Doing business in Russia
Doing business in Russia
Pavel Gerasimov
Pavel I. Gerasimov is an Honoured lawyer, with expertise in international sanctions, civil, criminal, tax, and immigration law. He is credited as the founder of crypto law and holds a PhD degree.
After graduating from the Law Faculty of the Peoples’ Friendship University of Russia, Fairleigh Dickinson University in the USA, and the University of Pennsylvania Carey Law School, Pavel obtained attorney licenses in the Russian Federation, Canada, and the UAE with exclusive right to practice within GCC.
Pavel is also recognized as an expert by the International Civil Aviation Organization (ICAO) and has successfully defended the rights of victims in various air crash cases, including the Tu-154 in Sochi, A-321 in Egypt, SSJ-100 at Moscow Sheremetyevo Airport, and Boeing-737 Max in Addis Ababa.
• Has published numerous articles and books on various legal topics, including cryptocurrencies and blockchain technology.
• Speaks several languages, including Russian, English, Spanish and Chinese.
• Regularly lectures at legal conferences and seminars around the world.
• Recognized as a leading authority in the field of international law and has been consulted by governments and corporations on legal matters.
• Committed to promoting justice and advocating for the rights of individuals in legal proceedings.
Pavel I. Gerasimov
Doing business in Russia
© Pavel I. Gerasimov
Introduction
Geography
Introduction
Russia, the major part of the former Soviet Union, is located in Eurasia, bordering the Arctic Ocean, between Europe and the North Pacific Ocean. With a total area of 17,316,000 km², Russia is the largest country in the world by territory. Its land boundaries stretch as far as 20,017km. Russia's border countries are Azerbaijan, Belarus, China, Estonia, Finland, Georgia, Kazakhstan, North Korea, Latvia, Lithuania, Mongolia, Norway, Poland and Ukraine. Its coastline is 37,653km, its territorial sea is 12nm, its exclusive economic zone is 200nm and its continental shelf is 200m depth or to the depth of exploitation.
Climate in Russia ranges from steppes in the south to humid continental in much of European Russia and subarctic in Siberia to tundra climate in the polar north. Winters are cool along the Black Sea coast and frigid in Siberia. Summers are warm in the steppes and cool along Arctic coast. Terrain is mostly plain with low hills west of Urals. There is vast coniferous forest and tundra in Siberia, uplands and mountains are along southern border regions. The lowest point in Russia is Caspian Sea at 28m, and the highest mountain is Elbrus, 5,633m, which is also the tallest peak in Europe.
Russia has a wide range of natural resources including oil, natural gas, coal, minerals and timber. However, there are climatic impediments to the exploitation of these resources: permafrost, spring floods and summer/autumn forest fires in Siberia; a too dry or too cold climate; and a lack of proper soil for agriculture.
Russia is party to a number of international agreements on environment: Air Pollution, Air Pollution – Nitrogen Oxides, Air Pollution – Sulfur 85, Antarctic – Environmental Protocol, Antarctic – Marine Living Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate Change, Climate Change Kyoto Protocol, Paris Agreement, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Wetlands and Whaling.
Currency
General
The national currency is the Russian ruble, which consists of 100 kopecks. The currency code is RUR. Exchange rates for 13 June 2024 were: Russian rubles per US $1–88; Russian rubles per UK £1–112; Russian rubles per €1–94.
National Holidays
General
1–2 January – New Year; 7 January – Orthodox Christmas; 23 February – Defenders of the Motherland Day; 8 March – International Women's Day; 1 May – Labour Day; 9 May – Victory Day; 12 June – Independence Day; 4 November – National Unity Day.
Political System
General
The main issue of the political transformation in the last three decades in Russia has been the legitimation of state power in society. The first time Russia faced similar problems was at the cusp between the 16th and 17th centuries when, after murder of Prince Dimitry, the major branch of the ruling dynasty of Ryurickovich ceased to exist. A new monarch, Boris Godunov, had «no God-given right to rule» in the eyes of common Russians and had to find a way to secure support in society. An attempt to legitimise power through the State Council where top clergy and dignitaries and more than 500 representatives from all over Russia were present was not particularly successful. Russia went into a long period of social disturbance and complete disintegration of state. The next similar crisis followed Nicholas II's abdication from the throne in February 1917. The February revolution destroyed monarchy as such. It appeared that Russia was not ready for the democratic reorganisation of society during the World War I, and the radical party of Bolsheviks took over the state. They founded their power on promise of peace and prosperity to war-torn people which was based on the communistic ideology, charisma of leaders and the following terror.
Today's political structure in Russia was not formed according to a predetermined plan; rather, it is the result of short-term trends of political rivalry. It is, therefore, important to consider not only how the system works on a functional level, but why it operates like that.
Mikhail Gorbachev, the last leader of the Communist Party of the USSR, realised that his power was not unlimited. It was strong enough to keep up the communist regime, but it was not for the transformation of the country. He needed sources of support in society, and so the system of free election to the councils of people's delegates was implemented. In the Soviet Union councils of people's delegates possessed the supreme power de jure, but in reality all power belonged to the Communist Party and the system of ispolkoms, executive bodies acting under the party's control. The idea was that the elected councils of people's delegates would weaken the Communist Party and support reforms. At the same time it was a way to preserve succession to the Soviet State. However, as the councils of people's delegates were originally designed as a mere window dressing for the power of the Communist Party, they were incapable to act in the real world and only accelerated the disintegration of the Soviet Union.
At the beginning of 1991 the first President of Russia, Boris Yeltsin, was in conflict with the federal centre. For him, a President elected directly by all citizens was a way to secure public support amidst this rivalry. The presidency was quite a new idea to Russian political life, and at the same time it was a move towards tradition for Russian personified power. The system, however, soon caused conflict between the President on one side and the Supreme Council, the Assembly of the People's Delegates, the legislative bodies and the vice-president on the other. The Supreme Council had the advantage in terms of legal power. Nevertheless in 1993 President Yeltsin managed to end the two-year rivalry by a series of non-constitutional acts, starting from the order for the dismissal of the Supreme Council and the Assembly of the People's Delegates and ending with an armed storm of the building with delegates.
Political system
As a result of Russia's turbulent history, the political system established by the Constitution of 1993 provides the President with substantial superiority over other branches of the state. The position of vice-president was abolished. The State Duma, the successor of the Supreme Council, became the lower chamber of the Parliament with very limited capacities. It lost control over the executive branch and could only approve or disapprove a Prime Minister suggested by the President. However, even this possibility is limited. After three consecutive disapprovals of his candidate, a President can dismiss the State Duma. A President is entitled to veto laws approved by the Duma. This veto can only be overcome by the qualified majority of the Duma members. Judges of the constitutional court are appointed by the Council of the Federation (the upper chamber of the Parliament), but only from those candidates introduced by the President. A similar procedure has been established as regards the heads of other judicial bodies. The procedure for amending the constitution has become practically impossible without the President's consent. Similarly, the impeachment of the President, theoretically possible under the current constitution, is hardly achievable in practice.
The President is elected for a term of six years by the citizens of the Russian Federation on the basis of general, equal and direct vote by a secret ballot. No one may hold the office of President for more than two terms in succession; still, being a president for more than two times total is legally possible. A candidate for the President of the Russian Federation can be nominated by a political party (or electoral block) or by the candidate personally. In the later case the candidate must have an initiative group of 500 supporters. An electoral block or an initiative voters' group that has nominated a candidate for the office of the President must collect no less than 300,00 voters' signatures in support of the candidate, with no more than 7,500 signatures falling on one subject of the Russian Federation. (A candidate nominated by a political party that is represented in the Parliament does not need to collect signatures). Political parties not represented in Parliament will have to collect only 100,000 signatures in support of their candidates, and independent candidates will have to provide 300,000 such signatures.
Russian law restricts the amount of candidates' expenditures for the election campaign. At present no more than RUR 400 million (around £3.9 million), or RUR 500 million (around £4.9 million) in the case of a two-round election, can be spent. A candidate cannot accept money for financing his or her campaign from foreign or international organisations or individuals, persons without citizenship, minors, domestic companies with foreign shareholders, charities and state or municipal bodies. A candidate who receives more than one half of the votes is considered elected. If no candidate is elected in the first round, the Central Election Commission sets the second round of election for the two candidates who received the greatest number of votes. A candidate who received the greater number of voters in the second round as compared with the number of votes cast for another candidate is considered elected, provided that the number of votes cast for this candidate is greater than the number of votes cast against all candidates.
The Federal Assembly, the Parliament of the Russian Federation, is the supreme legislative body of the Russian Federation. The Federal Assembly consists of two chambers: the Federation Council and the State Duma. The State Duma is elected for a term of four years. It consists of 450 deputies. From 2007 all deputies are elected in proportion to the number of votes cast for the lists of candidates nominated by political parties. The Federation Council consists of two representatives from each subject of the federation, one from the representative and one from the executive bodies of the State authority.
Deputies to the Federation Council and deputies to the State Duma possess immunity throughout their term in office. A deputy may not be detained, arrested or searched except when detained in the act of perpetrating a crime, and may not be subject to personal search except when such search is authorised by law to ensure safety of other people. The question of stripping a deputy of immunity is decided on the recommendation of the Prosecutor-General of the Russian Federation by the corresponding chamber of the Federal Assembly.
The Government consists of the Chairman of the Government, the Deputy Chairman of the Government and Federal Ministers. The Chairman is appointed by the President with consent of the State Duma. If the State Duma thrice rejects candidates for the Chairman of the Government nominated by the President, the President appoints a Chairman of the Government, dissolves the State Duma and calls a new election.
The Prosecutor's Office of the Russian Federation is a single centralised system in which lower prosecutors are subordinated to higher prosecutors and the Prosecutor-General. The Prosecutor-General is appointed to the post and relieved from it by the Federation Council on nomination by the President. Prosecutors are appointed by the Prosecutor-General.
Legislative process
The legislative process in Russia includes three hearings in the State Duma, then approval by the Council of the Federation and the President. The laws adopted by the State Duma are passed to the Council of the Federation for review. A federal law is considered passed by the Council of the Federation if more than half of its deputies vote for it or if within 14 days it has not been considered. In the event that the State Duma disagrees with the decision of the Federation Council, a federal law is considered adopted if, after a second vote, at least two-thirds of the total number of deputies to the State Duma vote for it. Then, however, laws must be considered by the Council of the Federation. These are laws that deal with the issues of: the federal budget; federal taxes and duties; financial, monetary, credit and customs regulations and money transmission; the ratification and withdrawal from international treaties; the status and protection of the state border; and issues of war and peace.
