative Offences provides a limited opportunity for companies which have participated in illegal cartels or actions to avoid penalties – the “Leniency Programme”. fines calculated on the basis of revenue (up to 15% of the revenue gained over the period of the violation of anti-monopoly legislation ) and/or disqualification of company officials (under the Code on Administrative Offences). a result of the violation of anti-monopoly legislation (under the Competition Law). if the book value of the acquired assets located in Russia exceeds the following percentages of the total book value of the seller’s tangible and intangible assets: — 20% for companies operating on commodity markets. . Liability General remarks Individuals and legal entities may be subject to administrative and criminal liability for noncompliance with anti-monopoly law. These are mostly asset-based thresholds. (iii) fully co-operate with the FAS throughout its investigation. (ii) submit sufficient information and/or documents to the FAS to allow an administrative violation to be identified. or — 10% for companies operating on financial markets. for the more serious anti-monopoly violations. and fines. When they are not met the Competition Law requires posttransaction notification to the FAS within 45 calendar days after closing. disqualification of company officials and.Anti-monopoly issues . when the asset-based thresholds are not met revenue-based thresholds apply. . When the thresholds for prior approval are met FAS clearance must be obtained before the closing of the transaction. Collective applications for the Leniency Programme are not accepted. etc. Specific remarks Prohibited agreements and leniency As mentioned above. the acquisition of the right to own. cartels and concerted actions which violate anti-monopoly regulations are strictly prohibited and may lead to severe sanctions being imposed. and/or transfer to the state budget of all revenue received as 48 . up to seven years’ imprisonment of company officials (under the Criminal Code). Liability may include: . For those operating on financial markets. use or possess tangible and/or intangible assets of a company. To obtain total immunity under the Leniency Programme a cartel participant must (i) be the first to inform the FAS of the cartel’s existence. and (iv) cease any involvement in the cartel or other infringement immediately. The thresholds set out below only apply to companies operating on the commodity markets.
or may lead to.25 million) (EUR 175 million1) sets of the target’s acquirer’s group and the group of companies target’s group OR Aggregate worldwide > RUB 10 billion and Aggregate world> RUB 250 million revenue of the acquirer’s (EUR 250 million) wide asset value of (EUR 6. 49 Doing Business in Russia . A transaction requiring prior FAS clearance may be deemed invalid by the courts if clearance is not obtained and the FAS proves that the transaction led to.5 million) > RUB 60 million (EUR 1.5 million) Transaction control Failure to obtain FAS clearance where required may lead to anti-monopoly and administrative proceedings against the acquirer and the imposition of a fine of up to RUB 500.PRIOR MERGER CLEARANCE THRESHOLDS and Aggregate worldAggregate worldwide > RUB 250 million > RUB 7 billion wide value of asvalue of assets of the (EUR 6.25 million) group and the target’s the target’s group group of companies from of companies the sale of goods. the target or any company in their groups is included in the FAS Register of Business Entities with a Market Share Exceeding 35% (mostly applicable to Russian companies) 1 At the notional exchange rate of RUB 40 = EUR 1. works and products during the last calendar year > RUB 60 million (EUR 1. POST-TRANSACTION MERGER NOTIFICATION THRESHOLDS Aggregate worldwide > RUB 400 million and Aggregate worldvalue of assets of the (EUR 10 million) wide value of asacquirer’s group and the sets of the target’s target’s group group of companies OR Aggregate worldwide > RUB 400 million and Aggregate worldrevenue of the acquirer’s (EUR 10 million) wide asset value of group and the target’s the target’s group group of companies from of companies the sale of goods. works and products during the last calendar year OR The acquirer.500).000 (EUR 12. a restriction of competition in the relevant market. as used throughout this guide.
i. Throughout the recent financial downturn. EUR 45. bank insolvency is regulated by Federal Law No. 86-FZ “On the Central Bank of the Russian Federation” dated 10 July 2002 (the “CBR Law”). Legislative and regulatory framework The legislative framework regulating the Russian banking sector is provided under Federal Law No. EUR 26. In addition to the general insolvency legislation. Sberbank. 40-FZ “On Insolvency (Bankruptcy) of Credit Organisations” dated 25 February 1999. 395-1 “On Banks and Banking Activities” dated 2 December 2002 (the “Banking Law”) and Federal Law No.e. and Bank of Moscow (RUB 923.737). EUR 23.Banking sector Banking sector Banking industry The Russian banking industry is characterised by the operation of a large number of credit organisations (955 as of 1 January 2011) and by a high level of concentration of capital.ru (all conversions based on a notional rate of RUB 40 to EUR 1). i.295).197).e. As of 1 January 2011. These laws and related regulations: 3 http://www.e.pdf As of 1 January 2011 the top five Russian banks in terms of net assets are Sberbank (RUB 8.731.069. etc.918.806.252.ru/analytics/bank_system/obs_1102. VTB. 50 . EUR 222.887.811.e. VTB (RUB 2. EUR 68. Gazprombank. Such as.547.cbr.e.506.rbc. i.288. i. i.081 – http://rating. approximately 48% of the banking sector’s total assets1 were held by the top five Russian banks2. Gazprombank (RUB 1. state owned banks3 have played an ever increasing role in the stabilisa1 2 tion and development of the Russian banking sector. Rosselkhozbank (RUB 1.
dated 24 March 2003. and . or companies with additional liability. dated 16 January 2004. Under the CBR Law and the Banking Law. dated 7 August 2009. and local branches. The latter form is not often used as it provides for the joint liability of the company’s owners in respect of the company’s obligations. set out the list of banking operations and other transactions that may be performed by credit organisations. carrying out of banking operations not stipulated in a banking licence. including: capital requirements – Directive No. which includes its Board of Directors. 110-I. Anti-monopoly rules Prior approval from the Federal Anti-Monopoly Service (the “FAS”) is required if the proposed acquisition relates to: . be notified of an acquisition of more than a 1% interest in a bank or credit organisation. define credit organisations. (ii) unsatisfactory financial standing of the owners. more than 50% or more than 75% of the voting shares. National Banking Council and central administrative departments. or more than 1/3. breach of banking law requirements. and Regulation 342-P. a number of regional branches in the constitutive subjects of the Russian Federation (which are called “National Banks” in certain republics). and (iv) unsatisfactory business reputation. give its prior consent to any acquisition of an interest of 20% or more in a bank or credit organisation. limited liability companies. Under the Banking Law. . Banking rules According to the Banking Law. provide the regime for insolvency proceedings and the protection of credit organisations. in cases of capital inadequacy. The Central Bank consists of a Moscow Head Office. 1260-U. (iii) non-compliance of the managers’ qualifications. The Central Bank of Russia (the “Central Bank”) is legally and financially independent from the Russian Government. in a bank or credit organisation. establish the framework for the registration and licensing of credit organisations. Acquisitions Acquisitions in the banking sector are subject to specific banking and anti-monopoly rules. and the insolvency of a bank. more than 50% or more than 2/3 of participatory interests. mandatory economic ratios and reserves – Instruction No. the Central Bank must: . and provision for losses – Regulation No. the Central Bank is responsible for regulating banking activities and is authorised to adopt binding regulations (or “instructions”) concerning banking and currency operations. The Central Bank may revoke a banking licence. The Central Bank may refuse to issue a banking licence in the event of: (i) non-compliance of application documents with Russian law requirements. more than 25%. . for example. The Central Bank actively uses its powers and has created a detailed and extensive body of regulation on key areas. and . credit organisations may be incorporated either as joint-stock or 51 Doing Business in Russia . dated 26 March 2004. 254-P. as defined under the Banking Law.. and Licensing and operations Licensing A credit organisation must be licensed by the Central Bank in order to conduct “banking activities”.
Operations Banks may provide a wide range of banking services. A general banking licence. The Banking Law states that the following services are “banking operations” that require receipt of an appropriate licence5 from the Central Bank: . Under the Banking Law. . and opening and maintaining bank accounts for individuals and legal entities. (v) lease special premises and safe deposit boxes to individuals and legal entities for document and valuables storage.Banking sector . . commodities trading (excluding precious metals6) or insurance activities. a licence to conduct operations in foreign currency. 177-FZ “On Insurance of Deposits of Individuals in the Banks of the Russian Federation” dated 23 December 2003 (the “Deposit Insurance Law”) came into effect at the end of December 2003. including correspondent banks. . It stipulates that a bank may only attract deposits from. (vi) effect leasing operations. . a credit organisation cannot engage in manufacturing. cash. investing the deposited funds as a principal.5 billion (EUR 625 million) will require FAS notification within 45 calendar days. from/to their bank accounts. payment document handling services and over-thecounter services provided to individuals and legal entities. credit organisations are permitted to: (i) give sureties for obligations of third parties contemplating payment in cash. (ii) take assignments of rights to demand payment in monetary form. Non-bank credit organisations conduct only a limited number of banking operations. 41-FZ “On Precious Stones and Precious Metals” dated 26 March 1998 and related legislation). Federal Law No. issuing bank guarantees. (iii) perform fiduciary management of monetary funds and other assets for individuals and legal entities. or open accounts for. However. performing settlements in accordance with the instructions of individuals and legal entities. these restrictions do not extend to any commodity derivative transactions. In addition to banking operations. such as maintaining accounts and processing payments on behalf of various companies. cheque. (iv) engage in operations with precious metals (in accordance with Federal Law No. and 4 Deposit insurance To protect individual depositors. 6 5 At the notional exchange rate of RUB 40 = EUR 1. processing payments in accordance with the instructions of individuals without opening bank accounts (excluding payments by post). the target is a bank or credit organisation whose assets exceed RUB 33 billion (EUR 825 million4). taking deposits from individuals and legal entities (both demand and fixed-term deposits). A credit organisation may enter into any other transaction in compliance with the relevant Russian legislation. 52 . a licence to carry out operations with precious metals. The acquisition of these thresholds in the charter capital of a bank or credit organisation whose assets exceed RUB 2. and (viii) provide consulting and information services. taking deposits in precious metals and investing them. . which is used throughout this guide. . (vii) engage in factoring operations. selling and purchasing foreign currency (including banknotes and coins). . On the basis of the relevant copy of a licence to carry out operations with precious metals. individuals if the bank is a member of the deposit insurance system. promissory note.
