COUNTRY REPORT FOR INVESTORS AND EXPORTERS RUSSIA

TABLE OF CONTENTS 1 2 GENERAL INFORMATION............................................................................................................................................ 3 ECONOMIC SITUATION .............................................................................................................................................. 4 2.1 THE CURRENT ECONOMIC ENVIRONMENT ..................................................................................................... 4 2.2 ECONOMIC POLICIES...................................................................................................................................... 4 2.3 BUSINESS LOCATIONS AND ECONOMIC STRUCTURE .................................................................................... 5 2.4 FOREIGN TRADE ............................................................................................................................................. 6 2.5 SELECTED INDICATORS .................................................................................................................................. 8 POLITICAL SITUATION................................................................................................................................................ 9 3.1 NATIONAL....................................................................................................................................................... 9 3.2 RUSSIA AND THE EU....................................................................................................................................... 9 3.3 AGREEMENTS WITH AUSTRIA........................................................................................................................ 10 LEGAL FRAMEWORK ................................................................................................................................................ 11 4.1 CORPORATE LAW.......................................................................................................................................... 11 4.2 ACCOUNTING AND ANNUAL REPORTS ......................................................................................................... 13 4.3 TAX AND CUSTOMS LAW .............................................................................................................................. 14 4.4 LITIGATION ................................................................................................................................................... 15 4.5 INSOLVENCY ................................................................................................................................................ 16 4.6 SECURITIES .................................................................................................................................................. 17 4.7 LABOUR LAW ................................................................................................................................................ 18 4.8 ACQUISITION OF REAL ESTATE ..................................................................................................................... 19 DOING BUSINESS IN RUSSIA ................................................................................................................................... 20 5.1 MARKET ACCESS.......................................................................................................................................... 20 5.2 PAYMENT CONDITIONS AND PAYMENT PERFORMANCE............................................................................... 20 5.3 COLLECTION PROCEDURES.......................................................................................................................... 22 5.4 THE INVESTMENT CLIMATE FOR FOREIGNERS.............................................................................................. 23 5.5 RISK ASSESSMENT ....................................................................................................................................... 24 5.6 CORRUPTION................................................................................................................................................ 24 CHECKLIST FOR BUSINESS OPERATIONS IN RUSSIA ............................................................................................... 25 OTHER USEFUL CONTACTS IN THE WEB .................................................................................................................. 26 Last updated: May 2010

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Country Report for Investors and Exporters Russia

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GENERAL INFORMATION

The Russian Federation is situated in northern Eurasia and, based on area, is the largest country on the earth. It is the successor state of the Soviet Union, a nuclear power and a permanent member of the United Nations Security Council. After the stabilisation of various transformation crises and above all due to its wealth of natural resources, the Russian Federation is considered to be a major industrial nation and was therefore admitted to the G8. Form of government: Administrative organisation: Presidential republic 7 federation districts with 83 territorial units 21 autonomous republics (respubliki) 9 regions (kraja) 46 territories (oblasti) 1 autonomous territory (avtonomnije oblasti) 4 autonomous districts (avtonomnije okruga) 2 cities with subject status (Moscow, St. Petersburg) 17,075,400 km 142,100,000; density: 8.3 inhabitants/km Russian Russian, English Rouble (1 RUB = 100 Kopecks) Moscow (Moskwa), 10.1 Mio. inhabitants Altai Magadan Buryatien Scheksna Dubna Stavropol Irkutsk St. Petersburg Kaliningrad Tomsk Krasnodar Zelenograd 79.9% Russian, 3.8% Tartars, 2% Ukrainians and 14% more than 155 other ethnic groups 50% Orthodox; 9% Muslim; 0.7% Catholic; 0.7% Buddhists; 0.4 Jews; 39.2% other Gas, oil, brown coal, turf, bauxite, cobalt, copper, diamonds, gold, iron ore, nickel, tin; Energy OSCE, Arctic Council, BIZ, CITES, Council of Europe, HELCOM, ITTO, IMC, IMF, UN, UNCTAD, UNIDO, World Bank, G8