The adopted federal law is sent to the President. If the President rejects a federal law the State Duma and the Federation Council must again consider the law. If, during the second hearings, the federal law is approved in its earlier draft by a majority of not less than two-thirds of the total number of deputies of the Council of the Federation and the State Duma, it must be signed by the President.
Federation
Russia is a federation with capital in Moscow (population – approximately 13,149,800). It used to consist of 83 subjects before the accession of Crimea, and currently there are 89 subjects following the accession of new territories in 2022 Currently there are 48 Oblasts, 24 Republics, 4 Autonomous Okrugs, 9 Krais, 3 Federal cities, and 1 Autonomous Oblast. These subjects of the federation (regions) are deemed to have equal political rights but they are not equal in area, population or economic development.
They are (administrative divisions have the same names as their administrative centres, exceptions have the administrative centre name following in parentheses):
(1) Oblasts:
Amur (capital – Blagoveshchensk), Arkhangelsk, Astrakhan, Belgorod, Bryansk, Chelyabinsk, Chita, Irkutsk, Ivanovo, Kaliningrad, Kaluga, Kemerovo, Kirov, Kostroma, Kurgan, Kursk, Kharkiv Leningrad, Lipetsk, Magadan, Moscow, Murmansk, Nizhniy Novgorod, Novgorod, Novosibirsk, Omsk, Orenburg, Orel, Penza, Pskov, Rostov, Ryazan, Sakhalin (capital – Yuzhno-Sakhalinsk), Samara, Saratov, Smolensk, Sverdlovsk (capital – Yekaterinburg), Tambov, Tomsk, Tula, Tver, Tyumen, Ulyanovsk, Vladimir, Volgograd, Vologda, Voronezh, Yaroslavl, Zaporozia.
(2) Republics:
Adygeya (capital – Maykop), Altay (capital – Gorno-Altaysk), Bashkortostan (capital – Ufa), Buryatiya (capital – Ulan-Ude), Chechnya (capital – Groznyy), Chuvashiya (capital – Cheboksary), Crimea (capital – Simferopol), Dagestan (capital – Makhachkala), Donetsakaya (capital – Donetsk), Ingushetiya (capital – Magas), Kabardino-Balkariya (capital – Nalchik), Kalmykiya (capital – Elista), Karachayevo-Cherkesiya (capital – Cherkessk), Kareliya (capital – Petrozavodsk), Khakasiya (capital – Abakan), Komi (capital – Syktyvkar), Lughanskaya (capital – Lughansk) Mariy-El (capital – Yoshkar-Ola), Mordoviya (capital – Saransk), Sakha [Yakutiya] (capital – Yakutsk), North Ossetia (capital – Vladikavkaz), Tatarstan (capital – Kazan), Tyva (capital – Kyzyl), Udmurtiya (capital – Izhevsk).
(3) Autonomous Okrugs:
Chukotka (capital – Anadyr), Khanty-Mansi, Komi-Permyak (capital – Kudymkar), Nenets (capital – Naryan-Mar), Yamalo-Nenets (capital – Salekhard).
(4) Krais:
Altay (capital – Barnaul), Kamchatskiy (capital – Petropavlovsk – Kamchatskiy), Khabarovsk, Krasnodar, Krasnoyarsk, Perm, Primorskiy (capital – Vladivostok), Stavropol, Zabaykalsk (capital – Chita).
(5) Federal cities:
Moscow, Saint Petersburg, Sevastopol.
(6) Autonomous Oblast:
Yevrey [Jewish] (capital – Birobidzhan).
Subjects of the federation have their legislatures and governments, who act within the competence determined by the constitution and, in some cases, an agreement between the federation and the region. It is supposed that outside of the jurisdiction of the federation and the joint jurisdiction of the federation and the subjects of the federation, the regions exercise the entire spectrum of state power. In reality most of the Russian laws are in the federal competence and as such have superiority over regional legal acts. Another complication of relations between the federation and the regions is the composition of the tax and budget systems. At the moment the majority of regions receive financial assistance from the federal budget.
Municipalities
There are over 240,000 municipalities in Russia. The structure of a municipal government is determined by the regional legislation under the legal framework established by the federal laws and includes a legislative body at local level.
Sources of Law
Law in Russian society
The Russian legal system in its main features follows those of the European countries. The principles and ideas lying in its foundation are the inviolability of ownership, freedom of contract and the judicial protection of rights along with others that are recognised and shared by modern Western society. Most Russians share Western social values. Moreover, they truly consider themselves to be a part of the Western culture. However, Russia has somewhat different experiences and its own answers to historical challenges.
For those doing business in Russia or with Russians an understanding of the role of law in Russian society is of important practical value. It is likewise important to understand the difference not only between law and repression but between law and other forms of regulation of the human relations like, for example, economic or social pressure, religious beliefs or family relationships. Law is the product of long historical experience and not merely a product of the legislative power of the sovereign. The idea that the law-maker may enact any law it pleases has ignored the fact that law in a deeper sense, like other social institutions, is a living tradition. Law is a part of a culture and as such it is intimately connected to the whole historical experience of a nation.
According to a leading sociologist, Talcott Parsons, Western social institutions are based on the institutions of ancient Greece and Rome. This relation has three main «bridges». First of all, the Western Christian Church kept an idea of formal equality of all people as an example for the whole society – a society where there are no privileges, and everybody is equal in the sight of God, who appreciates them according to their individual qualities. On the other hand, the Western Church was always a unified institution, with the centre in Rome, independent from civil government. Secondly, the organisation of Western medieval cities, just as in a modern society, was based on principles other than personal relationship or origin. A medieval city with private property and market became a point of growth for modern economical institutions. Thirdly is the legacy of a Roman-Greek legal structure with professional bureaucracy, an army and uniform law for the whole country.
Russian social and legal institutions emerged from a background very similar to that of the Western Europeans. The Slavonic tribes, predecessors of Russians, seem to have had a social order not essentially different from that of Germanic tribes who settled in the West. The laws of ancient Russia were similar to the Anglo-Saxon or Germanic or Frankish law at this time. Russians as well as West Europeans were converted from paganism to Christianity and despite provincial differences shared the ideas of the Western Church. However, if we view Russian history as a whole and compare it with the history of the West we see that perhaps the most striking difference between the two histories is the relative deficiency of the role of law in the Russian social relations. The historical choice of the Russian society was that the law as an institute of the formal rules and procedures did not supersede completely the informal rules and regulation.
When the Bolsheviks came to power as the result of the Socialist Revolution in 1917 they considered law as the instrument of class exploitation. The People's Commissariat of Justice enacted in 1919 «Leading Principles of Criminal Law», which stated:
«only with the final smashing of the opposing overthrown bourgeois and middle classes and with the realization of the communist social order will the proletariat annihilate both the state as an organization of coercion, and law as a function of the state.»
Moreover, they saw a legal system as a reflection of the market and expected that the abolition of the market and of economic individualism would bring about «the withering away of law in general, that is the gradual disappearance of the juridical element from human relations» (E. Pashukanis, The General Theory of Law and Marxism (Transaction Publishers, 2001)).
Despite the fact that the Communists soon set aside the idea of the inevitable withering away of law in the Soviet Union, a large part of social relations was outside of the legal regulation. Moreover, many forms of commercial activity were directly outlawed. For example, for private entrepreneurship one could be imprisoned for up to five years with confiscation of all property; for speculation, which was effectively a trading operation, where profit is made on the margin between purchase and selling prices, one could be imprisoned for up to seven years; for transactions with foreign currency, one could have been sentenced for up to eight years. Land, real estate, machinery and other means of production were by far owned by the state. The institute of proprietorship was abolished, and the inheritance was made unjustly complicated.
That said, however, it does not mean that there is no law at all in Russia or that law is just a window dressing for a system of hierarchical subordination backed up by force and corruption. On the contrary, Russian law stands on determined and clear legal principles following in its main features the legal principles of the modern Western society. Moreover, in this writer's view, rule of law is still and was possible even during the darkest years of Russia's history.
The truth probably is that in Russia the law is competing with other forms of social regulation to a much larger extent than that in most Western countries. This conflict being a part of the everyday life, it largly influences the way business is done in this country and those considering undertaking business in Russia should be prepared for the cumbersome and ineffective work of some governmental bodies, even though in recent years the availability and speed of most government services provided improved drastically, mostly because of widespread governmental e-services; there is a tendency of state authorities and even courts to interpret Russian laws narrowly, reducing one's private rights, and there is a negligence of the law by certain parts of Russian society. It also shall be taken in account that in recent years protectionist tendencies and so-called «protection of traditional values» are on the rise.
Sources of Russian law
The framework of the Russian legal system is created by the constitution, constitutions of the subjects of the federation, decisions of the constitutional court, decisions and directives of the Supreme Court, international treaties, federal constitutional laws and federal laws, regional laws and ordinances, municipal legal acts, directives and statements of the Central Bank and government ministries and state authorities.
The conflict of legal acts is resolved according to the juridical power of the legal acts. The constitution has supreme power over the whole territory of Russia. Codes and federal constitutional laws have more power than federal laws. A conflict between regional and federal laws is decided in favour of a regional law if one is admitted within the regional competence and vice versa. An international treaty that has been ratified has direct effect and precedence over domestic legislation.
Russia is a civil law country; decisions rendered by courts are not binding on other courts. However, the lower courts generally follow the principles established by the Supreme Courts. Moreover, according to art.304 of the Code of Procedure in commercial courts, the Economic Panel of the Supreme Court (until 2014–Supreme Commercial Court) can set aside a decision of a lower court on the grounds that this decision contravenes uniformity in interpretation of law as established by case law. In practice precedents of the higher courts are becoming an important source of Russian law.
Useful Links/government Contacts
Websites [All accessed on 17 April 2021]
Russian Law Resources in English: http://www.russianlawonline.com.
President of the Russian Federation: http://president.kremlin.ru.
The Russian administrative bodies: http://www.gov.ru.
Security Council: http://www.scrf.gov.ru.
The Council of the Federation: http://www.council.gov.ru.
The State Duma: http://www.duma.gov.ru.
The Government: http://www.pravitelstvo.gov.ru.
The Constitutional Court: http://ks.rfnet.ru.
The Supreme Court: http://www.supcourt.ru.
Federal Courts: https://sudrf.ru/.
The Central Bank: http://www.cbr.ru.
The Central Electoral Commission: http://www.cikrf.ru/.
The Federal Tax Service: https://nalog.ru/.
Unified Portal for State Services: https://gosuslugi.ru/.
Finance
Imports and Exports
General
Russia is a Member State of the Eurasian Economic Union (EAEU). Russia shares its customs and border regime with Armenia, Belarus, Kazakhstan and Kyrgyzstan.