Participation in the deposit insurance system is subject to a number of requirements: . nor must any grounds for these enforcement actions have arisen during the Central Bank’s review of the bank’s application. 115-FZ “On Combating Money Laundering and the Financing of Terrorism” (the “Anti-Money Laundering Law”) came into force on 1 February 2002 and has been revised a number of times to reflect the global developments in this area. liquidity. as well as so-called regulated entities and the state authorities responsible for monitoring money laundering activities in Russia. Member banks pay a contribution into a deposit insurance fund. it is entered into the Agency’s register. managing the funds in the mandatory insurance pools. Its responsibilities include collecting insurance contributions. . with limited exceptions. Once a bank has been issued with a retail banking licence. It is the primary legislative act in the Russian Federation aimed at preventing money laundering activities and the financing of terrorism.). profitability and liquidity. and . Financial institutions such as banks and non-banking credit organisations. It provides for mandatory internal procedures and reporting requirements in the event of any suspicious or otherwise monitored transactions. in addition to the Central Bank’s requirements for the transparency of its ownership structure.500). postal and other noncredit organisations that deal with the transmission of money (the “regulated entities”) are required. All individual depositors with deposits in member banks are entitled to 100% compensation for aggregate amounts up to RUB 700. choosing not to participate in the deposit insurance system. establishing insurance premiums and monitoring insurance payments. to perform due diligence by ascertaining the identity of a customer (and a beneficiary) and monitoring 53 Doing Business in Russia . or open accounts for. the bank must be in full compliance with the Central Bank’s stringently monitored mandatory ratios (capital adequacy. Failure to satisfy these requirements. The Agency has a supervisory role over the deposit insurance system. will result in the bank being unable to attract deposits from. the Central Bank must be satisfied that the bank’s financial accounts and reports are true and accurate. or indeed.The Deposit Insurance Law provides for the creation of the Agency for Insurance of Deposits (the “Agency”). The Anti-Money Laundering Law applies to individuals and legal entities engaged in transactions with monies (and other assets) in Russia. These contributions are calculated as a percentage of the average daily balance of individual deposits maintained with a particular bank. binding instructions and regulations of the Central Bank and other authorities. and are subject to an upper limit. insurance and leasing companies. The anti-money laundering law Federal Law No. .000 (EUR 17. etc. risk management system and internal control. the Central Bank must not be conducting any enforcement actions in respect of the bank. and it needs to apply to the Central Bank to become registered as a participant in the mandatory deposit insurance system. individuals. professional participants of the securities market. and is supported by numerous recommendations. the bank must fully comply with the Central Bank ratios for the assessment of the quality of the bank’s capital and assets.
and immovable property transactions of at least RUB 3 million (EUR 75. . establishing additional monitoring measures. among others.000). most regulated entities are obliged to develop and implement sophisticated internal regulations and procedures. a designated monitoring authority. informing the entity of the Central Bank’s concern regarding its activities. include cash or noncash transactions of at least RUB 600. These transactions. If one of the parties to a transaction is suspected of being related to terrorist activity. For these purposes. The regulated entities must identify and report transactions of a suspicious nature to the Federal Financial Monitoring Service. 54 .000 (EUR 15. The Central Bank may undertake preventative and/or enforcement measures in respect of a regulated entity involved in transactions which infringe the anti-money laundering legislation. Enforcement measures may also include the imposition of a penalty and the withdrawal of the banking licence. or the equivalent of these amounts in foreign currency. The Russian anti-money laundering legislation upholds the relevant international practice. as well as to maintain a sufficient level of education and training on these matters for involved employees.Banking sector transactions for suspicious activity. suggesting that the entity provide the Central Bank with a programme for improvement. and . and provides for advanced identification and control procedures in respect of foreign publicly exposed persons (so-called “PEPs”). which includes penalties and imprisonment for the bank’s management. The Russian Criminal Code provides for criminal liability for breach of the legislation on anti-money laundering. These measures may include: .000). the transaction is subject to mandatory control regardless of the amounts involved.
or in relation to which a principle of reciprocity may apply. with particular focus on foreign currency and secured lending. allowing parties freedom to negotiate terms of credit agreements to suit their commercial requirements. Lending documents and governing law Russian principles of contractual law are generally permissive. However. by banks and other companies. for example English or the law of the lending entity. parties to a credit agreement may generally choose a relevant foreign law as the governing law of the agreement. to ensure enforceability in Russia or abroad. Care should also be taken in selecting the forum in which disputes may be heard.Lending in Russia We set out below a brief discussion of certain issues related to lending in Russia to companies. Russia is a party to the 1958 New York Convention on the Recognition and Enforcement 55 Doing Business in Russia . under Russian conflicts of laws principles. It is usual for credit Jurisdiction There are few jurisdictions with which Russia has an agreement for reciprocal enforcement of court judgments. In addition. However. agreements to be governed by a commonly used international law. each case should be carefully analysed to determine if there are particular enforceability issues which might arise.
g. for loans which are in excess of two years. the shares may not be transferred without the pledgee’s consent. the secured party need not take possession of the secured assets. in relation to certain types of assets: Shares or participatory interests A pledge of shares held directly in a joint-stock company must be registered in the joint-stock company’s register (held by the company itself or an independent licensed company). which normally is entered into in connection with identified assets. servicing debt offshore from proceeds becomes problematic under Russian law. then its involvement is required and the pledge is registered with the depository. the first in time by creation generally has priority. made by lenders in OECD1 or FATF2 countries.g. Financial Action Task Force. Security interests The choice of law for security documents usually depends on to the location of the secured assets (e. intangible assets). However. Immovable property Under Russian law. a company is required by law to record pledges that it grants in a “pledge book” which may be inspected. and an arbitral award obtained in another signatory jurisdiction should be enforceable by a Russian court. pledges must be notarised and recorded on the public Unified State Register of Legal Entities. inventory etc. There is a security instrument called a mortgage of enterprise under Russian law which may secure real estate. contractual rights). registered intellectual property rights) are recorded on specific public registers. assets of a company is generally not available. In this case. real estate. but because of practical difficulties in putting the security in place is rarely used in practice. the value of the pledge and the secured obligations. A pledge needs to be in writing and needs to accurately identify the pledged assets. the exporter is required to repatriate 100% of the proceeds within the period specified in the export contract. In Russia. it is common to provide for the jurisdiction of international arbitration in credit agreements. freehold and leasehold interests) are considered Currency controls As noted in the Currency control chapter on page 61.Lending in Russia of Foreign Arbitral Awards.g.g. 56 . or the governing law of the assets (e. In the case of competing pledges. If shares in a joint-stock company are held by a depository. In this respect. There is also no centralised legal entity register against which security interests may be noted. the principal form of security is a pledge. interests in land (e. a “transaction passport” with a Russian authorised bank is required for a foreign currency loan into Russia. participatory interests. movable property. in particular if the Russian obligor has assets abroad. For participatory interests. A pledgor needs to have title to the secured assets and although the pledge can be “possessory” or “non-possessory”. For this reason. however. although consideration of the jurisdiction of foreign courts may still be relevant. For payments received by a Russian company for the export of goods (the receivables in connection with which may have been secured).. Under Russian law a universal security instrument (such as an English law debenture) which might secure all 1 2 Organisation for Economic Co-operation and Development. Certain exemptions apply. The following points are worth noting. and pledges over particular types of assets (e.
These agreements have a number of practical limitations. A mortgage does not come into effect until it is registered by the relevant land registration authority. it is common to enter into account withdrawal (direct debit) agreements between creditor. Ships and aircraft are similarly immovable assets. and in some cases the consent of counterparties obtained. A bank guarantee is the only Russian law instrument which is not “accessory” in its nature and survives the underlying obligation. However. Bank guarantee and suretyship Under Russian law a “bank guarantee” refers to a particular type of commercial instrument that a bank may issue as credit support for the lender’s obligations. joint and several creditor structures. In addition. in the case of a dispute between a pledgor and a pledgee. If IP rights are registered. parallel debt (creating a parallel obligation to benefit a security trustee). it is common for security to be held by a representative (i. syndication of credit agreements is commonly structured to minimise disruption to Russian security upon changes to the syndicate. However. it is likely that any provision for out-of-court enforcement would be referred to the court’s jurisdiction. A “suretyship” refers to a particular type of instrument that a company (or individual) may issue as credit support for the obligations of another. and .e. The following arrangements are commonly used: 57 Doing Business in Russia . it is not generally considered possible to take effective security by way of pledge over bank accounts. pro- Security trusts and syndication Under secured syndicated credit agreements. Russian law guarantees and suretyships are commonly used in connection with financing in Russia. the pledge will require registration with the relevant IP register. These measures include the possibility of a commission sale of the assets or a creditor appropriating title to the secured assets (whereas previously only proceeds were available). Changes to the law in 2009 introduced a wider range of out-of-court enforcement options which may be included in an agreement.“immovable property” and must be registered. and the accessory nature of Russian security. . debtor and debtor’s account bank. a security agent or trustee) for a syndicate. bilateral (fronting bank) structures (syndicated through sub-participation). Proceeds from enforcement through the court would be likely to be in Russian roubles. and it is preferable (if appropriate) to sweep funds to offshore accounts where security may be available. and pledges over these also require registration. Pledges (or “mortgages”) over the interests must also be registered. Bank accounts Under Russian law. Contractual and intellectual property (“IP”) rights Pledges over rights will require notice to be given to the relevant counterparties. Because of the lack of recognition of trust concepts in Russia. each of the above structures have their own deficiencies and should be carefully analysed. As an alternative. . Enforcement Enforcement was historically carried out by way of public auction through the Russian courts.
(iii) “second priority claims” (employee related. to enforce its security and retain all proceeds (ahead of liquidation). approval of a 75% majority of shareholders would be required for a joint-stock company. However. royalties). the following additional aspects should also be kept in consideration when lending in Russia. In connection with secured claims (other than under a credit agreement). financial rehabilitation and external administration) Russian law allows a secured creditor.g.g.Lending in Russia viding there is a sufficient foreign element to a transaction. however their claims are satisfied in priority to other creditors’ claims (including the claims of first and second priority) from proceeds of the liquidation of secured assets. Upon liquidation of an insolvent company Russian law applies mandatory priorities under which creditors of the same class would rank equally. including tax liabilities). If a secured creditor forgoes its rights to vote during insolvency procedures (e. with the remaining 20% for first and second priority claims. Repayments or arrangements in preference of other creditors are likely to be the subject of anti-preference provisions set out in the insolvency laws. If the value is between 25% and 50% of this balance sheet value. disinterested directors or shareholders/participants. these percentages change to 80%. If the transaction constitutes an “interested party transaction” (e. the general director. please see the Corporate bankruptcy chapter on page 63. Russian law also requires the documents to be signed by the company’s chief accountant. If the transaction value equals or exceeds 25% of the balance sheet asset value of the company (and no lower threshold is provided for in the charter).g. and 10% for insolvency expenses. Corporate capacity and authority As a general rule. a secured creditor is entitled to 70% of realised proceeds. 15% and 5% respectively. or any person acting under properly delegated authority (by way of a power of attorney). when the company incurs financial obligations. has the capacity to bind the company. unanimous approval of the board of directors would be required. In connection with secured claims under a credit agreement. the transaction will constitute a “major transaction”. as the case may be. it may involve affiliates. a moratorium against enforcement of security will arise whilst it is determined if a rehabilitation process or liquidation process will apply. a similar foreign law instrument may be issued by a Russian obligor (utilising appropriate jurisdiction provisions). and if over 50%. Other lending related issues Finally. Similar rules would generally apply to a limited liability company unless they are varied in its charter. 58 . For more information related to bankruptcy and insolvency in Russia generally. obligations incurred following commencement of insolvency). subject to the following thresholds of recovery under law. In brief these are: (i) “current claims” (e. (ii) “first priority claims” (personal injury). insolvency costs. Insolvency considerations Upon the insolvency of a debtor or pledgor. or cross-management) particular care needs to be exercised in order to obtain appropriate approvals from majorities of. and (iv) “third priority claims” (all other claims. with the approval of the courts and providing the assets are not sufficient for the possible restoration of business. Secured creditors fall within the category of “third priority claims”.