Area: Population: Official language: Business languages: Local currency: Capital: Special economic zones (selection):

Ethnic groups: Religion: Natural resources: Most important sector: Membership in international organisations:

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ECONOMIC SITUATION

Country Rating Coface Rating C

In the years since former President Putin took the oath of office, the pace of economic reform in the Russian Federation has accelerated. Significant progress has already been made in the following areas: taxation (above all the taxation of income and corporations); the introduction of a new customs code and land code; the enactment of a law governing the purchase and sale of agricultural property; the ratification of a new labour code; the general conclusion of pension reforms; the amendment of privatisation regulations; the passing of a new bankruptcy law and depositors insurance law; the further liberalisation of capital transfers; and the opening of the Russian insurance market.

In spite of the above-mentioned results, further structural reforms are required. Specifically, the underlying structure of Russian production and exports must be broadened to reduce the fluctuations caused by developments on international raw material markets. Critical observers also speak of a shift towards bureaucratic capitalism or state monopoly capitalism, an opinion that reflects the growing influence of forces in favour of increased state intervention in the Russian economy. This development is noticeable above all in strategic sectors, e.g. energy production, where there has been a de facto re-nationalisation of major raw material corporations such as Gazprom and Rosneft. This approach has scared off many foreign investors (-21% in foreign investments during 2009) and led to a flight of capital from the country.

2.1

THE CURRENT ECONOMIC ENVIRONMENT

Russia has registered steady high economic growth for years, not least because of the aforementioned stabilisation efforts. This momentum continued without interruption throughout 2008, generating a year-on-year real increase of 5.6%. However, the global financial crisis spread to the Russian economy towards the end of that year and was reflected above all in the collapse of raw material prices and a dramatic reversal of global capital flows. GDP fell by 8% year-on-year to EUR 933 billion in 2009. Inflation reached 12%, but is forecasted to decline to 10% in 2010. Investments and foreign trade have been particularly hard hit. In addition to extensive support for the banking sector, the Russian government also provided assistance for companies in repaying foreign loans. In April 2010 Prime Minister Putin announced that the recession had ended. Growth of 2% is expected for the coming year.

2.2

ECONOMIC POLICIES

High revenues from import and export duties and the mineral oil tax have produced a budget surplus for a number of years, but this trend was halted by the global economic crisis.

In order to combat the global economic crisis, which has since spread to the real economy, the Russian government introduced a range of measures to support the countrys currency, the financial sector and certain strategically important corporations. Directives providing for a significant increase in social expenditures and tax relief for Russian companies took effect, for the most part, at the beginning of 2009. The often hesitant or inadequate implementation of reforms as well as excessive bureaucracy and persistent deficits in the area of legal security frequently cause substantial problems. With an inflation rate of 12% in 2009, Russia again failed to meet its target of 8%. According to a government report, inflation should fall to 7.5% in 2010. This development should have a favourable effect on real wages, which are expected to rise by 6.5% from 2010 to 2012.

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A restructuring measure replaced the former stabilisation fund that was sourced from Russian oil revenues with an oil and gas fund, which was split into a reserve fund (EUR 84 billion) and a national welfare fund (EUR 21 billion) as of 1 February 2008. The tax revenues generated by the Russian energy sector will flow into the new oil and gas fund in the future, where they will be available to cover any budgetary deficits. The Russian economy is generally market-oriented, but the government is increasing its control over certain strategic sectors such as energy and raw materials, aircraft and motor vehicle construction and information and communication technologies.