The customs legislation is codified. It consists of the Customs Code of EAEU, and corresponding EAEU acts, treaties, federal laws, orders of the President, ordinances of the Government and numerous regulations of the Federal Customs Service. As an EAEU member, Russia also is a member of multiple free trade agreements (e. g. between EAEU and Singapore, Vietnam or Serbia).
Federal customs service
The Federal Customs Service is a united centralised organisation, which is answerable to the Government of the Russian Federation. It is responsible for control of imported and exported goods in the Russian Federation; the collection of customs payments, anti-dumping and compensations duties; the compilation of statistics; the prevention and restraint of cross-border fraud and the violation of the currency control regulation. The Federal Customs Service is a huge organisation employing tens of thousands of people and is responsible for the major source of state revenues. It is often criticised for being a difficult and unpredictable organisation. Yet, as governmental e-services spiked in Russia in recent years, many of the services are provided via the Federal Customs Service website, accelerating the decision-making process and making it more transparent.
Import
Entry points
Goods may be imported into the Russian Federation through the entry points on the Russian border. Some goods, however, e. g. alcohol, tobacco or meat, can be imported only through specially designated places.
Import licences and quotas
As a general rule, goods entering the Russian Federation can be imported without any restrictions. There is, however, a rather narrow list of goods which can only be imported with the authority of a licence granted by the Government such as, e. g. alcohol, encryption systems or military objects. In some cases the Government imposes quotas or special duties on particular goods. This normally includes such goods as meat, fish or products of agriculture.
Since accession to the WTO, number of import quotas has been gradually falling, quotas being effectively replaced by import tariffs. Still, at the moment this report is being written quotas are imposed on several categories of goods, like metal or meat.
In 2021, however, several important changes in customs legislation come in force. Firstly, from 1 January 2021, customs duties are to be paid simultaneously with customs reporting unless the goods are imported from another EAEU Member State. Also, new rules are set for expertice of imported items of cultural and artistic values and some medical products. In February 2021 (with a follow-up in April 2021) new rules for filing a customs declaration come into force, and from 1 March 2021, additional marks in paperback documents will not be made in case of electronic customs declaration filing.
Since spring 2022, the authorities have legalized parallel imports into the Russian Federation at the federal legislative level, protecting Russian companies that import goods without the permission of the copyright holder from possible civil, administrative and criminal liability.
The Constitutional Court spoke in favor of allowing parallel imports in Russia several years ago. The Constitutional Court Resolution of 13.02.2018 No. 8–P stated that such a mechanism can be used to import vital goods: medicines, equipment for life support of the population, and the like.
However, until the beginning of 2022, arbitration courts in most cases still recognized parallel imports as illegal. Thus, the Arbitration Court of the Moscow Region prohibited individual entrepreneur Marina Lobanova from selling Swiss Curaprox toothbrushes without the permission of the copyright holder (case No. A41–54785/2021). The individual entrepreneur was ordered to pay 400,000 rubles in favor of the foreign company. This compensation was awarded because Lobanova sold goods in Russia on Wildberries t
at were intended for shipment only to the Czech Republic, Germany, Estonia, Great Britain, Italy, Kuwait and Thailand. The appeal recognized this approach as legal.
The situation changed after February 24, 2022, when Western countries-imposed sanctions against Russia, and some foreign companies on their own initiative refused to supply goods to the Russian Federation. Then the authorities decided to quickly legalize parallel imports:
· March 8, 2022 – Federal Law No. 46–FZ was adopted. In paragraph 13, Part 1 and Part 2 of Article 18, the Government of the Russian Federation or another body on behalf of the government is granted the right to determine the list of goods that can be imported through parallel imports. March 29, 2022 – Resolution No. 506 of the Government of the Russian Federation was adopted, according to which the Ministry of Industry and Trade was approved as the body responsible for forming the list.
· April 19, 2022 – Order No. 1532 of the Ministry of Industry and Trade was issued and a list of specific goods that can be imported under this scheme was determined.
· July 21, 2023 – a new Order No. 2701 of the Ministry of Industry and Trade was approved, which comes into force in November. It specifies the list of goods that can be imported under parallel import.
In its acts, the Ministry of Industry and Trade compiled a list of goods that can be imported into the territory of the Russian Federation without the permission of the copyright holder. Over the past year and a half, this list has been updated more than five times, and now it includes products from several hundred foreign enterprises.
Parallel import of which goods is permitted:
· Any brands of clothing and footwear.
· Rubber and rubber products, soap, detergents, plastics.
· Salt.
· Pharmaceutical products from O. B. and Carefree.
· Electronics from Apple, Samsung, HP, Intel, Siemens, Asus, GoPro, Panasonic, Electrolux.
· Household appliances from Electrolux, Miele, Siemens, Dyson, Philips and Zanussi.
· Equipment for various industrial sectors.
· Game consoles XBox, PlayStation, Nintendo.
· Children's goods Hasbro, Mattel, Logitech and Nintendo.
· Cars of various classes and spare parts for them: Tesla, Land Rover, Chrysler, Bentley, Hummer, Rolls-Royce, Toyota, Skoda, Volkswagen and others.
Origin of goods
Goods are considered to originate in a country where they were wholly produced or largely processed. Documentary evidence, in the form of a certificate of origin, is normally required. The certificate must clearly state that goods originate in a particular country and the certificate must contain a written statement of the sender of the goods that they comply with a relevant criteria of origin. The statement must be witnessed by the state authorities of the sender's country.
As a result of «counter-sanctions» after 2014 sanctions from EU/EEA and other countries, some products originating in the EU/EEA and/or some other countries which imposed sanctions on Russia are either only available to be imported in moderate amounts for personal use only or completely banned. This applies mostly to foods and delicacies (e. g. meat, dairy, fruits, vegetables, etc), but the list is subject to change. So-called «counter-sanctions» were originally imposed in 2014 by an order of the President, and originally were to expire on 6 August 2015, but the order has been renewed annually ever since.
Customs payments
Customs payments include customs duty, VAT, excise, and a fee for the registration of goods.
Customs duty is usually charged as an ad valorem duty. An obligation to pay the duty arises the moment goods cross the customs border.
The principle method of the valuation of goods is the transaction method, based on the price actually paid for the goods. Once this method cannot be applied. In particular when there is no documentary evidence, or the information provided does not appear to be true, or when buyers acquire limited rights over goods or their rights depend on unpredictable circumstances, or when a transaction takes place between connected persons, customs officers can use other methods of valuation, for example those based on the price with identical or analogous goods, prices on internal market for similar products or even methods based on assumed production costs and delivery expenses and others. However, such valuation, as well as classification of goods to some extent, may be challenged in commercial courts.
Due to the Covid–19 pandemic, reduced customs duty rates are currently applied to products of critical import and medical products that help fight the coronavirus (thode include some foods like potatos or rice and products of medical use like thermometers, endoscopes and some medicines). However, those reduced rates and reliefs expire on 31 March 2021.
Imported goods, generally, are subject to VAT. There are some exceptions; certain medical equipment is an example. Imported technological equipment contributed into a charter capital of a Russian company is also exempt of VAT. The VAT rate is 20%; for some goods such as some items for children, certain medicines and food the VAT rate is 10%.
A fee for the registration of goods depends on their customs valuation and is relatively small. From 1 August 2020, mininum fee for the registration of goods is RUR 775 (€8.46) and the maximum fee is RUR 30,000 (€327.42).
Some goods such as products of medical use, alcohol or oil are subject to excise. The excise rates are determined by the relevant legal acts.
Anti-dumping duties
Anti-dumping measures are taken when goods are imported into Russia at a price below that at which they are normally sold in their country of origin. A decision on the imposition of anti-dumping duties follows a special anti-dumping investigation and is made by the Government of the Russian Federation. Anti-dumping duties are most applicable towards machinery, machinery detais and some foods. Rates of anti-dumping duties are set by EAEU commission. For example, on 25 February 2021, expires an anti-dumping duty on steel pipes from Ukraine, and on 18 August expires an anti-dumping duty on truck tyres imported from PRC.
Compensation duties
The compensation duties are imposed by the Government when the production of goods imported into Russia has been subsidised by a foreign state. The rate of compensation duty cannot be higher than an amount of the subsidy as related to one article of goods.
Export
As a rule, an export from the Russian Federation does not require any permissions or licences. In some cases, however, the Government imposes restrictions (quotas) and/or licences on the export of certain goods. Restrictions may normally be imposed on the export of oil, gas, certain natural resources, valuable sorts of timber, fish or sea products. Apart from these, the Government may restrict exports for security reasons and in compliance with international obligations.
Generally, export duty is an ad valorem duty. However, goods exported from Russia to EAEU are not subject to export duties as EAEU Treaty effectively provides for single market for EAEU Member States.
A temporary ban on the export of certain goods and equipment from Russia has been extended until the end of 2025.
The export restriction applies, among other things, to technological and medical equipment, agricultural machinery, electrical equipment, turbines, nuclear reactors, fiber-optic cables, certain types of aircraft, radar devices, batteries, and metalworking machines.
Their export is prohibited to all foreign countries, with the exception of member states of the Eurasian Economic Union.
However, a number of exceptions are provided: export restrictions will not apply to samples of medical products previously imported to Russia for state registration.
The ban will also not apply to refrigeration equipment, certain types of pumps, and a number of categories of vessels.
In addition, restrictions on the export of certain types of goods by systemically important organizations and their subsidiaries have been relaxed. The decision on the export of goods by such organizations will be made by the Government based on proposals from relevant ministries and departments.
The possibility of applying restrictions on the import of seeds of certain types of agricultural crops from unfriendly countries is extended until the end of 2025. This concerns seeds of potatoes, wheat, rye, barley, corn, soybeans, rapeseed, sunflower and sugar beet.
The lists of goods and equipment temporarily prohibited from export from Russia were determined by the Government in March 2022. The decision was made in pursuance of the Presidential Decree «On the application of special economic measures in the sphere of foreign economic activity in order to ensure the security of the Russian Federation» and is necessary to protect the domestic market.
Investment and Finance
General
It is Russian policy to welcome foreign investments. Generally, as Russia is a WTO Member State, the regime for foreign companies and the use of the received profit by them cannot be less favourable than the legal regime which is applied to Russian companies. The withdrawals limiting the rights of the foreign companies may be established by federal laws in public interests (e. g. foreigners are prohibited from acquisition of land close to the border).