For more details please see the Common forms of business structures for foreign investors chapter on page 21. 59 Doing Business in Russia . ownership of the Russian entity may be restricted as “strategic” under Federal Law No. Ownership may also need approval from the Federal Anti-monopoly Service under Federal Law No.Regulatory considerations on enforcement When taking security over company shares (either directly in Russia or through an offshore holding company. under a foreign law). two key aspects must be considered: . With regards to enforcement of the security. 135-FZ “On Protection of Competition” dated 26 July 2006. . 57-FZ “On the Procedure for Foreign Investments in Commercial Organisations of Strategic Importance for the National Security of the Russian Federation” dated 29 April 2008. For more details please see the Antimonopoly issues chapter on page 45.
following amendments to Federal Law No. and (ii) when importing and exporting foreign currency in cash. except those who are (or are considered to be) living abroad on a permanent basis. and related regulations. citizens of the Russian Federation. . diplomatic representatives. 173-FZ “On Currency Regulation and Currency Control” dated 10 December 2003 (the “Currency Law”). Consequently.Currency control General approach Most currency controls in Russia were removed in January 2007. consular offices and other official representatives of the Russian Federation. which regulates currency transactions. . contain a number of restrictions which should be considered (i) when dealing with transactions between residents and nonresidents (in particular when importing and exporting goods and capital). However. . the Currency Law. most currency transactions can be conducted without limitation. Foreign currency transactions Foreign currency transactions between residents The following persons are considered to be “residents”: . and 60 . legal entities duly registered under Russian law. foreign nationals and stateless individuals who live permanently in Russia on the basis of a residence permit.
. . the provision of services and intellectual property between residents and non-residents. the actual payment must be made in roubles. which may arise between the date the transaction is entered into and the payment date. Russian banks in foreign currency. foreign currency transactions between residents and non-residents are also permitted without any restrictions. legal entities and all other organisations that are registered under the legislation of a foreign country. Generally. although there are some exceptions. the bank reports the receipt and repayment of the currency to the Central Bank of Russia.000 No restriction Over USD 10. foreign currency operations between residents are prohibited. Under the transaction passport (and as part of its regular reporting). regions and municipal units of the Russian Federation. are required to be established for all transactions involving the import or export of goods. This can lead to exchange rate differentials..000. Payments in foreign currency are permitted without restriction between non-residents. However “transaction passports”. although they can be subject to Russian securities and anti-monopoly regulations. as well as international and intergovernmental organisations that are located in the Russian Federation. Furthermore. diplomatic representatives. individuals who are not defined as residents. and that are located outside the Russian Federation.000 Subject to written customs declaration 61 Doing Business in Russia . which record foreign currency flows through Russian authorised banks. residents must repatriate all roubles and foreign currency received from international trade and commercial activities into their Russian licensed bank accounts. Import rules Up to USD 10. It proposed in particular to drop the requirement of having such a passport for transactions up to USD 50. For example residents may borrow from. Import and export of foreign currency Residents and non-residents can import and export foreign currency in cash subject to the following rules: . Foreign currency transactions between non-residents The following persons are considered to be “non-residents”: . representative offices and branches of legal entities or other organisations located in the Russian Federation and registered under the legislation of a foreign country. The purchase and sale of securities between non-residents are also permitted. and . loans. However. Contracts in Russia may be concluded in foreign currencies. Foreign currency transactions between residents and non-residents Generally. There is an exception for payments due to a non-resident lender. On December 2010 the Central Bank published draft regulations aimed at easing transaction passport requirements. the Government of the Russian Federation. These payments may be directly transferred into the lender’s foreign bank account. consular offices and other official representatives of foreign countries. and then repay.
000 to EUR 1.250).000 (EUR 1.000 to RUB 1. where they breach the procedures for opening accounts in banks located outside Russia. Export rules Up to USD 3. fines may range from between RUB 40.500) for legal entities.000 to RUB 50. In connection with the breach of rules for opening “transaction passports” (applicable for legal entities). 1 At the notional exchange rate of RUB 40 = EUR 1. it stipulates that persons not repatriating foreign currency to accounts in Russia where it is required by law may face imprisonment for a term up to three years.000 to RUB 100.000 Authorised up to equivalent import amount on the customs declaration form Sanctions Breach of the currency control rules can result in administrative and criminal sanctions. This Code also prescribes fines of between RUB 1. This type of punishment is only applicable to company officials. used throughout this guide. More serious criminal sanctions may apply under the Russian Criminal Code.000 (EUR 1. The Code on Administrative Offences prescribes administrative fines for illegal currency transactions that can range from three-quarters to the whole amount of the offending transaction. and of between RUB 50.500 (EUR 251 to EUR 37) for individuals. 62 . In particular.000 Subject to written customs declaration Over USD 10.250 to EUR 2.000 No restriction Up to USD 10.Currency control .
as used throughout this guide. i. or (3) a court has recognised the debtor’s inability to (i) meet creditors’ claims and (ii) fulfil mandatory payment obligations within three months from the date they were due and the aggregate amount due and outstanding exceeds RUB 100.e.5001). (1) a court (i.000 (EUR 2. The most important laws governing insolvency proceedings in this respect are (i) Part I of the Russian Civil Code. which is the principal piece of legislation on insolvency in Russia (the “Insolvency Law”).Corporate bankruptcy General approach The discussion in this chapter focuses on the Russian insolvency regime applicable to companies. 63 Doing Business in Russia . when: At the notional exchange rate of EUR 1 = RUB 40. 127-FZ “On Insolvency (Bankruptcy)” dated 26 October 2002. 1 Insolvency concept Under the Insolvency Law the following “tests” are used to determine whether a debtor is insolvent.e.000. (ii) Federal Law No.000. arbitration court) has recognised the debtor’s inability to meet creditors’ claims and the amount due and outstanding exceeds RUB 100. (2) a court has recognised the debtor’s inability to fulfil mandatory payment obligations within three months from the date they were due and the amount due and outstanding exceeds RUB 100. 257 of the Russian Government dated 29 May 2004. and (iii) Regulation No.
political parties and religious organisations. financial rehabilitation. its general director must file for the company’s insolvency.Corporate bankruptcy Also. a bankruptcy creditor. The debtor is entitled to increase its registered capital through a private placement of additional ordinary shares. even though the rulings may be appealed. external administration. Supervision aims to (i) preserve the debtor’s property. the debtor itself. . Supervision Supervision is a provisional procedure which operates via a temporary manager. insurance organisations. reorganise their company structure or found subsidiaries. . Bankruptcy procedures Depending on the insolvent company’s circumstances. insolvent liquidation. Preliminary step: initiating bankruptcy proceedings As a general rule. place securities (excluding shares). The debtor is prohibited from setting-off (by counter claim) allocations of profits and dividends. five types of bankruptcy proceedings may apply: . a voluntary arrangement. The following are permitted to file an application with a court to have a debtor declared insolvent: . 2 Credit institutions. The debtor’s shareholders or third parties are entitled to repay the full amount of the creditors’ claims according to the creditors’ register. and (iv) hold the first creditors’ meeting. when a debtor’s aggregate liabilities are greater than the aggregate value of its assets. except for certain forms of governmentowned enterprises. a federal executive body authorised by the Russian Government. professional participants of securities market. supervision. introduces supervision and approves the appointment of a temporary manager (and the amount and source of his remuneration). the appeal process will not halt the execution of the court’s ruling. The Insolvency Law requires a debtor to initiate bankruptcy proceedings if one of the tests for insolvency (as outlined above) is met. . However it is not permissible to perform an increase in a company’s registered capital in order to cover losses. The debtor may not alienate or purchase shares. the debtor’s business is restricted as follows: . non-state pension funds. The court’s rulings must be executed immediately. Supervision commences when the court rules that a bankruptcy petition is well founded. 64 . Restrictions As of the date of the court’s ruling. (ii) analyse its financial status. . management companies of investment funds and mutual funds. and . At the same time Russian laws limit the bankruptcy procedures available to financial organisations2 by excluding financial rehabilitation and external administration. . Any property transactions which exceed 5% of the debtor’s balance sheet value and credit-related transactions are only permissible with the prior written consent of the temporary manager. . However. bankruptcy proceedings may be commenced against all types of legal entity. The court may also impose provisional measures alongside the bankruptcy petition. Creditors’ claims are to be submitted only through the creditors’ register. or . (iii) complete a creditors’ register.
but it will include at least: a financial rehabilitation plan. claim before a court that transactions made by the debtor are invalid. The powers of the administrative manager are generally similar to those of the temporary manager. In both circumstances the appointment is subject to court approval. Restrictions The following restrictions (and consequences) will take effect from the date of the court’s ruling on financial rehabilitation: . Termination of supervision Supervision is terminated on the date a court makes a ruling to that effect. (iii) revealing the identity of all creditors. (iv) calling the first creditors’ meeting. The proposal differs depending on the party applying. seek injunctions to preserve the debtor’s assets. Where the party filing the insolvency petition does not suggest an individual. a debt repayment schedule. or (iv) voluntary arrangement (as applicable). and (v) notifying creditors of the introduction of supervision. Financial rehabilitation This procedure aims to restore the debtor’s solvency and to schedule the repayment of debts. (iii) insolvent liquidation. The party filing the insolvency petition may suggest the self-regulating organisation and may also nominate an individual from that organisation. 65 Doing Business in Russia . The duties of the temporary manager involve (among other things) (i) preserving the debtor’s assets. among other actions. minutes from the general meeting of shareholders/participants authorising the decision. The temporary manager is entitled to. the temporary manager is nominated by the self-regulating organisation of insolvency practitioners. (iii) monitoring the debtor’s discharge of current claims. (ii) external management. Financial rehabilitation proposal A debtor or a third party can propose financial rehabilitation at the first creditors’ meeting. the court will make a ruling and introduce the next phase of insolvency proceedings at its own discretion. obtain documents relating to the debtor’s activities. Monetary and property claims are only to be submitted under the bankruptcy procedures. in the case of a debtor’s proposal. His key duties include: (i) maintaining a register of creditors’ claims. request a court to remove a director. and another stage of insolvency proceedings is entered into: (i) financial rehabilitation.Temporary manager The temporary manager is nominated from members of a self-regulating organisation of insolvency practitioners. (ii) analysing its financial state. The court will issue a ruling upon the decision of the first creditors’ meeting within seven months from the date of the bankruptcy petition. (ii) examining reports on the progress of the financial rehabilitation plan. If the creditors are unable to make a decision within the seven month deadline. an administrative manager will also be approved by the court. information on the security offered for performance of the debtor’s obligations under the debt repayment schedule. Financial rehabilitation may last up to two years and commences immediately upon a court’s ruling. and. Administrative manager When the court institutes financial rehabilitation on the basis of the decision of the creditors’ meeting. The role of the administrative manager predominantly involves monitoring. and (iv) enforcing the performance of guarantees. obtain information from the debtor. and challenge creditors’ claims.