2.3

BUSINESS LOCATIONS AND ECONOMIC STRUCTURE

Russia is one of the worlds largest energy producers. Nearly one-fourth of worldwide natural gas reserves as well as significant crude oil and coal reserves are located on Russian territory. Russia is responsible for 19.6% of the worlds gas output and 12.4% of crude oil production. The high concentration of the Russian economy makes economic development heavily dependent on revenues from the sale of oil and gas. Key support for the Russian economy is provided by the processing and manufacturing industries (excl. construction). With 29% of gross value added, they generated the highest contribution to GDP in 2009. Energy represents the single most important sector with 3.4%. The global economic crisis had a particularly severe impact on the motor vehicle industry, the electrical and electronics industry, machinery construction and metallurgy. These branches reported dramatic declines of nearly 45%. The retail trade, hotel and restaurant industry and transportation produced 31.3% of the gross value added in GDP, followed by financial services at 18%. Other public and private services were responsible for 14.9% of GDP, construction 5.8% and agriculture 5%. Locations In addition to major cities and population centres such as Moscow, Yekaterinburg and St. Petersburg, the Russian Federation has roughly 30 so-called special economic zones that also received financial subsidies in the past. These zones are defined as a particular part of the territory of the Russian Federation that is designated as such by the government of the Russian Federation and where special rules apply to commercial activity. A special economic zone can be founded for one of the following three purposes: Commerce and production Import of innovative technology Tourism and recreation In addition, the regions of Kaliningrad and Magadan have enjoyed the status of special economic duty-free zones for many years. Five IT technology parks (Tumen, Kazan, Novosibirsk, Obninsk, Nizhniy Novgorod) were developed in 2008, which provide infrastructure but do not offer any special incentives.

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2.4

FOREIGN TRADE

Russias main trading partners Russia is the third most important trading partner of the EU, and the EU-27 represent by far the largest trading partner of the Russian Federation. The countrys most important trading partners are Germany, China and the Netherlands. Imports The major imports to Russia include machinery and equipment as well as motor vehicles. Most of these products are purchased from China, Germany, Japan, Ukraine and the USA. Imports in MEUR 2006 2007 2008 China 10,328.0 19,539.2 27,799.2 Germany 14,771.2 21,227.2 27,265.6 Japan 6,229.6 10,173.6 14,867.2 Ukraine 7,390.4 10,664.0 12,988.0 USA 5,124.0 7,576.8 11,010.4 Italy 4,580.8 6,829.6 8,796.8 Belarus 5,476.0 7,103.2 8,468.0 Poland 2,728.0 3,704.8 5,622.4 Hungary 1,494.4 2,081.6 2,948.0 Czech Republic 1,224.0 1,960.8 2,888.8 Slovakia 616.0 1,128.8 2,396.0 Switzerland 1,032.8 1,391.2 1,898.4 Romania 432.0 584.8 814.4 Bulgaria 265.6 332.0 511.2 Source: Federalnaja sluzhba gosudarstvenoj statistiki 2009 NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA

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Exports Russias most important export partners are the Netherlands, Italy, Germany, Turkey and China. The main export products include, above all, energy sources (natural gas, crude oil and crude oil products), metals and metal products as well as machinery and equipment. Exports in MEUR 2006 2007 2008 Netherlands 28,707.2 34,303.2 45,605.6 Italy 20,072.0 22,024.0 33,535.2 Germany 19,598.4 21,076.8 26,544.0 Turkey 11,432.0 14,825.6 22,171.2 Belarus 10,479.2 13,764.0 18,883.2 Ukraine 11,986.4 13,140.0 18,840.8 China 12,606.4 12,716.0 16,921.6 Poland 9,184.8 10,638.4 16,154.4 Great Britain 8,316.8 8,824.0 11,892.8 USA 6,910.4 6,667.2 10,812.8 France 6,140.0 6,947.2 9,751.2 Switzerland 9,733.6 10,825.6 7,866.4 Hungary 4,996.0 4,896.8 7,302.4 Czech Republic 3,732.0 3,724.8 5,800.8 Slovakia 3,669.6 4,120.8 5,160.8 Bulgaria 2,372.8 3,039.2 3,823.2 Romania 2,617.6 2,568.8 3,332.0 Source: Federalnaja sluzhba gosudarstvenoj statistiki 2009 NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA NDA