The federal law «On foreign investments», enforced from 9 July 1999 provides guarantees from any adverse changes to Russian legislation. In particular, new laws increasing tax burdens do not extend to Russian companies with foreign participation of 10% or more of their capital or to any Russian company with foreign capital if such a company is engaged on a «priority project»; that is, one with a total amount of investments of at least RUR 1 billion (approximately €10,970,900) or where a foreign company purchases an equity interest of at least RUR 100 million (approximately €1,097,090). The exemption is granted during the project's yield period, of no longer than seven years.
Russia also warmly welcomes investment in its several Special Economic Zones (SEZs) across the country. Those zones are differentiated by types of preferred economy sector for investments – be it tourism, logistics, industry or technology. Even warmer the welcome is for investors from BRICS Member States.
Acquisition of control over Russianenterprise by foreign companies
Generally the acquisition of a Russian company by a foreign entity is regulated by the same rules as those applicable to domestic acquisitions. There are, obviously, some restrictions to the access of foreign entities to areas of national interest, such as cryptography, national security, trading in certain products and technologies etc. At the same time Russian law as it stands at the moment assumes the necessity for state protection over domestic companies in certain areas such as exploration of natural resources, banking, insurance and some others.
The amount of participation (quotas) of foreign capital in the banking system is fixed. The quota is calculated as a ratio of the total capital belonging to non-residents in the registered capitals of credit organisations with foreign investments and the capital of branches of foreign banks to the aggregate registered capital of credit organisations registered on the territory of the Russian Federation. Upon reaching the quota the Bank of Russia suspends the issue of licences for banking operations to banks with foreign investments and branches of foreign banks. Currently the quota is 50%, a maximum level allowed by Russia's WTO membership.
A credit organisation must obtain the preliminary permission of the Bank of Russia for:
· placement of its shares among non-residents; or
· for an alienation of its shares to non-residents.
Resident shareholders of a credit organisation must also obtain consent from the Central Bank for an alienation of their share to non-residents. Failure to obtain such permission will lead to the invalidity of the transaction.
Similarly, an insurance company must obtain prior consent from the Federal Service for Insurance Supervision to increase their share of the registered capital formed out of non-resident resources, for an alienation of their stocks to non-residents, and resident participants for an alienation of their stocks to non-residents. Such consent will not be given to insurance companies, the subsidiaries of foreign entities, or those with more than 49% foreign shareholding, or those who obtain such participation as a result of the transaction if the quota of foreign capital in the insurance system has been reached. Currently the quota is 25%.
The Russian legislation restricts the purchase by foreign persons of the shares of domestic enterprises in certain areas. For example, no more than 20% of ordinary shares of gas companies can be sold to foreign entities. Foreign companies and individuals or Russian companies with more than 50% of foreign shareholders may not own agricultural land. Federal Law No.57 of 29 April 2008 restricts foreign investments in those Russian companies operating in certain «strategic» areas, such as construction, production and the trade of arms and military equipment, and technologies and space related activities. Strategic areas also include construction, manufacturing and the repair of aircraft, TV and radio broadcasting and other telecommunication services (excluding the internet), research and exploration of natural resources (on lands of «federal significance»), printing if the enterprise in question can print more than 200 million pages per month and publishing houses with a circulation of over 1 million copies per edition.
On the other hand, Russian legislation provides that a foreign company, at least 25% of shares in which is possessed by a Russian resident (10% if Russian residents are in possession of total 50% of its shares) is deemed to be a controlled foreign entity. The income generated by a controlled foreign entity is subject to taxation in Russia if such income exceeds RUR 10 million (€109,140). Nevertheless, such companies may be relieved from taxation in Russia if tax rates for corporate income tax in country of domicile of such entity exceeds 75% effective average rate of Russian CIT, the entity is an active foreign company, holding or sub holding company, operates a new marine hydrocarbon field, participates in mining projects under product-sharing agreements, concession agreements, licensing agreements or other risk-based agreements (contracts) and in some other cases.
Financial services
There are a number of legal Acts regulating the stock market, banking and investments. The principal legal Act for the stock market and securities is the federal law on the securities market of 22 April 1996, and the federal law on protection of rights and legitimate interests of investors on the securities market of 5 March 1999. Investment funds are regulated by the federal law on the investment funds of 29 November 2001.
In Russia the regulation of banking, insurance and investment is carried out by Central Bank of Russia. Until 1 September 2013, the Federal Service for Financial Markets of the Russian Federation (FSFM) (formerly the Federal Commission for Securities and Stock Market) was the state agency responsible for the regulation of stock market and investment business.
Russian law as it stands at the moment regulates collective investment schemes organised in the form of a joint stock investment fund or in the form of a unit trust.
A joint stock investment fund is, generally speaking, a Joint-Stock Company (JSC) whose exclusive activity is investments. The name of an investment company must contain the words «joint stock investment fund» or «investment fund». A joint stock investment fund is regulated by general legislation on joint stock companies with amendments and exceptions applicable to the investment companies.
A joint stock investment fund must be licenced by the Central Bank. At the time of filing an application for the licence the fund must have own capital in the amount aligning with the Central Bank Directives, of no less than RUR 5 million (approximately €54,000). The fund's property used for its own purposes and assets to be invested must be accounted for separately. Investment assets must be held in trust by a management company. The management can be a limited liability or a JSC and it must be licenced by the Central Bank. The fund's activity must comply with the investment mandate approved, normally, by the meeting of stockholders, and be registered with the Central Bank. This form of investment, however, is rather unpopular.
A unit trust does not comprise a legal entity. The participants of a unit trust pool their contributions into a property complex held in trust by a management company. The participants lose ownership over their contributions, and the trust's property is owned jointly by all trust members. The management company acts in its name but it must make it known that it acts as a trustee, otherwise the participants will be personal liable.
Again a management company and the trustee of a unit trust, must be authorised by the Central Bank.
Banking
The Central Bank of the Russian Federation is the regulatory body for banking and it is authorised to issue and withdraw licences to provide banking services. The main legal act is the federal law on banks and banking of 2 December 1990.
A bank can be incorporated in the form of a limited liability or a JSC or in other forms established by company law. Banks are entitled to accept money from individuals or legal entities on deposits, operate these funds in its name and at its own expense, open accounts. Russian law provides different arrangements for the non-banking credit institutions that can provide certain banking operations.
Banking names
The name of a credit institution must contain the words «bank» or «non-banking credit institution». The Central Bank may prohibit the use of a particular name if such name is already in the Book of State Registration of Credit Institutions.
A credit institution must publish its balance sheet quarterly; it must annually publish a profit and loss account, information about own capital and reserves, and annually a balance sheet and a profit and loss account together with the statement of an auditor who examined the bank's accounts.
Barrier tariffs
Since 2013, Russian banks apply so-called «barrier tariffs» as a measure against money laundering. Such tariffs apply to the operations and persons banks find suspicious. The measure is, by far, dubious, and application of such tariffs may be challenged in court.
Change of control and directors
The Central Bank must be notified about an acquisition in the ownership or trust by one legal entity or individual or a group of legal entities and/or individuals of more than 5% shares in a credit institution. Prior consent from the Central Bank is required for acquisition of more than 20% of shares. Founders of a bank may not exit within three years after incorporation.
Candidates for the following positions in a credit institution must comply with certain special requirements to qualification established by law and the Central Bank's regulations:
· a member of the board of directors;
· a chief executive and a deputy chief executive;
· a chief accountant and a deputy chief accountant;
· a head, a chief accountant and their deputies of branches.
A credit institution must notify the Central Bank in writing regarding a prospective appointment to the above mentioned positions in advance. The Central Bank is entitled to prohibit such appointment upon grounds established by law. A credit institution must also notify the Central Bank about each dismissal from these positions.
Insurance
Control over insurance is provided by the Federal Service of Insurance Supervision of the Ministry of Finance (FSIS). The principal legal act is the federal law on the organisation of insurance in the Russian Federation of 27 November 1992. Insurance companies are formed as limited liability or joint stock companies or in other forms of commercial organisations. Insurance companies must be authorised by the FSIS and be included in the register of insurers.
The name of an insurance company must identify the company's activity and include words like «insurance», «reinsurance», «mutual insurance» or «insurance broker». The head and the chief accountant of the insurer must have an economics or financial education and two years work experience in insurance. The actuary must have mathematical or economics education and an actuarial diploma in actuary. The head and the chief accountant of an insurance company must be citizens of the Russian Federation.
Insurance companies of which more than 49% of shareholders are foreign entities or individuals and subsidiaries of foreign insurance companies may not provide the following insurances:
· life insurance;
· obligatory state insurance (e. g. mandatory health insurance);
· property insurance, related to supply goods and services for the state needs;
· property insurance for state and municipal organisations.
Solvency requirements
The minimal charter capital of an insurance company depends on the kind of insurance the company is involved in and is between RUR 60 million (€600,700) and RUR 480 million (€4,700,600).
Insurers must comply with the solvency requirement established by law as related to reserves, an assets structure, reinsurance quotas, obligations against own capital ratio, etc.
Also, in some cases (e. g. life insurance, health insurance) insurance company activities shall be limited to only one type of insurance.
Currently, insurance services are provided for more than 100 types of insurance, the most popular of which are compulsory motor third party liability insurance (MTPL), accident and illness insurance, and personal property insurance.
Regulation, control and supervision of the activities of insurance entities: insurance organizations, insurance brokers and mutual insurance societies is carried out by the Bank of Russia.
The main tasks of the Bank of Russia are to prevent and suppress violations of insurance legislation and unfair practices, ensure the protection of the rights and legitimate interests of consumers of insurance services and the effective development of the insurance business.
The focus of insurance supervision is aimed at creating a reliable insurance environment, increasing the responsibility of the insurance business and consumer confidence in the insurance service. One of the key focuses of the Bank of Russia concerns the improvement of mechanisms for protecting the rights and legitimate interests of consumers of insurance services, as well as the development of behavioral supervision practices.
Taxation
Individuals
Personal income tax is imposed on the income of Russian residents and individuals who have sources of income in Russia. Individuals are deemed residents of Russia, for tax purposes, if they are present within the Russian Federation for at least 183 days in the calendar year (which is from January 1–December 31). In this case they are subject to Russian tax on their worldwide income. Non-residents pay tax on the Russian-source income only, at a rate of 30%, as against a flat rate of 13% for residents. Residents pay tax at the rate of 13% (against 15% for non-residents) on dividends received. However, from 1 January 2021, a progressive taxation scale will be used (so-called «wealth tax»), so resident individuals whose total personal income exceeds RUR 5 million (€54,555) subject to income tax of RUR 650,000 (€7,092) plus 15% of their income.
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Pavel Gerasimov
Pavel I. Gerasimov is an Honoured lawyer, with expertise in international sanctions, civil, criminal, tax, and immigration law. He is credited as the founder of crypto law and holds a PhD degree.