any sale and purchase of the debtor’s property. manage the debtor’s property. Setting-off by counter claim(s). are all prohibited. . which is based upon the decision of a creditors’ meeting. The combined duration of financial rehabilitation and external administration may not exceed two years. (ii) property transactions exceeding 5% of the debtor’s balance sheet value. succession and borrowings. . Termination External administration will be terminated prematurely if the debtor discharges all creditors’ claims. . . and (iv) any decisions about its reorganisation and the foundation of subsidiaries. or the appointment of a new head of the debtor (when a settlement is made). The debtor must obtain the consent of a creditors’ meeting in order to perform the following: (i) interested party transactions. if it creates loss in comparison with other transactions. Among other actions.Corporate bankruptcy Previously introduced interim measures will be cancelled. Following the external manager’s report. Monetary and property claims (including mandatory payments) may only be submitted in accordance with the bankruptcy procedure. External administration This insolvency procedure intends to restore the debtor’s solvency and may last up to 18 months (with a possible six month extension). . the authority of the debtor’s general director is terminated and transferred to the external manager. External manager The court approves the appointment of an external manager when it makes a ruling on introducing external administration. The external manager’s authority is terminated as of the date of the court’s appointment of an insolvency manager (when the debtor is declared bankrupt). and . challenge creditors’ claims. Restrictions When external administration is introduced. the debtor’s management is afforded limited powers relating to transactions concerning capital and additional share issues and entry into specified major transactions (subject to creditors’ meeting consent). A wide-ranging moratorium is imposed upon creditors’ claims (excluding current payments). and the allocation of profits and dividends. when this transaction was not performed earlier in full or in part. the external manager is entitled to: . the alienation or purchase of shares or property. Similar to the situation under financial rehabilitation. the creditors’ meeting will adopt one of the following decisions by making a petition before the court: . . However. An administrative manager’s consent is necessary for transactions which increase the debtor’s level of indebtedness by more than 5%. This stage of proceedings commences upon a court ruling. 66 . comply with the external administration plan and report on compliance before a creditors’ meeting. (iii) issuing credit and guarantees. make a settlement on behalf of the debtor. challenge the validity of debtor’s transactions and any resulting associated damages before a court. refuse to perform a debtor’s transaction. interim measures which were introduced earlier will be cancelled. Penalties will not accumulate further (and they will relate to the last point of the indebtedness repayment schedule).
evaluate. Previous property attachments shall be removed and no further attachments are allowed. Third priority claims include all other claims (both secured and unsecured). If the court considers it to be justified. The court will evaluate the external manager’s report. (ii) any expenses related to the bankruptcy procedures (including the remuneration of employees and contractors). it will approve it and make a ruling on the introduction of the next stage of proceedings. and financial (or other) sanctions arising from a failure to fulfil monetary liabilities and mandatory payments (other than current payments) will be terminated. second and third priority claims. Consequences of winding-up The immediate effects of the liquidation include the following: . Monetary obligations and mandatory payments incurred by the debtor are deemed to be due. Current claims must be met before first priority claims. pool and arrange for a sale of the debtor’s assets. to make a settlement. This procedure can be instituted for up to six months (with a possible further six month extension). First priority claims include personal injury claims. (ii) the wages of the debtor’s employees. The principal role of the insolvency manager is to search. Second priority claims include: (i) severance benefits. . Interest will no longer accumulate. The insolvency manager must publish notice of the debtor’s insolvency within ten days of his appointment. to terminate the external administration on the basis that all registered claims have been satisfied. and to make settlements with creditors. . to extend the external administration. . to declare the debtor insolvent. Insolvent liquidation This procedure is designed to make a settlement of creditors’ claims through the sale of a debtor’s assets. Possible transition to external administration Where financial rehabilitation and/or external administration proceedings have not previously been instituted.. The priority order is certain “current claims” followed by first. The insolvency manager also dismisses the debtor’s employees. or . . . board of directors and meeting of shareholders/participants. Current claims include: (i) claims made before the bankruptcy petition was accepted. the creditors’ meeting may petition the court for a transition to the 67 Doing Business in Russia . Insolvent liquidation: order of priorities The Insolvency Law provides a specific priority order in which claims will be met. . and (iii) copyright royalties. The powers of the debtor’s general director and board of directors the will be terminated and vested in the insolvency manager. return. Information on the debtor’s financial state is no longer deemed to be confidential. The insolvency manager acts until the winding-up process or court procedures are completed. The insolvency manager assumes the powers of the debtor’s general director. to terminate the external administration on the ground that the debtor’s has been restored to solvency and to proceed with paying creditors’ claims. Insolvency manager The court appoints an insolvency manager when a ruling for insolvent liquidation is issued. and (iii) operational expenses. .
the Insolvency Law stipulates additional requirements.Corporate bankruptcy external administration procedure. According to the provisions of the new law. third parties and authorised bodies are all entitled to enter into a voluntary arrangement. The voluntary arrangement may only be instituted with the approval of the court. Liquidation (close-out) netting Federal Law No. creditors. 8-FZ dated 7 February 2011 implements liquidation (close-out) netting provisions to the Insolvency Law that becomes effective in August 2011. 68 . The transition will only be permitted if the debtor has sufficient property to pursue independent economic activity. and these must be backed by financial data. These criteria apply to domestic and cross-border transactions and agreements. Voluntary arrangement This insolvency proceeding may be applied at any stage of an insolvency. At the creditors’ meeting. the terms of the voluntary arrangement. stock exchange trading rules or clearing rules are terminated in accordance with the terms of these agreements or stock exchange trading rules or clearing rules. the decision to enter into a voluntary arrangement with the creditors or an authorised body must be approved. in order to terminate proceedings and to give effect to an agreement between the debtor and creditors. This leads to the determination of a close-out amount which is calculated in accordance with the terms of the relevant master agreement. An application for termination may be put forward by creditors and/or authorised bodies which hold at least a quarter of the value of creditors’ claims on the date the voluntary arrangement was entered into. prior to the date of revocation of its banking licence. If a master agreement is entered into. obligations under financial agreements that are concluded on the basis of master agreements. To do so. stock exchange trading rules or clearing rules and whose calculation can be made using close-out netting. in respect of credit institutions. or significantly violates. Prior to this Russian law did not recognise set-off (or netting) after the commencement of bankruptcy supervision. The debtor. grounds must exist to believe that the debtor’s solvency can be restored. The above rules are applicable to financial agreements concluded prior to temporary administration or prior to implementation of one of the bankruptcy procedures or. and only in respect of all creditors and/or authorised bodies. A voluntary arrangement can only be terminated by a court. The parties are entitled to file for the termination of the voluntary arrangement when the debtor defaults.
the legal framework has been adapted to include international immigration standards.g. In the field of migration legislation. the proposed veto on outsourcing and outstaffing at the end of 2010) and for the courts to interpret ambiguities in favour of the employee. The employer’s choice directly affects the legal status of both parties. as well as how they apply to foreign employees specifically. employee An employer can hire a person to perform specific work under a civil-law services contract or an employment contract.Employment General approach The Labour Code of 30 December 2001 (the “Labour Code”) outlines the main provisions applicable to employment arrangements in Russia. The main law regulating immigration issues in the country is Federal Law No. Formalising the employment relationship Independent contractor vs. 115FZ “On the Legal Status of Foreign Citizens on the Territory of the Russian Federation” dated 25 July 2002. 69 Doing Business in Russia . Below is a general description of the provisions as they apply to all employees. with the aim of easing the migration process in Russia. Over the past year there has been a growing general trend for the legislator to provide more thorough protection for employees (e.
A salary is to be paid at least in two instalments per month in roubles. The parties’ rights and obligations under the employment contract must comply with the minimum legal requirements. If engaged under a civil-law services contract. and . In this situation. deputy directors.400 (EUR 260).330 (EUR 108. however. If salary payments are delayed by more than 15 days. . or chief accountants. If a fixed-term contract is in breach of the Labour Code. as established by law and subject to a regional coefficient determined by agreement between the regional authorities and employers. an employee hired as part of a training programme (“stazhirovka”). When an employer hires an employee under an employment contract. The law provides for a limited number of situations when fixed-term contracts may be used. a court may declare the contract to be concluded for an indefinite term. an individual performs work for a customer (i. whilst those in a civil-law services contract are subject to the Russian Civil Code. or seasonal employees. .Employment Provisions in an employment contract are regulated by the Labour Code. the law imposes numerous duties on the employer. Employment contracts may contain additional terms and conditions. 1 At the notional exchange rate of RUB 40 = EUR 1. Employment contract The Labour Code stipulates that employment contracts must be concluded in writing and contain certain terms and conditions. the minimum monthly salary in Moscow has been RUB 10. temporary. 70 . such as probationary periods and confidentiality clauses. Salary An employee’s gross monthly remuneration must be a minimum of RUB 4. Duration Employment contracts may be concluded for an indefinite term or for a fixed term. For example. project-related. the court may determine that employment law is applicable to the civil-law services contract. in the event of a dispute the court may find that the civil-law services contract constitutes actual employment because of the nature of the parties’ relationships. the duration of a fixed-term contract may not exceed five years. duties. Even if the parties have agreed to act under a civil-law services contract. an employee replacing a temporarily absent employee.251). An individual employment contract must not result in an employee’s terms and conditions of employment being worse than the terms and conditions of employment stipulated under the overriding requirements of employment law. which is used throughout this guide. his “employer”) at his own risk. covering in particular the place of work. remuneration and a work schedule. the duration of employment (if applicable). the legislation will supersede the provisions of the respective employee’s contract. including the duty to provide the employee with social guarantees.e. This is one of the most significant differences between the two types of contracts. since 1 February 2011. directors. an employee has the right to suspend work upon written notification to his employer. otherwise. position. a commencement date. employees of companies created for a specific term and purpose. These include in particular the following: . .
Full material liability extends to all damage incurred by the employer because of the fault of the employee. it will be almost impossible to prove an employee liable in the event of disclosure. without reason. Probationary period An employment contract may provide for a probationary period. and it is limited to 120 hours in total per year. If an employee does not meet his employer’s requirements. Overtime is permitted upon the employer’s written request. For directors. an employer may conclude an agreement on full material liability with certain categories of employees. chief accountants. An employee’s material liability is generally restricted to compensation for direct damage caused to the employer’s property by his fault or negligence. branches or other divisions. and consequently sanctions may not be varied by an employment contract. deputy directors. A probationary period is not permitted for pregnant women. Liability Liability of the employee An employee who breaches his obligations under his employment contract may be subject to disciplinary sanctions or material liability. and/ or imprisonment for a period of up to three years. namely when an employee: 71 Doing Business in Russia . graduates and certain other categories of employees. Working hours and vacation A normal working week is 40 hours.000 (EUR 12. minors. directors of representative offices. as set in the employer internal regulations and relevant employment contracts. a ban from holding a management position for up to three years. Partial non-payment of salaries for over three months carries similar but lighter criminal sanctions. The Labour Code provides the following grounds for imposing full material liability. The Labour Code strictly regulates disciplinary sanctions. it must (i) incorporate a confidentiality undertaking in the employment agreement of each employee concerned and (ii) adopt a set of internal regulations specifying the procedures for processing and obtaining access to confidential information. deputy chief accountants.500). a longer probationary period may be established. the employer may terminate the contract with three-day prior written notification. however. In the absence of these internal regulations. The employee may also terminate the contract with three-day prior notice. Confidentiality obligation imposed on the employee Russian law does not impose a confidentiality obligation on employees. Irregular working hours entail the employee being periodically engaged in additional work with- out his written consent and upon the written request of the employer. providing a substantiated reason for terminating the contract. which must not exceed three months. This longer period may not exceed six months.Criminal sanctions may be imposed on the employing company’s officials if salaries are not paid in full for over two months. This liability is limited to the employee’s monthly salary. the employee is entitled to at least three additional days’ holiday during the year. If an employer wishes its employees to be subject to this type of obligation. The minimum annual paid vacation for all employees is 28 calendar days. Irregular working hours may be established for certain categories of employees. Sanctions may include a fine of up to RUB 500. It may not exceed four hours for two consecutive days. The additional work is not remunerated. However.