Austrias foreign trade with Russia The Russian Federation constitutes one of the most important markets among the CIS states and a significant future market for Austrian companies, even though the volume of trade declined significantly during the past year. in TEUR 2006 Exports 2,254,176 Change 32.49% Imports 2,398,616 Change 6.05% Source: Statistik Austria 2007 2,584,577 14.66% 1,831,704 -23.63% 2008 2,971,967 14.99% 2,496,982 36.32% 2009 2,095,694 -29.48% 1,718,445 -31.18%

Austrian exports to Russia are comprised primarily of pharmaceuticals, machinery, paper and cardboard as well as foodstuffs. Russian imports to Austria focus on natural gas and crude oil with a share of over 80%. Austrian exports to Russia totalled EUR 2.1 billion in 2009 (-30%), while Russian exports to Austria amounted to EUR 1.7 million during this same period (-31%).

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2.5

SELECTED INDICATORS

The following table presents selected indicators on the economic development of Russia. Key Data Real GDP growth (%) Inflation (%) Public sector balance (in % of GDP) Current account (in % of GDP) Foreign debt (in % of GDP) Foreign exchange reserves (in months of imports)
(e) estimate (f) forecast Source: Coface, WIIW

2005 6.4 12.5 7.5 10.9 30.6 10.8

2006 7.3 9.8 7.4 9.5 28.6 13.3

2007 8.1 9.1 5.4 6.0 36.5 15.4

2008 5.6 14.1 4.0 6.1 28.8 10.3

2009 (e) -8.0 12.0 -8.9 3.7 30.8 15.8

2010 (f) 2.0 10.0 -7.5 3.6 26.3 12.3

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POLITICAL SITUATION

Events on the foreign stage (the war in Georgia and the global financial crisis) have strengthened the supremacy of the state and the power of the Russian Prime Minister Vladimir Putin, above all in economic matters. However, this development has given rise to social tension.

3.1

NATIONAL Dmitri Medvedev Vladimir Putin Republic

President Prime Minister Form of government

Following two consecutive terms of office as Russian president that began in 2000, Vladimir Putin was elected head of the government by the state council with a majority of 87.1% on 8 May 2008 in accordance with a recommendation made by the new president. This new president is Dmitri Medvedev, a friend and former Gazprom chief who was elected one day earlier. Medvedevs power is supported by the two-thirds parliamentary majority held by the party Unified Russia, of which he is not a member. The office of prime minister was upgraded by Putin shortly before he assumed the position: for example, he now exercises control over the governors. Putins goal to establish a pluralistic democracy based on western models has become the subject of increasing scrutiny by many observers. A more frequently used term for the current political situation is directed democracy under the management of Vladimir Putin. This description is a direct result of Putins actions to curb the authority of the governors and the influence of the oligarchs as well as efforts to reduce freedom of the press through state intervention.

3.2

RUSSIA AND THE EU

Russia has pursued a policy of steady opening to the west since 2001. Close political and economic ties with the USA and Europe are intended to modernise Russia as well as strengthen its role and influence as an international player. This policy is also designed to support the fulfilment of economic goals. As a consequence, the European Commission formally accorded Russia the status of a market economy in 2002. Major issues regarding customs duties and market liberalisation were resolved two years later, prompting the EU to openly advocate Russias accession to the WTO. Russia has already been granted most-favoured nation status by the Union, and bilateral economic relations are becoming more important for both sides. Russia has since become the third largest trading partner for the EU. Bilateral relations between the EU and Russia are based on the 1994 Partnership and Co-operation Agreement, which entered into force in 1997 for a period of ten years. The resumption of negotiations was announced in November 2008, but no progress had been made up to the summit meeting in mid-2009. Massive differences of substance have become apparent, especially with respect to energy issues and the Russian-Georgian conflict. This agreement provides for cooperation in the fields of economy and trade, technology and scientific research, energy, transportation, environmental protection and space as well as legal and domestic affairs. Strongly committed to the principles of democracy and human rights, this partnership is designed to intensify dialogue between both partners in order to support the development of common approaches on international issues of mutual interest and thereby strengthen international security and stability. In 2009 Russia interrupted energy deliveries to Europe as a reaction to the EUs stand in the dispute between Russia and Ukraine, which led to in part massive supply shortages. The European Commission subsequently announced its disappointment over the approach taken by Russia.