After graduating from the Law Faculty of the Peoples’ Friendship University of Russia, Fairleigh Dickinson University in the USA, and the University of Pennsylvania Carey Law School, Pavel obtained attorney licenses in the Russian Federation, Canada, and the UAE with exclusive right to practice within GCC.
Pavel is also recognized as an expert by the International Civil Aviation Organization (ICAO) and has successfully defended the rights of victims in various air crash cases, including the Tu-154 in Sochi, A-321 in Egypt, SSJ-100 at Moscow Sheremetyevo Airport, and Boeing-737 Max in Addis Ababa.
• Has published numerous articles and books on various legal topics, including cryptocurrencies and blockchain technology.
• Speaks several languages, including Russian, English, Spanish and Chinese.
• Regularly lectures at legal conferences and seminars around the world.
• Recognized as a leading authority in the field of international law and has been consulted by governments and corporations on legal matters.
• Committed to promoting justice and advocating for the rights of individuals in legal proceedings.
Pavel I. Gerasimov
Doing business in Russia
© Pavel I. Gerasimov
Introduction
Geography
Introduction
Russia, the major part of the former Soviet Union, is located in Eurasia, bordering the Arctic Ocean, between Europe and the North Pacific Ocean. With a total area of 17,316,000 km², Russia is the largest country in the world by territory. Its land boundaries stretch as far as 20,017km. Russia's border countries are Azerbaijan, Belarus, China, Estonia, Finland, Georgia, Kazakhstan, North Korea, Latvia, Lithuania, Mongolia, Norway, Poland and Ukraine. Its coastline is 37,653km, its territorial sea is 12nm, its exclusive economic zone is 200nm and its continental shelf is 200m depth or to the depth of exploitation.
Climate in Russia ranges from steppes in the south to humid continental in much of European Russia and subarctic in Siberia to tundra climate in the polar north. Winters are cool along the Black Sea coast and frigid in Siberia. Summers are warm in the steppes and cool along Arctic coast. Terrain is mostly plain with low hills west of Urals. There is vast coniferous forest and tundra in Siberia, uplands and mountains are along southern border regions. The lowest point in Russia is Caspian Sea at 28m, and the highest mountain is Elbrus, 5,633m, which is also the tallest peak in Europe.
Russia has a wide range of natural resources including oil, natural gas, coal, minerals and timber. However, there are climatic impediments to the exploitation of these resources: permafrost, spring floods and summer/autumn forest fires in Siberia; a too dry or too cold climate; and a lack of proper soil for agriculture.
Russia is party to a number of international agreements on environment: Air Pollution, Air Pollution – Nitrogen Oxides, Air Pollution – Sulfur 85, Antarctic – Environmental Protocol, Antarctic – Marine Living Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate Change, Climate Change Kyoto Protocol, Paris Agreement, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Wetlands and Whaling.
Currency
General
The national currency is the Russian ruble, which consists of 100 kopecks. The currency code is RUR. Exchange rates for 13 June 2024 were: Russian rubles per US $1–88; Russian rubles per UK £1–112; Russian rubles per €1–94.
National Holidays
General
1–2 January – New Year; 7 January – Orthodox Christmas; 23 February – Defenders of the Motherland Day; 8 March – International Women's Day; 1 May – Labour Day; 9 May – Victory Day; 12 June – Independence Day; 4 November – National Unity Day.
Political System
General
The main issue of the political transformation in the last three decades in Russia has been the legitimation of state power in society. The first time Russia faced similar problems was at the cusp between the 16th and 17th centuries when, after murder of Prince Dimitry, the major branch of the ruling dynasty of Ryurickovich ceased to exist. A new monarch, Boris Godunov, had «no God-given right to rule» in the eyes of common Russians and had to find a way to secure support in society. An attempt to legitimise power through the State Council where top clergy and dignitaries and more than 500 representatives from all over Russia were present was not particularly successful. Russia went into a long period of social disturbance and complete disintegration of state. The next similar crisis followed Nicholas II's abdication from the throne in February 1917. The February revolution destroyed monarchy as such. It appeared that Russia was not ready for the democratic reorganisation of society during the World War I, and the radical party of Bolsheviks took over the state. They founded their power on promise of peace and prosperity to war-torn people which was based on the communistic ideology, charisma of leaders and the following terror.
Today's political structure in Russia was not formed according to a predetermined plan; rather, it is the result of short-term trends of political rivalry. It is, therefore, important to consider not only how the system works on a functional level, but why it operates like that.
Mikhail Gorbachev, the last leader of the Communist Party of the USSR, realised that his power was not unlimited. It was strong enough to keep up the communist regime, but it was not for the transformation of the country. He needed sources of support in society, and so the system of free election to the councils of people's delegates was implemented. In the Soviet Union councils of people's delegates possessed the supreme power de jure, but in reality all power belonged to the Communist Party and the system of ispolkoms, executive bodies acting under the party's control. The idea was that the elected councils of people's delegates would weaken the Communist Party and support reforms. At the same time it was a way to preserve succession to the Soviet State. However, as the councils of people's delegates were originally designed as a mere window dressing for the power of the Communist Party, they were incapable to act in the real world and only accelerated the disintegration of the Soviet Union.
At the beginning of 1991 the first President of Russia, Boris Yeltsin, was in conflict with the federal centre. For him, a President elected directly by all citizens was a way to secure public support amidst this rivalry. The presidency was quite a new idea to Russian political life, and at the same time it was a move towards tradition for Russian personified power. The system, however, soon caused conflict between the President on one side and the Supreme Council, the Assembly of the People's Delegates, the legislative bodies and the vice-president on the other. The Supreme Council had the advantage in terms of legal power. Nevertheless in 1993 President Yeltsin managed to end the two-year rivalry by a series of non-constitutional acts, starting from the order for the dismissal of the Supreme Council and the Assembly of the People's Delegates and ending with an armed storm of the building with delegates.
Political system
As a result of Russia's turbulent history, the political system established by the Constitution of 1993 provides the President with substantial superiority over other branches of the state. The position of vice-president was abolished. The State Duma, the successor of the Supreme Council, became the lower chamber of the Parliament with very limited capacities. It lost control over the executive branch and could only approve or disapprove a Prime Minister suggested by the President. However, even this possibility is limited. After three consecutive disapprovals of his candidate, a President can dismiss the State Duma. A President is entitled to veto laws approved by the Duma. This veto can only be overcome by the qualified majority of the Duma members. Judges of the constitutional court are appointed by the Council of the Federation (the upper chamber of the Parliament), but only from those candidates introduced by the President. A similar procedure has been established as regards the heads of other judicial bodies. The procedure for amending the constitution has become practically impossible without the President's consent. Similarly, the impeachment of the President, theoretically possible under the current constitution, is hardly achievable in practice.
The President is elected for a term of six years by the citizens of the Russian Federation on the basis of general, equal and direct vote by a secret ballot. No one may hold the office of President for more than two terms in succession; still, being a president for more than two times total is legally possible. A candidate for the President of the Russian Federation can be nominated by a political party (or electoral block) or by the candidate personally. In the later case the candidate must have an initiative group of 500 supporters. An electoral block or an initiative voters' group that has nominated a candidate for the office of the President must collect no less than 300,00 voters' signatures in support of the candidate, with no more than 7,500 signatures falling on one subject of the Russian Federation. (A candidate nominated by a political party that is represented in the Parliament does not need to collect signatures). Political parties not represented in Parliament will have to collect only 100,000 signatures in support of their candidates, and independent candidates will have to provide 300,000 such signatures.
Russian law restricts the amount of candidates' expenditures for the election campaign. At present no more than RUR 400 million (around £3.9 million), or RUR 500 million (around £4.9 million) in the case of a two-round election, can be spent. A candidate cannot accept money for financing his or her campaign from foreign or international organisations or individuals, persons without citizenship, minors, domestic companies with foreign shareholders, charities and state or municipal bodies. A candidate who receives more than one half of the votes is considered elected. If no candidate is elected in the first round, the Central Election Commission sets the second round of election for the two candidates who received the greatest number of votes. A candidate who received the greater number of voters in the second round as compared with the number of votes cast for another candidate is considered elected, provided that the number of votes cast for this candidate is greater than the number of votes cast against all candidates.
The Federal Assembly, the Parliament of the Russian Federation, is the supreme legislative body of the Russian Federation. The Federal Assembly consists of two chambers: the Federation Council and the State Duma. The State Duma is elected for a term of four years. It consists of 450 deputies. From 2007 all deputies are elected in proportion to the number of votes cast for the lists of candidates nominated by political parties. The Federation Council consists of two representatives from each subject of the federation, one from the representative and one from the executive bodies of the State authority.
Deputies to the Federation Council and deputies to the State Duma possess immunity throughout their term in office. A deputy may not be detained, arrested or searched except when detained in the act of perpetrating a crime, and may not be subject to personal search except when such search is authorised by law to ensure safety of other people. The question of stripping a deputy of immunity is decided on the recommendation of the Prosecutor-General of the Russian Federation by the corresponding chamber of the Federal Assembly.
The Government consists of the Chairman of the Government, the Deputy Chairman of the Government and Federal Ministers. The Chairman is appointed by the President with consent of the State Duma. If the State Duma thrice rejects candidates for the Chairman of the Government nominated by the President, the President appoints a Chairman of the Government, dissolves the State Duma and calls a new election.
The Prosecutor's Office of the Russian Federation is a single centralised system in which lower prosecutors are subordinated to higher prosecutors and the Prosecutor-General. The Prosecutor-General is appointed to the post and relieved from it by the Federation Council on nomination by the President. Prosecutors are appointed by the Prosecutor-General.
Legislative process
The legislative process in Russia includes three hearings in the State Duma, then approval by the Council of the Federation and the President. The laws adopted by the State Duma are passed to the Council of the Federation for review. A federal law is considered passed by the Council of the Federation if more than half of its deputies vote for it or if within 14 days it has not been considered. In the event that the State Duma disagrees with the decision of the Federation Council, a federal law is considered adopted if, after a second vote, at least two-thirds of the total number of deputies to the State Duma vote for it. Then, however, laws must be considered by the Council of the Federation. These are laws that deal with the issues of: the federal budget; federal taxes and duties; financial, monetary, credit and customs regulations and money transmission; the ratification and withdrawal from international treaties; the status and protection of the state border; and issues of war and peace.
The adopted federal law is sent to the President. If the President rejects a federal law the State Duma and the Federation Council must again consider the law. If, during the second hearings, the federal law is approved in its earlier draft by a majority of not less than two-thirds of the total number of deputies of the Council of the Federation and the State Duma, it must be signed by the President.
