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European Business towards the Russian Market

European Business towards the Russian Market. Russia’s Legal Framework. “Look, I’m not saying it’s going to be today. But someday – someday – you guys will be happy that you’ve taken along a lawyer.”. MANNHEIMER SWARTLING.

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European Business towards the Russian Market

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  1. European Business towards the Russian Market Russia’s Legal Framework

  2. “Look, I’m not saying it’s going to be today. But someday – someday – you guys will be happy that you’ve taken along a lawyer.”

  3. MANNHEIMER SWARTLING • 1990 Carl Swartling Advokatbyrå (Sthlm) +Mannheimer Zetterlöf (Gbg) = Mannheimer Swartling • more than 300 lawyers • 4 offices in Sweden; 5 outside Sweden (St. Petersburg, Berlin, Frankfurt, Brussels, New York) • In Russia since April 1990 • In Russia the focus is on foreign clients investing in the Russian economy

  4. Corporate Profits Tax in Russia and some European countries

  5. % 13 • 200 300 400 500 10.000 • Wages in USD Individual Income Tax in Russia

  6. Social Contributions in Sweden and Russia 40 35 Sweden 30 25 20 15 Russia 10 5 200 500 1 000 1 500 2 000 2 500 20 000 Lön i USD 0 200 500 1 000 1 500 2 000 3000 Wages in USD

  7. EU vs. RUSSIA Differences Slide A – Authorized bodies

  8. EU vs. RUSSIA Differences Slide B – Legislation “CODES”

  9. EU vs. RUSSIA Differences Slide C – Legislation Sources of law EU Russia Legislation Court precedents Legislative pre-history Academic writing Trade practices and customs Legislation

  10. Characteristics of Russian Legislation • Legislation approaching west as regards ”coverage” • New legislation is ”market oriented” (more than in Nordic countries) • Still certain remaining problems: • No legislative pre-history • Few commentaries to law • No precedents (”prejudikat”) • Legislation is in practice only source of law

  11. What surprises a foreign businessman most when he comes to Russia in terms of law? • There are many laws and they are well developed • Formalistic approach to law by Russian officials

  12. Specific Features of Russian Law and Legal Practice • Legislation and agreements are interpreted literally • Agreement with a Russian party must be in writing • A Russian party may insist on Russian form (graphical form) of agreement • A Russian party may insist that agreement be stamped with company stamp • Some agreements must be notarized • Importance to keep originals • Foundation documents (Articles of Association) are large

  13. Fundamental Agreements effective in most EU countries and Russia United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980)

  14. Fundamental Agreements effective in most EU countries and Russia Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

  15. Fundamental Agreements effective in most EU countries and Russia Convention providing a Uniform Law for Bills of Exchange and Promissory Notes (Geneva, 1930)

  16. Fundamental Agreements effective in most EU countries and Russia Convention Abolishing the Requirement of Legalization for Foreign Public Documents (The Hague, 1961)

  17. Fundamental Agreements effective in most EU countries and Russia Conventions on Protection of Intellectual Property (e.g. Paris, 1883, Washington, 1970, Madrid, 1891, etc.)

  18. Fundamental Agreements effective in most EU countries and Russia Conventions and Agreements on Avoidance of Double Taxation of Income and Capital

  19. EU vs. RUSSIA Differences - Bureaucracy

  20. Development of Russian legislation - most important acts • Antimonopoly Law - 1991 • Law on Currency Control - 2004 (no restrictions since 2007) • Customs Code - 2003 • Civil Code 1994-1996 • Law on Joint Stock Companies - 1995 • Law on Limited Liability Companies - 1998 • Tax Code – 1998 • Law on Foreign Investments - 1999 • Land Code - 2001

  21. Levels of Market Penetration by Manufacturer of Goods • Supplies to unrelated Russian wholesaler (Representative office to market trade mark and goods) • Supplies via Russian daughter – wholesaler • Production in Russia

  22. (1)Supplies to unrelated Russian wholesaler Producer Daughter of producer ? EU EX WORKS ? Russia ? Customs procedures Representative office Russian wholesaler Retailers Intermediaries Retailers

  23. (2)Supplies via Russian daughter - wholesaler Producer EU EX WORKS 100% Russia Customs procedures Russian daughter - wholesaler Retailers Intermediaries Retailers

  24. (3) Production in Russia EU mother XYZ EU 100% supplies ofraw materials Russia Supplies of raw material Russian daughter - producer Retailers Intermediaries Retailers

  25. Accreditation of Representative Office • Takes approximately 1 month • Accreditation period – up to 3 years • Is not a separate legal entity Registration of Russian Daughter • Takes approximately 1 month • Registration may be valid indefinitely • Is a separate legal entity – Russian resident

  26. Buyer Seller 100% Target Alternative: buying existing business Share Purchase

  27. Target (subsidiary) Alternative: buying existing business Due Diligence Buyer Social infrastructure objects Tax liabilities Strange agreements Committments to employees

  28. EU Co RusCo 100% Target Alternative: buying existing business Asset Purchase

  29. EU Co RusCo 100% 100% Asset Transfer Agreement Russian Sub Target Alternative: buying existing business Asset Purchase

  30. EU Co RusCo 100% Russian Sub Target Alternative: buying existing business Asset Purchase • Result: • EU Russian Sub is clean and has all assets of Target • Target has cash and all old liabilities 100%

  31. Import to RussiaKey Issues to Consider • Import VAT – 10% or 18% depending on products imported • Import Duty depends on products, most common – 15% • Mandatory certification of products prior to import to Russia: - testing of products - obtaining a certificate of compliance - marking product units with a special mark of conformity

  32. Certification • May be performed inside and outside Russia by certification organizations accredited with Gosstandart • Outside Russia (examples) - SGS Sweden AB, Maskingatan 5 SE-417 64, Göteborg, Sweden tel. +46 (31) 755 05 00 www.sgs.com alina_lundberg@sgs.com - TÜV Rheinland, Brunnsgatan 21B S – 111 38 Stockholm tel. +46 (8) 21 05 65

  33. Usual ways to finance Russian company • Bank credit • Inter-company loan • Charter capital contribution • Financial assistance (conflict with the Civil Code but may be tax free)

  34. Usual Kinds of Security • Mortgage • Pledge of equipment • Pledge of goods • Bank guarantees (expensive) • Insurance (very rare)

  35. Mortgage • Must be notarized • Must be registered with a special governmental agency and included in the register of mortgages • Must be governed by Russian law

  36. Foreclosure (Enforcement) • Mortgages and pledges are very difficult to foreclose • This is in line with Russia’s biggest problem – enforcement

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