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3.3

AGREEMENTS WITH AUSTRIA

There are a number of bilateral agreements between Austria and the Russian Federation: Agreement between the Republic of Austria and the Russian Federation on trade and economic cooperation. Signed: 8 November 1993, in effect since: 1 October 1995 (Federal Gazette BGBl. Nr. 567/95) Double taxation treaty Signed: 13 April 2000, in effect since: 30 December 2002, applicable since 1 January 2003 Investment agreement: IVSA with the USSR from 1990 (in effect since 1 September 1991) is being applied through the exchange of diplomatic memoranda. Austria is pursuing the conclusion of an IVSA with the Russian Federation. Agreement between the Russian Federation and the Republic of Austria on economic and technical cooperation (Federal Gazette BGBl. Nr. 58/1999) Agreement for the construction of the South Stream natural gas pipeline Signed: 24 April 2010

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LEGAL FRAMEWORK

The legal climate in Russia has improved steadily in recent years. Important new regulations such as the foreign exchange, tax, labour and land laws have been enacted. However, there are difficulties with the implementation and practical application of many legal standards.

4.1

CORPORATE LAW

The most important aspects of Russian company law are regulated in the Civil Code. Special laws apply to stock corporations and limited liability companies. For foreign investors, the laws governing corporate enterprises are of particular importance. In addition to these company forms, Russian law also provides for entities such as the general partnership or limited partnership. Both are treated as legal entities under law, but have not yet gained practical relevance in Russia. Significant amendments to anti-trust law that were passed in March 2005 are intended to facilitate the establishment and acquisition of companies in Russia. Section IV of the Civil Code took effect on 1 January 2008 and established requirements for the names of corporate organisations. At the end of December 2008 the Russian parliament passed amendments to the law on limited liability companies, which took effect on 1 July 2009. Legal Business Entity Open joint stock company Russian Name Otkrytoje akzionernoje obschtschestwo (OAO), Zakrytoe akcionernoe obschtschestvo (ZAO) Closed joint stock company Limited liability company Limited partnership Partnership Sole proprietorship Subsidiary, representation Obschtschestvo s ogranitschennoj otvetstvennostju (OOO) Tovarishchestvo Kompaniya s ogranitschennoy imushchestvennoy otvetstvennostju Edinolichnoye Vladenie Docherniaya kompaniya, predstavitelstco

Open Joint Stock Company The joint stock company (open or closed) is by far the most popular corporate form in Russia. The registered capital of a stock company must be defined in Rouble. Registered capital must equal at least 1,000-times the official minimum wage and equals currently RUB 100,000 (approx. EUR 2,375 based on the exchange rate in 04/2010). At least 50% of this capital must be paid in at the time of registration. The company may be established by a single founder, if this person is not a company owned by a single legal entity or individual. The number of shareholders is unlimited. Although a founding contract may be concluded, the company only gains official status when the registration certificate is issued. The management structure of the joint stock company is more complex than the limited liability company. The following corporate bodies are required by law: annual shareholders meeting, executive body and audit committee. The establishment of a supervisory board is compulsory as soon as the number of shareholders exceeds 50, and a financial committee is required when the number of shareholders who are entitled to vote equals or exceeds 100. Open joint stock companies are also required to appoint an auditor. Closed Joint Stock Company This corporate form resembles an open stock company, with the difference that the company is not permitted to issue shares to the public and the consent of the other shareholders is required for an investor to sell any of his/her shares. The number of shareholders may not exceed 50, or the entity must be transformed into an open joint stock company. Registered capital must equal at least RUB 10,000 (approx. EUR 238 based on the exchange rate in 04/2010).