Federation
Russia is a federation with capital in Moscow (population – approximately 13,149,800). It used to consist of 83 subjects before the accession of Crimea, and currently there are 89 subjects following the accession of new territories in 2022 Currently there are 48 Oblasts, 24 Republics, 4 Autonomous Okrugs, 9 Krais, 3 Federal cities, and 1 Autonomous Oblast. These subjects of the federation (regions) are deemed to have equal political rights but they are not equal in area, population or economic development.
They are (administrative divisions have the same names as their administrative centres, exceptions have the administrative centre name following in parentheses):
(1) Oblasts:
Amur (capital – Blagoveshchensk), Arkhangelsk, Astrakhan, Belgorod, Bryansk, Chelyabinsk, Chita, Irkutsk, Ivanovo, Kaliningrad, Kaluga, Kemerovo, Kirov, Kostroma, Kurgan, Kursk, Kharkiv Leningrad, Lipetsk, Magadan, Moscow, Murmansk, Nizhniy Novgorod, Novgorod, Novosibirsk, Omsk, Orenburg, Orel, Penza, Pskov, Rostov, Ryazan, Sakhalin (capital – Yuzhno-Sakhalinsk), Samara, Saratov, Smolensk, Sverdlovsk (capital – Yekaterinburg), Tambov, Tomsk, Tula, Tver, Tyumen, Ulyanovsk, Vladimir, Volgograd, Vologda, Voronezh, Yaroslavl, Zaporozia.
(2) Republics:
Adygeya (capital – Maykop), Altay (capital – Gorno-Altaysk), Bashkortostan (capital – Ufa), Buryatiya (capital – Ulan-Ude), Chechnya (capital – Groznyy), Chuvashiya (capital – Cheboksary), Crimea (capital – Simferopol), Dagestan (capital – Makhachkala), Donetsakaya (capital – Donetsk), Ingushetiya (capital – Magas), Kabardino-Balkariya (capital – Nalchik), Kalmykiya (capital – Elista), Karachayevo-Cherkesiya (capital – Cherkessk), Kareliya (capital – Petrozavodsk), Khakasiya (capital – Abakan), Komi (capital – Syktyvkar), Lughanskaya (capital – Lughansk) Mariy-El (capital – Yoshkar-Ola), Mordoviya (capital – Saransk), Sakha [Yakutiya] (capital – Yakutsk), North Ossetia (capital – Vladikavkaz), Tatarstan (capital – Kazan), Tyva (capital – Kyzyl), Udmurtiya (capital – Izhevsk).
(3) Autonomous Okrugs:
Chukotka (capital – Anadyr), Khanty-Mansi, Komi-Permyak (capital – Kudymkar), Nenets (capital – Naryan-Mar), Yamalo-Nenets (capital – Salekhard).
(4) Krais:
Altay (capital – Barnaul), Kamchatskiy (capital – Petropavlovsk – Kamchatskiy), Khabarovsk, Krasnodar, Krasnoyarsk, Perm, Primorskiy (capital – Vladivostok), Stavropol, Zabaykalsk (capital – Chita).
(5) Federal cities:
Moscow, Saint Petersburg, Sevastopol.
(6) Autonomous Oblast:
Yevrey [Jewish] (capital – Birobidzhan).
Subjects of the federation have their legislatures and governments, who act within the competence determined by the constitution and, in some cases, an agreement between the federation and the region. It is supposed that outside of the jurisdiction of the federation and the joint jurisdiction of the federation and the subjects of the federation, the regions exercise the entire spectrum of state power. In reality most of the Russian laws are in the federal competence and as such have superiority over regional legal acts. Another complication of relations between the federation and the regions is the composition of the tax and budget systems. At the moment the majority of regions receive financial assistance from the federal budget.
Municipalities
There are over 240,000 municipalities in Russia. The structure of a municipal government is determined by the regional legislation under the legal framework established by the federal laws and includes a legislative body at local level.
Sources of Law
Law in Russian society
The Russian legal system in its main features follows those of the European countries. The principles and ideas lying in its foundation are the inviolability of ownership, freedom of contract and the judicial protection of rights along with others that are recognised and shared by modern Western society. Most Russians share Western social values. Moreover, they truly consider themselves to be a part of the Western culture. However, Russia has somewhat different experiences and its own answers to historical challenges.
For those doing business in Russia or with Russians an understanding of the role of law in Russian society is of important practical value. It is likewise important to understand the difference not only between law and repression but between law and other forms of regulation of the human relations like, for example, economic or social pressure, religious beliefs or family relationships. Law is the product of long historical experience and not merely a product of the legislative power of the sovereign. The idea that the law-maker may enact any law it pleases has ignored the fact that law in a deeper sense, like other social institutions, is a living tradition. Law is a part of a culture and as such it is intimately connected to the whole historical experience of a nation.
According to a leading sociologist, Talcott Parsons, Western social institutions are based on the institutions of ancient Greece and Rome. This relation has three main «bridges». First of all, the Western Christian Church kept an idea of formal equality of all people as an example for the whole society – a society where there are no privileges, and everybody is equal in the sight of God, who appreciates them according to their individual qualities. On the other hand, the Western Church was always a unified institution, with the centre in Rome, independent from civil government. Secondly, the organisation of Western medieval cities, just as in a modern society, was based on principles other than personal relationship or origin. A medieval city with private property and market became a point of growth for modern economical institutions. Thirdly is the legacy of a Roman-Greek legal structure with professional bureaucracy, an army and uniform law for the whole country.
Russian social and legal institutions emerged from a background very similar to that of the Western Europeans. The Slavonic tribes, predecessors of Russians, seem to have had a social order not essentially different from that of Germanic tribes who settled in the West. The laws of ancient Russia were similar to the Anglo-Saxon or Germanic or Frankish law at this time. Russians as well as West Europeans were converted from paganism to Christianity and despite provincial differences shared the ideas of the Western Church. However, if we view Russian history as a whole and compare it with the history of the West we see that perhaps the most striking difference between the two histories is the relative deficiency of the role of law in the Russian social relations. The historical choice of the Russian society was that the law as an institute of the formal rules and procedures did not supersede completely the informal rules and regulation.
When the Bolsheviks came to power as the result of the Socialist Revolution in 1917 they considered law as the instrument of class exploitation. The People's Commissariat of Justice enacted in 1919 «Leading Principles of Criminal Law», which stated:
«only with the final smashing of the opposing overthrown bourgeois and middle classes and with the realization of the communist social order will the proletariat annihilate both the state as an organization of coercion, and law as a function of the state.»
Moreover, they saw a legal system as a reflection of the market and expected that the abolition of the market and of economic individualism would bring about «the withering away of law in general, that is the gradual disappearance of the juridical element from human relations» (E. Pashukanis, The General Theory of Law and Marxism (Transaction Publishers, 2001)).
Despite the fact that the Communists soon set aside the idea of the inevitable withering away of law in the Soviet Union, a large part of social relations was outside of the legal regulation. Moreover, many forms of commercial activity were directly outlawed. For example, for private entrepreneurship one could be imprisoned for up to five years with confiscation of all property; for speculation, which was effectively a trading operation, where profit is made on the margin between purchase and selling prices, one could be imprisoned for up to seven years; for transactions with foreign currency, one could have been sentenced for up to eight years. Land, real estate, machinery and other means of production were by far owned by the state. The institute of proprietorship was abolished, and the inheritance was made unjustly complicated.
That said, however, it does not mean that there is no law at all in Russia or that law is just a window dressing for a system of hierarchical subordination backed up by force and corruption. On the contrary, Russian law stands on determined and clear legal principles following in its main features the legal principles of the modern Western society. Moreover, in this writer's view, rule of law is still and was possible even during the darkest years of Russia's history.
The truth probably is that in Russia the law is competing with other forms of social regulation to a much larger extent than that in most Western countries. This conflict being a part of the everyday life, it largly influences the way business is done in this country and those considering undertaking business in Russia should be prepared for the cumbersome and ineffective work of some governmental bodies, even though in recent years the availability and speed of most government services provided improved drastically, mostly because of widespread governmental e-services; there is a tendency of state authorities and even courts to interpret Russian laws narrowly, reducing one's private rights, and there is a negligence of the law by certain parts of Russian society. It also shall be taken in account that in recent years protectionist tendencies and so-called «protection of traditional values» are on the rise.
Sources of Russian law
The framework of the Russian legal system is created by the constitution, constitutions of the subjects of the federation, decisions of the constitutional court, decisions and directives of the Supreme Court, international treaties, federal constitutional laws and federal laws, regional laws and ordinances, municipal legal acts, directives and statements of the Central Bank and government ministries and state authorities.
The conflict of legal acts is resolved according to the juridical power of the legal acts. The constitution has supreme power over the whole territory of Russia. Codes and federal constitutional laws have more power than federal laws. A conflict between regional and federal laws is decided in favour of a regional law if one is admitted within the regional competence and vice versa. An international treaty that has been ratified has direct effect and precedence over domestic legislation.
Russia is a civil law country; decisions rendered by courts are not binding on other courts. However, the lower courts generally follow the principles established by the Supreme Courts. Moreover, according to art.304 of the Code of Procedure in commercial courts, the Economic Panel of the Supreme Court (until 2014–Supreme Commercial Court) can set aside a decision of a lower court on the grounds that this decision contravenes uniformity in interpretation of law as established by case law. In practice precedents of the higher courts are becoming an important source of Russian law.
Useful Links/government Contacts
Websites [All accessed on 17 April 2021]
Russian Law Resources in English: http://www.russianlawonline.com.
President of the Russian Federation: http://president.kremlin.ru.
The Russian administrative bodies: http://www.gov.ru.
Security Council: http://www.scrf.gov.ru.
The Council of the Federation: http://www.council.gov.ru.
The State Duma: http://www.duma.gov.ru.
The Government: http://www.pravitelstvo.gov.ru.
The Constitutional Court: http://ks.rfnet.ru.
The Supreme Court: http://www.supcourt.ru.
Federal Courts: https://sudrf.ru/.
The Central Bank: http://www.cbr.ru.
The Central Electoral Commission: http://www.cikrf.ru/.
The Federal Tax Service: https://nalog.ru/.
Unified Portal for State Services: https://gosuslugi.ru/.
Finance
Imports and Exports
General
Russia is a Member State of the Eurasian Economic Union (EAEU). Russia shares its customs and border regime with Armenia, Belarus, Kazakhstan and Kyrgyzstan.