If the employer wishes to be compensated for damage. causes damage as a result of criminal actions for which he has been sentenced by a criminal court.e. records of the employee’s employment positions and grounds for termination of the employment contracts with previous employers. liability for breaching contractual obligations is established by law. with comprehensive protection. and/or . If the employer does not exercise its right within this time period. . Following this. cases. losses and moral damage are also compensated to the employee. sign and stamp a labour book (“tru dovaya knizhka”) for any employee who works for more than five days with the same employer. it must (i) compensate the employee for all damage and loss and (ii) bear administrative or criminal liability. Punishment under Russian criminal law is usually imposed when the violation is either gross or entailed. the employer is obliged to enter into an employment contract with any foreign national and follow all rules and procedures resulting from their employment relationship. serious injury or death. in practice.000 (EUR 750 to 1. Specifics of hiring foreign nationals If the employee is a foreign national. Therefore. as legislation is designed to provide an employee. Liability is two-sided: if the employer commits a single violation. the employer must enumerate the amount and causes of the damage inflicted within one month of the alleged damage having occurred. In essence. Liability of the employer The range and scope of an employer’s liability is relatively wide. i. 72 . . The employer is liable for violating contractual obligations which are statutory requirements. In certain . or could have entailed. damage may be recovered only upon voluntary consent of the employee or by legal proceedings. (ii) Depending on the seriousness of the breach. (i) The employer must compensate all damage incurred by the employee in full. the employment contract and other required documents may only be signed once the steps described in the “Specifics of employing for eign nationals” section below have been completed. However. causes damage outside of his work duties. divulges confidential information.000 to 50.Employment fails to protect valuable items entrusted to him as confirmed by signed documents. Labour book Russian employment law requires employers to keep. . The labour book includes. labour laws apply to foreign nationals to the full extent as provided by the Labour Code.250) or administrative suspension of the company’s activities for up to 90 days. . not by the parties. drug or other intoxication. It must request from the employee a written explanation of the cause of the damage. the latter sanction is rarely imposed. causes damage via an administrative offence as determined by the relevant state body. among other things. as the weaker party in the employment relationship. the employer will be administratively or criminally liable. . it must follow a specific procedure. intentionally damages property. causes damage when in a state of alcoholic. The Code on Administrative Offences provides for a penalty of RUB 30.
Women with children under the age of three years may be engaged in the above types of work only upon their written consent and provided that no medical certificate prohibits a particular employee from performing these types of work. The employer is responsible for paying the various maternity related allowances provided for by law and then sets off the relevant amount against payroll contributions. Sick leave When an employee is on sick leave. business trips. overtime. sick leave. and the requirements they contain are obligatory for each employee. working and rest time. his employer is required to pay his salary for the first three days of absence. These records may be checked by the Labour Inspectorate at any time. non-fulfilment or inadequate fulfilment by an employee of his duties) may result in the fol- 73 Doing Business in Russia . they may not be dismissed on the grounds of a staff reduction. irrespective of the actual number of days used before the child’s birth. provided the employee has submitted a medical certificate in the required form. This allowance is calculated on the basis of the average monthly salary over a period of two years and is capped at a certain amount. Moreover. If.Managing employment relationships Internal regulations Any organisation whose employees work in Russia must adopt a set of internal regulations. overtime. during days of rest or holidays and may not be sent on business trips. The employer is required to pay this allowance and then sets off the relevant amount against payroll contributions.e. etc. the employee is entitled to a temporary disability allowance. salary. The same rules apply to foreign nationals when they meet certain requirements concerning their migration status. This provides for a period of disability equal to 140 days that is used by the employee summarily. Maternity leave may last up to three years and can be used by the mother or the child’s relatives at any time during this period. employees’ liability. the Labour Inspectorate finds that the requirements of employment law have been violated. in the course of an inspection. This right arises upon presentation of a medical certificate. etc. Maternity leave An employee who gives birth is entitled to 70 days’ leave prior to and 70 days’ leave after the child’s birth. pregnant women and women with children under the age of three years are entitled to an extensive number of benefits and privileges under employment law. pregnant women may not be required to work a night shift. Disciplinary sanctions Non-compliance with work discipline (i. In general. i. HR paperwork and inspections of the Labour Inspectorate An employer is obliged to maintain a significant amount of records and supporting documentation relating to employees’ holidays. From the fourth day of absence. promotions. which may be issued starting from the 30th week of pregnancy. These regulations complement the conditions set out in each employee’s employment contract. In particular. Internal regulations deal with the rights and obligations of the employer and employees.e. behaviour. bonuses and benefits. it may impose fines on the employer.
if an employee refuses to continue working because of a change in the ownership of the company (employer) or its reorganisation (this only applies in relation to certain high executive positions).g. Terminating an employment contract An employment contract may be terminated: . If there is a staff redundancy. The reforms have also rendered the sanctions applicable to the breach of the regulations more stringent. The employer must notify each employee in writing at least two months in advance. using these grounds for termination should be approached with caution. Disciplinary sanctions may be imposed no later than one month after the time the employer had. However. at any time by mutual agreement of the parties. Unsuitability must be confirmed by an internal committee review.Employment lowing disciplinary sanctions being applied: a warning. . registration and employment of foreign nationals in Russia has been amended over the last few years. Citizens from the following countries of the Commonwealth of Independent States are exempt 74 . When there is staff redundancy or the employer is liquidated. the employer must offer . . by an employee unilaterally providing two weeks’ written notice. employees all available vacancies which correspond to their qualifications. ambiguous. However. if an employee refuses to continue working because he is relocated together with the employer. when the term of the employment contract expires. because of circumstances beyond the reasonable control of the parties. When an employee is found to have presented false documents during the hiring process. When an employee systematically fails to fulfil his employment duties without reason or commits a single gross violation of his duties. in any event. or upon the initiative of the employer (as discussed below). These amendments are part of a broad reform officially intended to simplify (e. Failure to comply with it renders the sanction invalid. the introduction of a simplified work regime for highly qualified specialists in July 2010) and regularise the status of foreign nationals working in Russia. no later than six months after the breach was committed. The Labour Code regulates the procedure for imposing disciplinary sanctions. Russian migration law today is complex and. or . . at times. or should have had. The employer may terminate the employment contract based on a limited number of grounds specifically listed in the Labour Code as follows: . When an employee is unsuitable for an employment position. official reprimand or dismissal on corresponding grounds established by law. knowledge of the breach and. because employees have a good chance of successfully challenging this type of dismissal in court. . as a result. . . Specifics of employing foreign nationals Russian migration law on the stay. The Labour Code requires severance pay to be remitted in certain circumstances. Visas for foreign employees Foreign nationals must apply for a visa.
negotiations. The visa may be exchanged for a oneyear multi-entry work visa once the individual is in Russia. Work visas Work visas apply to foreign nationals who intend to conduct professional activities in Russia. Types of visas There are five categories of visas: ordinary. private. countries of origin and other economic and social criteria. Examples of these activities include business trips. The employer must be registered with the Federal Migration Service (the “FMS”) to be permitted to issue invitations to foreign employees. Foreign nationals who obtain Russian business visas are not allowed to undertake any type of work activities in Russia. Procedures relevant to an employer An employer who recruits foreign employees in Russia has to comply with the following procedures: Quotas All legal entities wishing to employ foreign nationals must apply by 1 May each year for a quota of foreign employees who they may employ (except for those employers who hire high qualified specialists). transit. General authorisation for the recruitment of foreign nationals Any employer intending to recruit one or several foreign nationals must obtain prior general authorisation to recruit foreign employees from the FMS. 75 Doing Business in Russia . There are seven subcategories of an ordinary visa: business. student. as well as different professions. asylum and humanitarian. Tajikistan. Kyrgyzstan. tourist. This requires a work visa. The process of obtaining a work visa usually takes from eight to twelve weeks. Belarus. This quota differs between regions. official. For this purpose. work. The family members of a workvisa holder may obtain visas of the same category marked “accompanying person”. and it expires on the same date as the principal holder’s visa. Foreign nationals with multi-entry business visas can stay in Russia for only up to 90 days within a period of 180 days.from Russian visa requirements: Armenia. Kazakhstan. market studies and preparations to establish a company in Russia. which is not applicable to highly qualified specialists (please see separate section below). Individual work permits Once general authorisation for the employment of foreign employees has been obtained. Moldova. different categories of employees. diplomatic and temporary residence. This visa does not entitle a family member to work in Russia. Uzbekistan and Ukraine. The registration is valid for one year and can be renewed. A foreign national must first obtain a single-entry visa that is valid for up to three months. Work visas are issued only after the employer has received general authorisation to recruit foreign nationals and a quota of foreign persons who may be recruited. The most important types of visa for companies are considered below. the employer must justify the use of foreign employees. Azerbaijan. The quota allocated to each legal entity depends on the general quota set each year for all foreign employees. Business visas Business visas are intended for foreign nationals who wish to conduct short-term and temporary business activities in Russia. Each foreign employee must also be granted a work permit (please see below).
30 consecutive days over the period of validity of a highly qualified specialist work permit. It also applies to highly qualified specialists. and . Foreign nationals staying in Russia or travelling to another Russian region for less than seven working days. who are not staying in a hotel or in “a hotel like residence”.Employment the employer must apply for a work permit for each employee. Highly qualified specialists On 1 July 2010. Heads of State. the timeframe in which the registration procedure with the FMS must be completed was increased from three to seven working days on 25 March 2011. The spirit of the new law provides that the employment of highly qualified specialists is supported by the Russian Government. This applies to a foreign employee with professional skills. It comprises the following principles: . . a simplified procedure has been introduced to obtain a work permit and a work visa when recruiting a highly qualified specialist. In addition. train or aircraft crew members are exempt from the procedure under certain conditions. a work permit may be obtained within 14 working days and the employer is exempted from fulfilling a significant number of formalities (getting a quota. . a total of ten days over the period of validity of a general regime work permit. Ship. including unpaid and temporary work.167) per month. For all other foreign nationals. members of parliamentary or governmental delegations. Different rules apply to foreign nationals who hold temporary or permanent residence permits. the duration of foreign employees’ business trips is regulated as follows: . Once the foreign specialist has been in Russia for 90 days. The FMS must be notified of arrivals and any travel within Russia. As a consequence. Notifications There is a notification procedure which must be followed by foreign nationals and their employers. general authorisation to recruit foreign employees). Annual remuneration paid to a highly qualified specialist must be at least RUB 2 million gross (EUR 4. A highly qualified specialist and the members of his family are allowed a period of 90 days from the date of entry into Russia during which they are not required to register with the migration authorities. a new category of foreign employee was introduced. entitled “highly qualified specialist”. . heads of diplomatic missions. heads of international organisations (and family members of these persons) are exempt from the notification procedure. insofar as the amount of taxes paid to the budget on the basis of their remuneration is very beneficial. he is required to be registered at his place of residence. knowledge and the proper qualifications in a specific area. Accordingly. Business trips within Russia A foreign employee is only permitted to go on business trips outside the Russian region(s) in which his work permit is valid if his position is included in a list contained in officially published orders of the Ministry of Health and Social Development. 76 . A work permit is required for any foreign national who wishes to perform any “work activity” in Russia. are exempt from the notification procedure. .
e. 77 Doing Business in Russia . Sanctions for violating migration requirements An employer risks a fine of up to RUB 800.000 (EUR 20.000 (EUR 1. less restrictive business trip rules (as mentioned above). etc.250). The employer’s officials may be liable to fines of up to RUB 50. A foreign employee can also be fined up to RUB 5. and may be deported.000 (EUR 125).g. a work permit is valid for up to three years.000) or the suspension of its activities for up to 90 days for failing to comply fully or in part with the relevant procedures. a work permit is valid for multiple Russian regions. the law sets out other advantages and exemptions with respect to employing highly qualified specialists. whereas an ordinary work permit is only valid for one year.Apart from this.
