WHAT PROBLEMS FOREIGN COMPANIES USUALLY FACE IN RUSSIA?

Russian business environment has developed much in recent years, yet there are still problems which foreign companies usually face in Russia:

1.  Bureaucracy. 

Bureaucracy is still one of the problems foreign companies usually face in Russia.

Currently there is a number of separate legal authorities and each of them requires regular reporting, makes inspections to the business units and are able to issue penalty in case reports are not in line with corresponding regulations or were not submitted in due time.

The main legal bodies are Tax control, Customs, Federal agency for Social Insurance, Russian Pension Capital Fund, Federal State Statistics Service and Labor Inspection Service.

In 2016 it is planned that some of above legal authorities will be merged together, but currently they are still separate.

Also to mention each and every business transaction in Russia should be accompanied by correct set of documents. Papers in Russia are very important.

Hint:

-                  You need to have experienced accountant either in-house or outsourcing to submit reports to all bodies above timely and without mistakes. Accountant will also need to ensure each business transaction is accompanied by necessary paperwork.

-                  Corresponding electronic accountant systems should be installed to perform correct reporting and accounting routines. Most commonly used system for this purpose is 1C system in various modifications.

2. Customs.

Problems with Russian Customs is a usual thing foreign companies encounter in Russia.

If you intend to import goods to Russia you will first need to define commodity code in accordance with Russian Customs code. First six numbers of commodity code are the same as

for Harmonized System code (HS code).

When the code is specified you can find out what certification or licenses are needed to have goods imported into Russia and what is Customs duty for the code.

Basically there is 2 options to interact with Customs:

-        You can interact directly by registering your Company as importer.To proceed this way you will need to submit necessary legal papers and buy and install software for submitting electronic Customs declarations.

-        You can interact through licensed Customs broker who will then bear joint and several responsibility for submitted declarations

Based on 10+ years experience of interaction with Russian Customs I recommend to use licensed Customs broker. One declaration with up to 5 commodity codes and one means of transport currently cost about 200 EUR but will save you much more money by reducing time of Customs clearance resulting on less storage fees and demurrage as well. 

Licensed Customs broker have money deposit at Customs account which serves some kind of insurance towards Russian Customs ensuring Customs that duties will be paid in full compliance with applied commodity code. In case of disputes Customs is able to withdraw money from Customs broker license deposit as Customs broker share responsibility with importer on declaring goods.

This makes another good reason for Customs broker to check documentation properly and fight for your rights in case of disputes.

Unfortunately quality of services provided by various Customs brokers differs significantly from Company to Company. To make right choice you should ask Customs Broker to provide his license, reference list of the Customers he is working with including contact details and search open sources (internet) to check Company registration data and ensure that the Company is not under bankruptcy procedure, court procedures, etc.

Hint: 

- Please dedicate some time to select reliable Customs broker. 

- Test delivery might be needed to check if Customs broker is good or not, this might be small or low-value consignment. .

3. Bribes

Bribes is another common problem for foreign companies operating in Russia.

Unfortunately bribes still exist in Russia.

Being involved in operation of international companies in Russia I can confirm that we have successfully done all business processes without any bribes. Yet you can face this problems during tenders, any other competition, etc. when you know you have better price, quality or terms or combination of above but are losing due to some “other” reasons. Official refuse will politely correspond to some minor article in technical requirements, documentation requirements, etc.

Hint: 

- Do not pay bribes on no condition.

Regards, Yury 

OPTIONS FOR FOREIGN COMPANIES TO OPERATE ON RUSSIAN MARKET WITHOUT REGISTERING LEGAL ENTITY

Are there options for foreign Companies to operate on Russian market without registering local legal entity or openning representative office, branch office?

Some foreign Companies do not like idea of having legal entity in Russia, because they are concerned on having accounts in roubles and acting according to Russian laws.

Even it is absolutely safe to operate in Russia if you are acting in full compliance with local legislation this position is understandable espesially in current situation with instability of local currency.

The option for those Companies who do not want to be involved in local routines but want to sell their products in Russia is establishing a network of dealers or distributors. 

It is important to mention that main difference between dealers and distributors is that price policy towards end-users for dealers is decided by manufacturer. Distributors has their own price policy towards end-users which is not being interfered by manufacturer.

To operate on Russian market successfully even without opening legal entity company will still need employee (mid-senior manager level) with knowledge of Russian language and business processes in Russia. 

This will solve the problem when different partners set up different demands and comments towards manufacturer, each of them claiming that their way of doing business is the right one. Another option is hiring a specialized independent consultunt who will represent company interests without having any commissions from third parties. To find one company should first check consultunt background, projects he or she were involved in, recomendations, etc. Good outsourced consultant or in-house employee with required knowledge will save much money.

Also to mention that goods being sold on Russian territory should be duly certified and marked according to TR TC legislation irrespective of how they are distributed.

Regards, Yury

HOW DO INTERNATIONAL COMPANIES USUALLY REGISTER BUSINESS IN RUSSIA?

The most common case is creating a local legal entity in Russia which is usually LLC organizational form. 

Opening LLC Company is comparetevely easy and cheap in Russia, for example minimum registered capital is only 10 t.RUB which is less than 120 EUR using current rate. 

Minimum set of papers includes organization charter, protocol of the meeting of founding parties and their agreement on shares, registration application, registration fee payment confirmation, rent agreement for legal address (or warranty letter about legal address). 

You will also need to decide which taxation scheme you will use. 
If you take one of special taxation regimes you can also apply for it at registration stage.

Even if above procedure is simple if you have not done registration before it is better to use lawyer to ensure you succeed from first time. 

There is also and option of opening branch office or representative office in Russia, but this is not commonly used due to more sophisticated requirements and higher costs.

Regards, Yury

Hi everybody. Today is the starting day for the blog. // Yury