The customs legislation is codified. It consists of the Customs Code of EAEU, and corresponding EAEU acts, treaties, federal laws, orders of the President, ordinances of the Government and numerous regulations of the Federal Customs Service. As an EAEU member, Russia also is a member of multiple free trade agreements (e. g. between EAEU and Singapore, Vietnam or Serbia).
Federal customs service
The Federal Customs Service is a united centralised organisation, which is answerable to the Government of the Russian Federation. It is responsible for control of imported and exported goods in the Russian Federation; the collection of customs payments, anti-dumping and compensations duties; the compilation of statistics; the prevention and restraint of cross-border fraud and the violation of the currency control regulation. The Federal Customs Service is a huge organisation employing tens of thousands of people and is responsible for the major source of state revenues. It is often criticised for being a difficult and unpredictable organisation. Yet, as governmental e-services spiked in Russia in recent years, many of the services are provided via the Federal Customs Service website, accelerating the decision-making process and making it more transparent.
Import
Entry points
Goods may be imported into the Russian Federation through the entry points on the Russian border. Some goods, however, e. g. alcohol, tobacco or meat, can be imported only through specially designated places.
Import licences and quotas
As a general rule, goods entering the Russian Federation can be imported without any restrictions. There is, however, a rather narrow list of goods which can only be imported with the authority of a licence granted by the Government such as, e. g. alcohol, encryption systems or military objects. In some cases the Government imposes quotas or special duties on particular goods. This normally includes such goods as meat, fish or products of agriculture.
Since accession to the WTO, number of import quotas has been gradually falling, quotas being effectively replaced by import tariffs. Still, at the moment this report is being written quotas are imposed on several categories of goods, like metal or meat.
In 2021, however, several important changes in customs legislation come in force. Firstly, from 1 January 2021, customs duties are to be paid simultaneously with customs reporting unless the goods are imported from another EAEU Member State. Also, new rules are set for expertice of imported items of cultural and artistic values and some medical products. In February 2021 (with a follow-up in April 2021) new rules for filing a customs declaration come into force, and from 1 March 2021, additional marks in paperback documents will not be made in case of electronic customs declaration filing.
Since spring 2022, the authorities have legalized parallel imports into the Russian Federation at the federal legislative level, protecting Russian companies that import goods without the permission of the copyright holder from possible civil, administrative and criminal liability.
The Constitutional Court spoke in favor of allowing parallel imports in Russia several years ago. The Constitutional Court Resolution of 13.02.2018 No. 8–P stated that such a mechanism can be used to import vital goods: medicines, equipment for life support of the population, and the like.
However, until the beginning of 2022, arbitration courts in most cases still recognized parallel imports as illegal. Thus, the Arbitration Court of the Moscow Region prohibited individual entrepreneur Marina Lobanova from selling Swiss Curaprox toothbrushes without the permission of the copyright holder (case No. A41–54785/2021). The individual entrepreneur was ordered to pay 400,000 rubles in favor of the foreign company. This compensation was awarded because Lobanova sold goods in Russia on Wildberries t
at were intended for shipment only to the Czech Republic, Germany, Estonia, Great Britain, Italy, Kuwait and Thailand. The appeal recognized this approach as legal.
The situation changed after February 24, 2022, when Western countries-imposed sanctions against Russia, and some foreign companies on their own initiative refused to supply goods to the Russian Federation. Then the authorities decided to quickly legalize parallel imports:
· March 8, 2022 – Federal Law No. 46–FZ was adopted. In paragraph 13, Part 1 and Part 2 of Article 18, the Government of the Russian Federation or another body on behalf of the government is granted the right to determine the list of goods that can be imported through parallel imports. March 29, 2022 – Resolution No. 506 of the Government of the Russian Federation was adopted, according to which the Ministry of Industry and Trade was approved as the body responsible for forming the list.
· April 19, 2022 – Order No. 1532 of the Ministry of Industry and Trade was issued and a list of specific goods that can be imported under this scheme was determined.
· July 21, 2023 – a new Order No. 2701 of the Ministry of Industry and Trade was approved, which comes into force in November. It specifies the list of goods that can be imported under parallel import.
In its acts, the Ministry of Industry and Trade compiled a list of goods that can be imported into the territory of the Russian Federation without the permission of the copyright holder. Over the past year and a half, this list has been updated more than five times, and now it includes products from several hundred foreign enterprises.
Parallel import of which goods is permitted:
· Any brands of clothing and footwear.
· Rubber and rubber products, soap, detergents, plastics.
· Salt.
· Pharmaceutical products from O. B. and Carefree.
· Electronics from Apple, Samsung, HP, Intel, Siemens, Asus, GoPro, Panasonic, Electrolux.
· Household appliances from Electrolux, Miele, Siemens, Dyson, Philips and Zanussi.
· Equipment for various industrial sectors.
· Game consoles XBox, PlayStation, Nintendo.
· Children's goods Hasbro, Mattel, Logitech and Nintendo.
· Cars of various classes and spare parts for them: Tesla, Land Rover, Chrysler, Bentley, Hummer, Rolls-Royce, Toyota, Skoda, Volkswagen and others.
Origin of goods
Goods are considered to originate in a country where they were wholly produced or largely processed. Documentary evidence, in the form of a certificate of origin, is normally required. The certificate must clearly state that goods originate in a particular country and the certificate must contain a written statement of the sender of the goods that they comply with a relevant criteria of origin. The statement must be witnessed by the state authorities of the sender's country.
As a result of «counter-sanctions» after 2014 sanctions from EU/EEA and other countries, some products originating in the EU/EEA and/or some other countries which imposed sanctions on Russia are either only available to be imported in moderate amounts for personal use only or completely banned. This applies mostly to foods and delicacies (e. g. meat, dairy, fruits, vegetables, etc), but the list is subject to change. So-called «counter-sanctions» were originally imposed in 2014 by an order of the President, and originally were to expire on 6 August 2015, but the order has been renewed annually ever since.
Customs payments
Customs payments include customs duty, VAT, excise, and a fee for the registration of goods.
Customs duty is usually charged as an ad valorem duty. An obligation to pay the duty arises the moment goods cross the customs border.
The principle method of the valuation of goods is the transaction method, based on the price actually paid for the goods. Once this method cannot be applied. In particular when there is no documentary evidence, or the information provided does not appear to be true, or when buyers acquire limited rights over goods or their rights depend on unpredictable circumstances, or when a transaction takes place between connected persons, customs officers can use other methods of valuation, for example those based on the price with identical or analogous goods, prices on internal market for similar products or even methods based on assumed production costs and delivery expenses and others. However, such valuation, as well as classification of goods to some extent, may be challenged in commercial courts.
Due to the Covid–19 pandemic, reduced customs duty rates are currently applied to products of critical import and medical products that help fight the coronavirus (thode include some foods like potatos or rice and products of medical use like thermometers, endoscopes and some medicines). However, those reduced rates and reliefs expire on 31 March 2021.
Imported goods, generally, are subject to VAT. There are some exceptions; certain medical equipment is an example. Imported technological equipment contributed into a charter capital of a Russian company is also exempt of VAT. The VAT rate is 20%; for some goods such as some items for children, certain medicines and food the VAT rate is 10%.
A fee for the registration of goods depends on their customs valuation and is relatively small. From 1 August 2020, mininum fee for the registration of goods is RUR 775 (€8.46) and the maximum fee is RUR 30,000 (€327.42).
Some goods such as products of medical use, alcohol or oil are subject to excise. The excise rates are determined by the relevant legal acts.
Anti-dumping duties
Anti-dumping measures are taken when goods are imported into Russia at a price below that at which they are normally sold in their country of origin. A decision on the imposition of anti-dumping duties follows a special anti-dumping investigation and is made by the Government of the Russian Federation. Anti-dumping duties are most applicable towards machinery, machinery detais and some foods. Rates of anti-dumping duties are set by EAEU commission. For example, on 25 February 2021, expires an anti-dumping duty on steel pipes from Ukraine, and on 18 August expires an anti-dumping duty on truck tyres imported from PRC.
Compensation duties
The compensation duties are imposed by the Government when the production of goods imported into Russia has been subsidised by a foreign state. The rate of compensation duty cannot be higher than an amount of the subsidy as related to one article of goods.
Export
As a rule, an export from the Russian Federation does not require any permissions or licences. In some cases, however, the Government imposes restrictions (quotas) and/or licences on the export of certain goods. Restrictions may normally be imposed on the export of oil, gas, certain natural resources, valuable sorts of timber, fish or sea products. Apart from these, the Government may restrict exports for security reasons and in compliance with international obligations.
Generally, export duty is an ad valorem duty. However, goods exported from Russia to EAEU are not subject to export duties as EAEU Treaty effectively provides for single market for EAEU Member States.
A temporary ban on the export of certain goods and equipment from Russia has been extended until the end of 2025.
The export restriction applies, among other things, to technological and medical equipment, agricultural machinery, electrical equipment, turbines, nuclear reactors, fiber-optic cables, certain types of aircraft, radar devices, batteries, and metalworking machines.
Their export is prohibited to all foreign countries, with the exception of member states of the Eurasian Economic Union.
However, a number of exceptions are provided: export restrictions will not apply to samples of medical products previously imported to Russia for state registration.
The ban will also not apply to refrigeration equipment, certain types of pumps, and a number of categories of vessels.
In addition, restrictions on the export of certain types of goods by systemically important organizations and their subsidiaries have been relaxed. The decision on the export of goods by such organizations will be made by the Government based on proposals from relevant ministries and departments.
The possibility of applying restrictions on the import of seeds of certain types of agricultural crops from unfriendly countries is extended until the end of 2025. This concerns seeds of potatoes, wheat, rye, barley, corn, soybeans, rapeseed, sunflower and sugar beet.
The lists of goods and equipment temporarily prohibited from export from Russia were determined by the Government in March 2022. The decision was made in pursuance of the Presidential Decree «On the application of special economic measures in the sphere of foreign economic activity in order to ensure the security of the Russian Federation» and is necessary to protect the domestic market.
Investment and Finance
General
It is Russian policy to welcome foreign investments. Generally, as Russia is a WTO Member State, the regime for foreign companies and the use of the received profit by them cannot be less favourable than the legal regime which is applied to Russian companies. The withdrawals limiting the rights of the foreign companies may be established by federal laws in public interests (e. g. foreigners are prohibited from acquisition of land close to the border).
The federal law «On foreign investments», enforced from 9 July 1999 provides guarantees from any adverse changes to Russian legislation. In particular, new laws increasing tax burdens do not extend to Russian companies with foreign participation of 10% or more of their capital or to any Russian company with foreign capital if such a company is engaged on a «priority project»; that is, one with a total amount of investments of at least RUR 1 billion (approximately €10,970,900) or where a foreign company purchases an equity interest of at least RUR 100 million (approximately €1,097,090). The exemption is granted during the project's yield period, of no longer than seven years.