101-FZ “On the Tradability of Agricultural Land” dated 24 July 2002 (the “Law on the Tradability of Agricultural Land”). Part IV dated 18 December 2006 (the “Civil Code”).Real estate and construction The adoption of the Land Code in October 2001 ended the legacy of state ownership of land and established the right of private land ownership in Russia. Federal Law No. Key legislation regulating the property and construction market in Russia includes: . ownership rights to a land plot (freehold). . . . and Federal Law No. the right to lease a land plot (leasehold). Civil Code of the Russian Federation: Part I dated 30 November 1994. Federal Law No. 122-FZ “On the State Registration of Rights to Immovable Property and Transactions” dated 21 July 1997 (the “Law on State Registration”). . Town Planning Code dated 29 December 2004 (the “Town Planning Code”). Part II dated 26 January 1996. . 102-FZ “On Mortgage (Pledge of Immovable Property)” dated 16 July 1998 (the “Law on Mortgage”). Part III dated 26 November 2001. Land Code dated 25 October 2001 (the “Land Code”). and . Contractual aspects Rights to land The Land Code provides for two basic types of rights to land plots: . 78 .
public land may be disposed of by municipal authorities who are authorised to act as landlords in lease agreements. such as. Registration involves filing the sale and purchase contract and other related 79 Doing Business in Russia . foreign nationals and legal entities now enjoy the same rights to land as Russian individuals and legal entities. Both procedures require the submission of certain documents to a single state body. whereas the sale and purchase contract itself does not have to be registered. Failure to comply with this requirement can lead to any land transaction connected with that land plot being declared null and void. at times. State ownership means that land may be owned either by the Russian Federation or its regions. The same rule applies to Russian legal entities. Public and private ownership of land Real estate (including land plots) in the Russian Federation may be owned publicly or privately. Consequently. Foreign investors may only acquire leasehold (not freehold) interests in agricultural land (under the Law on the Tradability of Agricultural Land). subject to certain restrictions for foreign investors (see below). Cadastre and Cartography or its regional/local departments (the “Registrar”). and can be sold by an agency of the federal government or a regional or a municipal agency. The transfer of ownership rights to land plots must be registered in the Unified State Register of Rights to Immovable Property and Transactions (the “Register”). Any legal entity or individual may own private real estate in the Russian Federation. both at the federal and regional levels. and to ensure that it is still marketable. Acquisition of land plots The sale and purchase of land plots for construction is permitted. provided that the publicly or privately owned land plot has first been allocated a cadastral registration number and has been registered as freehold. allocate land plots for construction and act as the seller during the privatisation of public land. confusing. Legal entities with rights of permanent perpetual use will be penalised if they fail to convert to lease or freehold rights before 1 January 2012. the right of permanent perpetual use to land. . The maximum duration of these leases is 49 years. Pending completion of this. However. Sale of land Acquisition of interests in land by foreign investors Generally. they may lease or purchase land for use or for construction. among others. The process of delineation was complicated and. the following restrictions apply: . i. Substantial areas of land in Russia (particularly in Moscow) have always been stateowned. or other specially designated territories (under the Land Code). The right of permanent perpetual use to land could only be granted to state. or the right of inheritable use. the delineation of state-owned and municipal land plots was regulated by several acts. the Federal Service for State Registration. municipal or other public enterprises or to municipal authorities. It has been clarified by the Land Code and further clarification is ongoing. Public real estate may be owned by the state (both federal and regional levels) or by municipalities. Until 2001 (when the Land Code was adopted). Foreign investors may not own land in border territories.e. if foreign participation in the charter capital exceeds 50%.Russian land legislation which pre-dated the Land Code also provided for other types of land rights.
the owners of buildings situated on it generally have exclusive rights to privatise the land plot. the Land Code allows leasehold rights to a land plot to be sublet. Term Russian legislation places no general limit on the term of a lease. Unless otherwise provided for in the lease agreement. In this case. The maximum permitted term for a lease of coastal land is 20 years. the Land Code also gives a landlord a specific ground for terminating a lease which has been 80 . Termination The Civil Code gives both a landlord and a tenant the right to terminate an agreement unilaterally. Leases The following may all lease property in Russia (subject to certain restrictions): (i) Russian and foreign nationals.Real estate and construction documents with the Registrar. using land in a way that is inconsistent with its category and permitted use. and appropriation by the state. Assignments As a general rule. The Civil Code provides that. as evidence of the transfer of ownership rights. If a land plot is under state or municipal ownership. among others. For example. and (iii) state and municipal authorities. In the latter case. Rights to a building may only be assigned together with the rights to the land underneath it. is where a lease agreement is for a state or municipal land plot for a term of less than five years. a tenant must obtain the landlord’s consent. By 1 January 2012. provided that they follow a set procedure. given in the Land Code. Any lease agreement concluded for a term longer than one year is subject to obligatory state registration. both in-court and out-of-court procedures may be provided for. assigned. the lease is deemed to have been concluded for an indefinite period. An exception to this. parts of buildings may be assigned separately from the land on which they are situated if it is impossible to separate the respective part of the land plot. a pre-emptive right to purchase the same land plot). The lease may be terminated by either party serving notification at least three months in advance. In relation to state or municipal land. However. certain limits exist on leases for specific types of property. A basic principle of the Land Code is the unity of rights to land plots and buildings. These include. The Land Code stipulates additional circumstances according to which a landlord may terminate a lease. either in the limited number of situations stipulated by the Civil Code (via court procedure) or in the lease agreement itself. The Land Code prohibits the assignment of land without the buildings and structures standing on it. the maximum permitted term for a lease of agricultural land or forest land is 49 years. In exceptional cases. Owners of buildings located on a land plot other than their own generally enjoy a preemptive right to purchase the land plot. (ii) Russian and foreign legal entities. mortgaged or contributed to the charter capital of a company. and do so within the period stipulated by law. these transactions may be entered into without the consent of (but subject to the notification of) the landlord. or if there is a restriction on the sale and purchase of the land. where a lease agreement does not stipulate the term. the owners of certain categories of buildings located on state or municipal land plots may privatise their land plots at privileged prices. on the sale of land. or a preferential right to lease it. A tenant has a preferential right to conclude a lease of the same land plot for a new term (and.
Sale of buildings.e. and . the courts may force the defaulting party to enter into the Main Agreement. it is believed to be true and overrules any other evidence. Therefore. Commercial leases of buildings and premises To ensure regulated relations with tenants. rights to a building are subject to state registration. entering into a binding lease in the future. meaning a certificate of ownership is prima facie evidence: i. a Preliminary Agreement must clearly determine its subject matter. properly describe the real estate object. a building starts to exist legally only from the moment of its state registration). All of the above documents are subject to Russian law and governed mainly by the Civil Code. until a court decision proves otherwise.). the subject matter of the landlord’s relations with the tenant under the Preliminary Agreement comprises various obligations (such as preparation of the building/premises for their further use in accordance with the landlord’s requirements. the building/premises cannot be leased). long-term lease agreement (the “LTL”). may be requested only by the owner of the relevant objects. Moreover. The concept of a preliminary “agreement to agree” exists in Russian law (as it does in many other continental countries). or premises located in it. 81 Doing Business in Russia . certain information relating to a chain of transactions on the transfer of rights. state registration is the only confirmation of the rights. However. Rights to a building do not come into effect until they are registered with the state (i. early. In order for it to be valid. If a tenant commits a material breach of the terms and conditions of such a lease agreement.e. the landlord may apply for a court order enabling it to terminate the lease unilaterally. Preliminary lease A Preliminary Agreement is executed to regulate relations between the landlord and the tenant before a building is fully built and title is registered in the Register. . may be formally entered into (i. etc. Rights to buildings Ownership certificates and other information According to current legislation. Prior to the state registration of a building’s title. landlords in Russia usually enter into the following agreements: preliminary (or use) agreement (the “Preliminary Agreement”). short-term lease agreement (the “STL”).concluded for a term of more than five years. and establish all the material terms and conditions of the main lease agreement to be entered into (the “Main Agreement”). structures and premises The sale and purchase of buildings. as well as information about the number of properties owned by a certain person. Parties to a Preliminary Agreement should determine a timeframe within which the parties must enter into a Main Agreement. If the parties fail to enter into the Main Agreement within this time the Preliminary Agreement will terminate. . if the failure was caused by one of the parties. structures and premises is subject to the same rules as those on land plots (Please see the Sale of land section on page 79). no transaction regarding the building itself. Only a court decision can overrule state registration and a respective certificate of ownership. it has not been widely tested in the Russian courts. However. However. Any member of the public may receive general information about a building in the form of an extract from the Register for a small fee.e.
it has no longer been possible to privatise buildings. The owners of buildings located on these land plots may buy out the plots by 1 January 2012. As mentioned above. in accordance with the Civil Code and the Law on State Registration. transactions involving property rights including mortgages and the assignment of these rights. a building owner has exclusive rights to obtain freehold or leasehold rights to a publicly-owned land plot on which the owner’s building stands. During privatisation. An LTL is only valid upon state registration in the Register. rights to property which arose before the Law on State Registration came into force (January 1998) are valid even if they are not registered.Real estate and construction Long-term lease (LTL) An LTL is a lease agreement which lasts for at least a year. there are no restrictions against this in either the Land Code or the Civil Code. It requires mortgages over the completed buildings and the underlying land be granted simultaneously. Privatisation Since 30 October 2001. may also be mortgaged. Both freehold and leasehold rights to land and buildings may be mortgaged. Rights of ownership to land and buildings. Mortgages A security interest over land or other real estate objects is generally created through a mortgage agreement between parties. the building owner must pay a buy-out price for the land to municipal authorities. If utility lines are located on the land plots. structures or industrial objects without simultaneously privatising the underlying land. It usually duplicates the terms and conditions of an STL (except for the duration and a few other provisions). and is between five and thirty times the amount of annual land tax payments. Rights requiring state registration are only enforceable against third parties once registered. Registration of property rights and preexisting ownership rights The Registrar is currently responsible for the state registration of property rights. they may be bought out by 1 January 2015. and long-term leasehold and sub-leasehold rights (both for a period of at least one year) are subject to state registration. The terms and conditions of a mortgage are governed by the Law on Mortgage. As the term of an STL is less than one year. Information from the Register is publicly available. Both agreements are simultaneously signed after state registration of the title to the building in the Register. including residential buildings and apartments. An STL is a lease agreement executed for a period of less than one year. Short-term lease (STL) In order to legally occupy the building while the LTL is being registered. The building owner is free to choose whether to acquire leasehold or freehold rights to the land plot. an STL is usually entered into. Registered property rights are entered in the Register. the enactment of legal norms banning allocation of the state and municipal land plots for construction purposes was postponed until 1 January 2012. largely depending on the location of the land plot. In early 2010. the time period for the buy-out of municipal and state land plots at a preferential price was extended. It therefore requires only the signatures of the parties to be binding. However. The buy-out price depends on the cadastral valuation of the land plot. Rights to buildings and parts of buildings. At the end of 2009. 82 . it does not require state registration.
land of settlement. There are two methods of enforcement: (i) through the courts. If a mortgage agreement is not registered in this way. land containing specially protected areas and objects (e. It is possible to build warehouses. the most suitable categories for development and commercial construction are industrial land and land of settlement. However. As mentioned above. communication. where the property is acquired or constructed using funds borrowed from the creditor. when agricultural land is being privatised. . anti-monopoly control will apply if the net value of the property that is the subject matter of a real estate transaction (or a series of related transactions) exceeds 20% of the net value of the assets of the seller. resulting in the secured property being sold at a public auction. either the prior consent of. and . under Federal Law No. the Federal Anti-monopoly Service will be required (please see the Antimonopoly issues chapter on page 49). it is null and void.g. 381FZ “On State Regulation of Trade Activities in the Russian Federation” dated 28 December 2009. land near water. transport. the acquisition of land or other immovable assets is not subject to antimonopoly control. . agricultural land. the mortgagor may enforce the mortgage. radio translation. Planning and construction issues Land plots are assigned to a land category and a permitted use in order to optimise utilisation of different plots of land. Furthermore. nature parks). Real estate acquisition and antimonopoly control As a general rule. Russian regions enjoy pre-emptive rights of purchase. Mortgage agreements only come into effect upon registration in the Register. forest land. Essentially. but may only obtain lease rights. food retailers with a market share in a given locality exceeding 25% are prohibited from acquiring or leasing additional outlets there. energy production. foreign investors (including companies and individuals) may not own agricultural land. Land categories In accordance with the current Land Code. 83 Doing Business in Russia . . Residential as well as commercial property is generally mortgaged by virtue of law in favour of a creditor. For example. depending on the land category. Specific provisions may apply. as do municipal authorities. land in Russia is divided into seven land categories (each with a designated prescribed use): .If a significant breach of a secured obligation occurs. . commercial buildings and production facilities on land plots within these categories. in the situations provided for by the relevant regional legislation. industrial land (for the purposes of industry. or a post-transaction notification to. . or (ii) under an out-of-court enforcement agreement between the mortgagee and the mortgagor. cosmic activities. defence and other special purposes). Depending on whether certain asset value or revenue thresholds are exceeded. Agricultural land that is not used in accordance with its designated prescribed use may be taken from its owner by a court decision. television. reserved land.
there are grounds to suggest that it may be prolonged again. no new development will be allowed in these settlements. After that date. the regional authorities may change a plot’s land category from “agricultural” to “industrial” (e. the time limit has already been prolonged several times. in adherence with the recent changes in the Town Planning Code. for the allocation of a warehouse complex) subject to a number of obligatory procedures. and (iii) rules for land use and development that establish territorial zoning and describe in detail what may be done in each territorial zone of each urban settlement. land plots in the Russian Federation are assigned a “type of permitted use”. including: (i) regional and municipal territory planning documents that establish the boundaries of various development zones in large territories. this is done at regional level if no town planning documentation has been adopted. Each land category has different conditions for the use of land. As soon as the general plan of a settlement is adopted. a strict procedure must be followed in order to change the type of permitted use. The type of permitted use characterises a land plot in accordance with territorial zoning and establishes the specific use of a certain land plot. For example. such as “red lines” and protection zones. Changing the category of forest land or land near water is more complicated (as it involves federal authorities) and strictly regulated. The owner of a land plot may change the type of permitted use at its own discretion according to the adopted town planning documentation (general plan of the settlement and the rules of land use and development). For example. This is done at municipal level. including public hearings. A land plot may be assigned the category of land of settlement only when annexed to the territory of this settlement (included in the borders of settlement).Real estate and construction Permitted use of land Along with a designated prescribed use and zoning. Each settlement must adopt a general plan and rules on land use and development before 31 December 2012. 84 . Again. Town planning framework The current federal Town Planning Code adopted in 2004 (and revised a number of times since then) stipulates that each urban settlement must adopt city planning documents. therefore. the relevant change procedure requires the general plan of the settlement to be amended. Legislation provides an exhaustive list of circumstances in which there may be a change of category in these cases. The town planning documents establish territorial and functional zoning of the settlement territories and indicate existing town planning limitations. However. Where town planning documentation is not adopted. Change of land category and permitted use It is possible to change the category of a particular land plot. and the Land Code requires that each plot is used only in accordance with the applicable category and established type of permitted use. Construction planned for any new development must comply with the prescribed town planning limitations and zoning. the construction of a large shopping mall in a recreational zone would not be permitted.g. (ii) city general plans that set out the boundaries of various functional development zones within individual urban settlements.
several construction permits may be issued regarding one development project: (i) construction permit for the preparatory works (for organisation of the construction site). Latest trends Reform of the Civil Code At the end of 2010. . designing buildings and structures. If someone constructs a building on a land plot over which it has no rights. the applicant must carry out all preparatory work on the land. a relevant state authority carries out preparatory work (i. Land for construction may be obtained from the state or from the municipal authorities under either of the following two procedures: . This is likely to be the more common scenario. . the Town Planning Code provides that a construction permit may only be obtained by someone with rights (freehold or leasehold) to the land plot. If the building is built in phases then. together with authorisation for a construction site. Licences As of 1 January 2010. In practice. Once the preparatory work is completed. constructing buildings and structures. First. the Supreme Arbitration Court of Russia published extensive draft amendments to the Civil Code on its website. engineering and surveying for the purpose of erecting buildings and structures. it determines the boundaries of the land plot and registers the land plot if necessary). mortgages and possession. a construction permit will be issued for each construction phase. the building may be declared to be an “unauthorised construction” by the courts. the area of the constructed building and the name of the developer. The state authority decides whether or not to issue preliminary authorisation for a construction site (its decision is valid for three years). it sells the land plot or the right to lease the land through an auction. membership in self-regulated organisations has fully replaced licensing for the following construction and design activities: . In addition. and demolished. A valid construction permit is one of the documents required to commission the constructed building. Both Russian and foreign nationals or legal entities interested in obtaining land for construction may apply to the relevant authority for the allocation of a land plot. Alternatively. A construction permit is a formal document confirming that the design documentation meets compulsory normative requirements. Construction permits Construction is allowed only on the basis of a construction permit. state authorities issue permanent authorisation for a construction site. and . Any refusal to allocate land may be appealed against in court (subject to certain restrictions). provided that construction phases are stated in the design documentation. new proprietary rights 85 Doing Business in Russia .Acquisition of public land for construction The Land Code stipulates a specific procedure for making public land available to individuals and legal entities for construction purposes. In line with the principle of unity of rights to buildings and land plots. Subsequently.e. indicating the phase number. If preliminary authorisation is given. an interested party applies to the appropriate state authority for a land plot. Some of these amendments relate to construction development rights. A construction permit indicates the time period of construction works. and (ii) main construction permit for the building construction.
Real estate and construction
regarding real estate objects are due to be introduced and the list of limited proprietary rights will be clarified. The right of development The most important innovation of the proposed reform concerns the right of development (“pravo zastroyki”). Under current Russian law, an individual or a privately-owned company that builds on a land plot must have rights to the plot (i.e. either own or lease it). If enacted, the right of development will enable an individual or a privately-owned company (developer) with a right of permanent possession and use of a land plot to build or construct on this land plot, although it belongs to somebody else. These rights will be provided under: (i) an agreement establishing the right of permanent possession and use; and (ii) an agreement establishing the right of development. The owner of the land plot will be entitled to receive payments under these agreements. Several rights of permanent possession and use, and accordingly the right of development, may be created in relation to a single land plot. A developer will be required to pay the land plot’s owner separately for the right of permanent possession and use, and for the right of development provided to it under the respective agreements. The term of these agreements must be not less than 50 years. The payment amount may be changed only once every ten years. The developers are entitled to mortgage the right of development and the right of permanent possession and use. Mortgages Currently, the Civil Code contains only general principles concerning mortgages. However, according to the draft amendments, a new chapter will be added to the Civil Code, entitled “Mortgages”. The draft chapter provides for the priority of a mortgage, depending on the order of state registration of relevant mortgages. The draft chapter also introduces a new type of mortgage: “independent mortgage”, under which a mortgagee is entitled to choose which obligation of the mortgagor will be secured against the independent mortgage. The mortgagee must notify the mortgagor of this. An independent mortgage comes into effect once it is registered in the Register. Its duration may not exceed 30 years. Technical regulation on the safety of buildings Technical regulations in relation to goods and services have been reformed to bring Russia’s laws in line with the requirements of the World Trade Organisation. In particular, Federal Law No. 384-FZ “On Technical Regulations on the Safety of Buildings and Structures” came into force in the middle of 2010, establishing specific safety requirements in relation to a variety of risks faced when operating buildings and structures (for example, fire). In addition, two sets of legal technical regulations in Russia have been introduced, one based on Russian standards and the other on foreign standards, depending on the respective applicant’s choice. To apply the foreign standards, the applicant must ensure that they have been registered in the federal unified data system in the field of technical regulation.
Over recent years Russia has demonstrated it is willing to reinforce its efforts to combat the infringement of intellectual property rights. Negotiations regarding Russia’s accession to the Word Trade Organisation have encouraged Russia to adopt legislation matching international standards for the protection of intellectual property rights, including providing for criminal prosecution for breaches of intellectual property rights. International standards Russia is party to a number of the most important international treaties and conventions on intellectual property issues, including: . . . . . the Convention establishing the World Intellectual Property Organisation; the Universal Copyright Convention; the Berne Convention for the Protection of Literary and Artistic Works; the Paris Convention for the Protection of Industrial Property; the Madrid Agreement on the International Registration of Marks and the Madrid Protocol thereto; the Singapore Treaty on the Law of Trademarks; the Nice Agreement on the International Classification of Goods and Services for the Purposes of the Registration of Trademarks; the Patent Co-operation Treaty;
Doing Business in Russia
. the Locarno Agreement Establishing an International Classification for Industrial Designs; and the Geneva Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms.