Russia also warmly welcomes investment in its several Special Economic Zones (SEZs) across the country. Those zones are differentiated by types of preferred economy sector for investments – be it tourism, logistics, industry or technology. Even warmer the welcome is for investors from BRICS Member States.
Acquisition of control over Russianenterprise by foreign companies
Generally the acquisition of a Russian company by a foreign entity is regulated by the same rules as those applicable to domestic acquisitions. There are, obviously, some restrictions to the access of foreign entities to areas of national interest, such as cryptography, national security, trading in certain products and technologies etc. At the same time Russian law as it stands at the moment assumes the necessity for state protection over domestic companies in certain areas such as exploration of natural resources, banking, insurance and some others.
The amount of participation (quotas) of foreign capital in the banking system is fixed. The quota is calculated as a ratio of the total capital belonging to non-residents in the registered capitals of credit organisations with foreign investments and the capital of branches of foreign banks to the aggregate registered capital of credit organisations registered on the territory of the Russian Federation. Upon reaching the quota the Bank of Russia suspends the issue of licences for banking operations to banks with foreign investments and branches of foreign banks. Currently the quota is 50%, a maximum level allowed by Russia's WTO membership.
A credit organisation must obtain the preliminary permission of the Bank of Russia for:
· placement of its shares among non-residents; or
· for an alienation of its shares to non-residents.
Resident shareholders of a credit organisation must also obtain consent from the Central Bank for an alienation of their share to non-residents. Failure to obtain such permission will lead to the invalidity of the transaction.
Similarly, an insurance company must obtain prior consent from the Federal Service for Insurance Supervision to increase their share of the registered capital formed out of non-resident resources, for an alienation of their stocks to non-residents, and resident participants for an alienation of their stocks to non-residents. Such consent will not be given to insurance companies, the subsidiaries of foreign entities, or those with more than 49% foreign shareholding, or those who obtain such participation as a result of the transaction if the quota of foreign capital in the insurance system has been reached. Currently the quota is 25%.
The Russian legislation restricts the purchase by foreign persons of the shares of domestic enterprises in certain areas. For example, no more than 20% of ordinary shares of gas companies can be sold to foreign entities. Foreign companies and individuals or Russian companies with more than 50% of foreign shareholders may not own agricultural land. Federal Law No.57 of 29 April 2008 restricts foreign investments in those Russian companies operating in certain «strategic» areas, such as construction, production and the trade of arms and military equipment, and technologies and space related activities. Strategic areas also include construction, manufacturing and the repair of aircraft, TV and radio broadcasting and other telecommunication services (excluding the internet), research and exploration of natural resources (on lands of «federal significance»), printing if the enterprise in question can print more than 200 million pages per month and publishing houses with a circulation of over 1 million copies per edition.
On the other hand, Russian legislation provides that a foreign company, at least 25% of shares in which is possessed by a Russian resident (10% if Russian residents are in possession of total 50% of its shares) is deemed to be a controlled foreign entity. The income generated by a controlled foreign entity is subject to taxation in Russia if such income exceeds RUR 10 million (€109,140). Nevertheless, such companies may be relieved from taxation in Russia if tax rates for corporate income tax in country of domicile of such entity exceeds 75% effective average rate of Russian CIT, the entity is an active foreign company, holding or sub holding company, operates a new marine hydrocarbon field, participates in mining projects under product-sharing agreements, concession agreements, licensing agreements or other risk-based agreements (contracts) and in some other cases.
Financial services
There are a number of legal Acts regulating the stock market, banking and investments. The principal legal Act for the stock market and securities is the federal law on the securities market of 22 April 1996, and the federal law on protection of rights and legitimate interests of investors on the securities market of 5 March 1999. Investment funds are regulated by the federal law on the investment funds of 29 November 2001.
In Russia the regulation of banking, insurance and investment is carried out by Central Bank of Russia. Until 1 September 2013, the Federal Service for Financial Markets of the Russian Federation (FSFM) (formerly the Federal Commission for Securities and Stock Market) was the state agency responsible for the regulation of stock market and investment business.
Russian law as it stands at the moment regulates collective investment schemes organised in the form of a joint stock investment fund or in the form of a unit trust.
A joint stock investment fund is, generally speaking, a Joint-Stock Company (JSC) whose exclusive activity is investments. The name of an investment company must contain the words «joint stock investment fund» or «investment fund». A joint stock investment fund is regulated by general legislation on joint stock companies with amendments and exceptions applicable to the investment companies.
A joint stock investment fund must be licenced by the Central Bank. At the time of filing an application for the licence the fund must have own capital in the amount aligning with the Central Bank Directives, of no less than RUR 5 million (approximately €54,000). The fund's property used for its own purposes and assets to be invested must be accounted for separately. Investment assets must be held in trust by a management company. The management can be a limited liability or a JSC and it must be licenced by the Central Bank. The fund's activity must comply with the investment mandate approved, normally, by the meeting of stockholders, and be registered with the Central Bank. This form of investment, however, is rather unpopular.
A unit trust does not comprise a legal entity. The participants of a unit trust pool their contributions into a property complex held in trust by a management company. The participants lose ownership over their contributions, and the trust's property is owned jointly by all trust members. The management company acts in its name but it must make it known that it acts as a trustee, otherwise the participants will be personal liable.
Again a management company and the trustee of a unit trust, must be authorised by the Central Bank.
Banking
The Central Bank of the Russian Federation is the regulatory body for banking and it is authorised to issue and withdraw licences to provide banking services. The main legal act is the federal law on banks and banking of 2 December 1990.
A bank can be incorporated in the form of a limited liability or a JSC or in other forms established by company law. Banks are entitled to accept money from individuals or legal entities on deposits, operate these funds in its name and at its own expense, open accounts. Russian law provides different arrangements for the non-banking credit institutions that can provide certain banking operations.
Banking names
The name of a credit institution must contain the words «bank» or «non-banking credit institution». The Central Bank may prohibit the use of a particular name if such name is already in the Book of State Registration of Credit Institutions.
A credit institution must publish its balance sheet quarterly; it must annually publish a profit and loss account, information about own capital and reserves, and annually a balance sheet and a profit and loss account together with the statement of an auditor who examined the bank's accounts.
Barrier tariffs
Since 2013, Russian banks apply so-called «barrier tariffs» as a measure against money laundering. Such tariffs apply to the operations and persons banks find suspicious. The measure is, by far, dubious, and application of such tariffs may be challenged in court.
Change of control and directors
The Central Bank must be notified about an acquisition in the ownership or trust by one legal entity or individual or a group of legal entities and/or individuals of more than 5% shares in a credit institution. Prior consent from the Central Bank is required for acquisition of more than 20% of shares. Founders of a bank may not exit within three years after incorporation.
Candidates for the following positions in a credit institution must comply with certain special requirements to qualification established by law and the Central Bank's regulations:
· a member of the board of directors;
· a chief executive and a deputy chief executive;
· a chief accountant and a deputy chief accountant;
· a head, a chief accountant and their deputies of branches.
A credit institution must notify the Central Bank in writing regarding a prospective appointment to the above mentioned positions in advance. The Central Bank is entitled to prohibit such appointment upon grounds established by law. A credit institution must also notify the Central Bank about each dismissal from these positions.
Insurance
Control over insurance is provided by the Federal Service of Insurance Supervision of the Ministry of Finance (FSIS). The principal legal act is the federal law on the organisation of insurance in the Russian Federation of 27 November 1992. Insurance companies are formed as limited liability or joint stock companies or in other forms of commercial organisations. Insurance companies must be authorised by the FSIS and be included in the register of insurers.
The name of an insurance company must identify the company's activity and include words like «insurance», «reinsurance», «mutual insurance» or «insurance broker». The head and the chief accountant of the insurer must have an economics or financial education and two years work experience in insurance. The actuary must have mathematical or economics education and an actuarial diploma in actuary. The head and the chief accountant of an insurance company must be citizens of the Russian Federation.
Insurance companies of which more than 49% of shareholders are foreign entities or individuals and subsidiaries of foreign insurance companies may not provide the following insurances:
· life insurance;
· obligatory state insurance (e. g. mandatory health insurance);
· property insurance, related to supply goods and services for the state needs;
· property insurance for state and municipal organisations.
Solvency requirements
The minimal charter capital of an insurance company depends on the kind of insurance the company is involved in and is between RUR 60 million (€600,700) and RUR 480 million (€4,700,600).
Insurers must comply with the solvency requirement established by law as related to reserves, an assets structure, reinsurance quotas, obligations against own capital ratio, etc.
Also, in some cases (e. g. life insurance, health insurance) insurance company activities shall be limited to only one type of insurance.
Currently, insurance services are provided for more than 100 types of insurance, the most popular of which are compulsory motor third party liability insurance (MTPL), accident and illness insurance, and personal property insurance.
Regulation, control and supervision of the activities of insurance entities: insurance organizations, insurance brokers and mutual insurance societies is carried out by the Bank of Russia.
The main tasks of the Bank of Russia are to prevent and suppress violations of insurance legislation and unfair practices, ensure the protection of the rights and legitimate interests of consumers of insurance services and the effective development of the insurance business.
The focus of insurance supervision is aimed at creating a reliable insurance environment, increasing the responsibility of the insurance business and consumer confidence in the insurance service. One of the key focuses of the Bank of Russia concerns the improvement of mechanisms for protecting the rights and legitimate interests of consumers of insurance services, as well as the development of behavioral supervision practices.
Taxation
Individuals
Personal income tax is imposed on the income of Russian residents and individuals who have sources of income in Russia. Individuals are deemed residents of Russia, for tax purposes, if they are present within the Russian Federation for at least 183 days in the calendar year (which is from January 1–December 31). In this case they are subject to Russian tax on their worldwide income. Non-residents pay tax on the Russian-source income only, at a rate of 30%, as against a flat rate of 13% for residents. Residents pay tax at the rate of 13% (against 15% for non-residents) on dividends received. However, from 1 January 2021, a progressive taxation scale will be used (so-called «wealth tax»), so resident individuals whose total personal income exceeds RUR 5 million (€54,555) subject to income tax of RUR 650,000 (€7,092) plus 15% of their income.
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Павел Герасимов
Тип: электронная книга
Жанр: Юриспруденция
Язык: на английском языке
Издательство: Эдитус
Дата публикации: 16.10.2024
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О книге: Pavel I. Gerasimov is an Honoured lawyer, with expertise in international sanctions, civil, criminal, tax, and immigration law. He is credited as the founder of crypto law and holds a PhD degree.