Rights over the results of intellectual activity and means of individualisation
General provisions of the Civil Code Part IV of the Civil Code gives an exhaustive list of the rights over the results of intellectual activity and protected means of individualisation. It also stipulates some general requirements concerning their use and disposal. These are explained below. General use and disposal requirements Licence agreement A licence agreement grants the right to make use of means of individualisation or a work which is under copyright, patent or other intellectual property protection within the limits set out in the agreement. Under the Civil Code the licence must set out the following information: . its duration; . the territories for which the licence is granted; and . the ways the licensed object may be exploited. The licence may be granted on an exclusive or non-exclusive basis. The agreement must fix the amount of remuneration (royalty payments), or the pricing methods, in order to prevent any disputes or litigation as to the price of the licence, which is always presumed to be “onerous”, unless provided otherwise. Remuneration may take the form of a lump-sum fixed in advance and delivered as a single payment, or as periodical royalties, or as a percentage of income. Government decrees have fixed the minimum amount of remuneration for certain types of work. The Civil Code permits the use of shrinkwrap licences for software and databases which may be granted to each user (i.e. where
General legal framework Civil Code The need to ensure consistency in the regulation of different intellectual property issues has led to the adoption of Part IV of the Russian Civil Code. This codifies the existing regulations concerning intellectual property rights and has also introduced some new provisions and principles. Part IV of the Civil Code came into force on 1 January 2008 and replaces previous legislation regulating intellectual property rights, including the copyright law, the trademark law, the patent law and the software law. Part IV of the Civil Code includes an exhaustive list of the rights to the results of intellectual activity and protected means of individualisation. It also stipulates some general requirements concerning their use and disposal. Also, as President Medvedev has recently initiated a revision of the Civil Code, we anticipate 2011 to be a year of further developments and continued progress in intellectual property regulation. Other In addition to Part IV of the Civil Code, certain intellectual property issues are regulated by orders of the Federal Service of Intellectual Property, Patents and Trademarks (“Rospatent”). Rospatent is subordinated to the Ministry of Education and Science and is responsible for the registration of intellectual property rights to trademarks, patents and, in some instances, to software.
State registration of contracts If the work or means of individualisation are subject to state registration. type or mode of expression of the work. the right to import or export originals. Neighbouring rights Neighbouring rights cover the creation and use of performances. According to the Civil Code. the right of demonstration to the public. and . The holding and the exercise of neighbouring rights is not subject to any mandatory registration formalities. Infringement of copyright carries civil. they risk being declared null and void. Rights over the results of intellectual activity Copyright and Neighbouring Rights Copyright Copyright covers scientific. the right of distribution. criminal and/or administrative liability. Contracts for the assignment of exclusive rights Unlike a licence agreement. then the licence.the conditions of the licence are provided for on the wrapping of the CD (or other vehicle of delivery) and the first use of the software or database by the consumer means they agree to adhere to the conditions of the licence). phonograms. Failing that. The rights enjoyed by holders of neighbouring rights may be granted by virtue of a licence agreement. the right to preserve the integrity of the work. the right to the name. cable distribution organisations. . Copyright protects both disclosed and undisclosed works. the right of publication. There are no registration requirements. as well as moral rights for the author of the work. any assignment contracts and any pledge contracts (as expressly provided for by the Civil Code) usually also require registration. The holder of neighbouring rights is the performer of phonograms. the right to provide access to the work by any means of telecommunication (including the Internet). or a contract for the exclusive assignment of rights. . 89 Doing Business in Russia . this type of contract provides for a total assignment of the exclusive property rights to that intellectual property. Chapter 70 of the Civil Code gives an author certain rights over his creations. Under the Civil Code performers enjoy exclusive property rights and moral rights. the right of reproduction. such a contract involves transfer of the full and exclusive rights to that work or means of individualisation for the whole period for which the rights were protected. . . Moral rights include (among other things): . Copyright protection arises when a work is created. whilst radio and television broadcasters enjoy only exclusive property rights. and . . broadcasting programmes. The exclusive rights to the works are protected for the lifetime of the author plus 70 years. the right of authorship. literary and artistic work that is the product of creative work regardless of the value. These exclusive rights include (among other things): . and databases. The law sets out exclusive property rights over the work. the creator of databases and the broadcaster media (which has been created by the broadcaster).
Chapter 72 of the Civil Code regulates the protection of inventions. 10 years from the date of filing of the application for a utility model. . the exclusive rights to the work (or invention) will be transferred to its 90 . 20 years from the date of filing of the application for an invention. which attaches to the author’s work from the day of its creation. which are a technical solution in any field related to a product or a process. Further. It will grant the patent if the relevant criteria are met. An industrial design can be protected only if it is: . . exclusive rights to the results of an employee’s intellectual activities belong to the employer. or the employer fails to notify the employee that it has decided to keep the work secret. inventions. new. In particular. capable of industrial application. It is also possible to obtain a compulsory licence. industrially applicable. new. and . The right to obtain a patent belongs to the inventor. and . which are the result of an intellectual activity in the scientific and technical domain. This includes literary work and patented objects that are created by employees as part of their employment duties. the owner of the trade secret must take active measures to protect the secret and ensure that there is no free access to it.Intellectual property Patents Patent protection covers: . industrial designs. and . which depend on the type of object being protected. an open licence may be chosen by the owner of the patent. The law on trade secrets (as amended to comply with Part IV of the Civil Code) defines the information that constitutes a trade secret and lists the measures that the holder of the right must take in order to ensure protection of his know-how. The maximum duration for patent protection is as follows: . the information must be unknown to third parties because there is no free access to it. his/her employer (in case of an employee’s invention) or their assignees. if the employer fails to use. Rospatent also regulates open patent licences. licence or assign its employees’ work within a prescribed period. which are the result of intellectual activity in the domain of artistic design. Unlike copyright. Employees’ work The Civil Code regulates employees’ work. The patent licence and any assignment agreements need to be registered with Rospatent. a patent is only protected after state registration. The application for patent protection is delivered to Rospatent for consideration. As a general rule. and . new. Patent protection is subject to conditions. utility models. Trade secrets and know-how Information which has actual (or potential) commercial value can be defined as a trade secret or know-how as long as the necessary criteria are met. following the decision of a court. An invention can only be protected if it is: . 15 years from the date of filing of the application for an industrial design. . A utility model can only be protected if it is: . utility models and industrial designs. administrative and criminal liability for a breach of trade secret rights. and . However. The law also provides for civil. original. inventive.
Trade names/commercial names Legal entities and individual entrepreneurs may use trade names separately from their company name. The right to use a trade name to individualise a Russian company is valid throughout Russia. If the employer had started to use the work. the employee is entitled to a level of remuneration as agreed between the parties. from the date of filing of the application with Rospatent. Trademarks/service marks A trademark is a distinctive sign that is used to distinguish the goods or services of an individual entrepreneur or a legal entity. (iv) in advertising. Company names The company name is indicated in the corporate documents of the company. the state register also contains information on its legal form. a figurative or three-dimensional sign.e. and the goods and services they offer. in particular. assigned the rights to it. the exclusive rights to a trademark are transferable to a third party. the employee. Unlike the company name this trade name is not necessarily mentioned in the company’s charter and other constituent documents. or a combination of all of these elements. A legal entity or an individual entrepreneur may not use a trade name which creates confusion with a third party’s company name or trademark or misleads the consumer.author. unless such an assignment could be misleading for consumers. This does not apply to know-how. A trademark can be a verbal description. The right to use a trade name is protected independently. The trade name may be used as a distinctive emblem to distinguish a legal entity or an individual entrepreneur. If the parties fail to agree on the sum. which are filed with the Unified State Register of Legal Entities. A legal entity or an individual entrepreneur can have only one trade name. This exclusive right ceases to exist if the holder does not use the trade name for one year. The maximum duration of trademark protection is ten years. (i) on signs. This protection operates independently of a company’s exclusive right over its company name. The Civil Code provides a list of words and signs that may not be used as trademarks. or in the Unified State Register of Legal Entities. (v) on products. Means of individualisation Chapter 76 of the Civil Code provides for the protection of means of individualisation which are used to distinguish and identify both individual entrepreneurs and legal entities. regardless of the company name or trademarks. (ii) on letterheads. subject to the necessary application and payment being made. (iii) on official documents. It may be transferred by a commercial concession agreement. There is an option to prolong this protection period. The exclusive right of a company over its company name may not be transferred or licensed to third parties. i. Additionally the name of a company can be protected as a trademark or a commercial name (a trade name). or by a contract for the lease of an enterprise. and (vi) on packaging. This exclusive right allows the holder to freely use the name. Besides the name of the company. or decided to keep it secret. The exclusive right to use a trademark may also be the subject of a licence 91 Doing Business in Russia . As a general rule. then a competent court may set the level of remuneration. the trademark needs to be registered with Rospatent in the State Register of Trademarks. To be protected in Russia. Alternatively it may be protected in Russia under the Madrid System of the International Registration of Marks. It is protected in Russia from the moment of the company’s state registration.
The information relates to circumstances prevailing at the date of its original publication and may not reflect subsequent developments. Counterfeit products are mainly distributed through open-air markets. Russia.000) for a legal entity that imports. and does not constitute legal or professional advice. pharmaceuticals. Russia has demonstrated a willingness to fight counterfeiting and to ensure the compliance of its laws with international standards. a city or any geographical area referring to the place of origin of the product. cosmetics. the Civil Code expressly requires that an applicant in the annulment of a non-used trademark prove it has a legal interest in this annulment. to register it. Russian legislation provides for civil. Russia 119019 Moscow. Since 2008. if the appellation of origin has not yet been registered. CDs. It affects all areas of the Russian economy. This publication has been prepared for the informative purpose only. as used throughout this guide.000) or the offender’s income for 18 months. This may permit a third party to use that trademark within the framework of the licence. rights over inventions and patent rights. +7 495 786 4000.000 (EUR 37. or rents items in violation of copyright.000 (EUR 5. disclosure or appropriation of an invention or patent has caused significant prejudice to the author. Recognising the magnitude of the problem and its potential impact on consumers’ health and well-being (especially with regard to pharmaceuticals). etc.500 to RUB 2. An appellation of origin registered with Rospatent is protected throughout Russia. clothing.Intellectual property agreement. The sanctions depend on the amount involved and if the individuals or legal entities involved are repeat offenders. Any producer acting within the geographical area designated by the appellation of origin may enjoy the right to use that name provided it has first obtained a certificate from Rospatent and. DVDs. tent of the situation in Russia in particular. Similar sanctions apply to infringement of copyright and to the sale of counterfeit works. including: luxury perfumes. sells. Trademark protection may be terminated early if the trademark is not used during any three consecutive years after the date of registration. Any interested person may file an application for early termination with the Chamber of Patent Disputes under Rospatent.51 to EUR 50) for an individual and RUB 30. Fax +7 495 786 4001 92 .000 to RUB 40. The Criminal Code provides for a fine of up to RUB 200. Tel. It may designate a country name. For example. and in relation to the ex- At the notional exchange rate of RUB 40 = EUR 1. or imprisonment for up to two years. vehicle spare parts.000 (EUR 750 to EUR 1. For specific advice please contact us: CMS. and in accordance with the quality requirements set out by the licensor. Appellation of origin of goods The appellation of origin of goods is the name of the place where the goods come from. when the unlawful use. 1 Violations of intellectual property rights Counterfeiting is a difficult phenomenon to quantify in general. 11 Gogolevsky Boulevard. This requirement is aimed at preventing abuse of the right to challenge the validity of trademarks. foodstuffs. the Code on Administrative Offences provides for a fine ranging from RUB 1. administrative and criminal liability for the infringement of intellectual property rights.
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