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Limited Liability Company The amendments to the limited liability company law that took effect on 1 July 2009 represent a fundamental reform of the relevant legal framework and reflected previous criticism of the previous law. The limited liability company is classified as a corporation under Russian law, whose registered capital is divided into shares and whose shareholders are not liable with their personal assets for the obligations of the company. Registered capital must equal a minimum of 100-times the official minimum wage at the time of registration (currently RUB 10,000; approx. EUR 238 based on the exchange rate in 04/2010), and can be transferred in cash or a contribution in kind. The limited liability company is a suitable corporate form for a wholly owned subsidiary or a closed joint stock company, whereby the latter are more prevalent. Similar to the joint stock company, a limited liability company may be founded by a single person if this person is not a company owned by a single legal entity or individual. The maximum number of shareholders is 50. The founding process is formally completed after registration with the Ministry of Taxation and the deposit of 50% of registered capital. The management structure is less complex than the joint stock company, since only a board of directors and an executive body must be established to meet the necessary requirements. An audit committee must be created as soon as the company has more than 15 shareholders. As a result of the amendments to the limited liability company law, a notarial deed is now required for the sale or pledge of shares in this type of company. Shareholders agreements are also permitted by law. The articles of association represent the only document required for the registration of a limited liability company (previously: articles of association and formation agreement). The right of withdrawal has also been amended: for example, the withdrawal of a sole shareholder from a single person limited liability company and the concurrent withdrawal of all shareholders can be declared legally invalid. Increased Liability Company This type of company is similar to a limited liability company, but the liability of shareholders exceeds the capital investment by a sizeable amount. This regulation is intended to link shareholders more closely to the company. All provisions of the Civil Code for limited liability companies also apply to increased liability companies, but the specific law on limited liability companies is not applicable. Current statistics show that this form of corporation has failed to gain practical relevance in Russia. Limited Partnership A person may only serve as the general partner in one limited partnership. The name of the limited partnership must include either the names of all general partners and the designation limited partnership or the name of at least one general partner with the addendum and company as well as the designation limited partnership. A limited partnership is created by the articles of association, which also define its activities. The articles of association must be signed by all general partners. A limited partnership must be registered with the taxation and duty authorities. Partnership A person may only be a shareholder in one general partnership. Each of the (at least two) partners is jointly and severally liable with his/her personal assets for the liabilities of the company. Share capital can be created, but is not required. The status of the partnership as a legal entity makes it the owner of this share capital. A partnership is created through the articles of association, which must be signed by all shareholders. The partnership must be registered with the relevant taxation and duty authorities that have jurisdiction over the headquarters location of the company. Sole Proprietorship This form of company organisation is hardly used in Russia.

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Subsidiary, Representation Foreign enterprises frequently start their business activities in Russia by establishing one or more regional offices. Although this form of representation does not constitute a legal entity and is not entitled to do business, it represents an attractive platform for establishing contacts, performing market research, starting marketing activities or preparing contracts. Regional offices are a widely accepted form in Russian business life. For tax reasons, many foreign enterprises also keep their regional offices after they establish subsidiaries.

4.2

ACCOUNTING AND ANNUAL REPORTS

Russian bookkeeping guidelines define the format that must be used in the preparation of annual financial statements (form plus attachments). Although extensive information must be provided, it has little explanatory power. All companies that are subject to a mandatory audit are required to file the audit report and the annual tax return with the relevant taxation authorities. Accounting records may be kept in accordance with other standards (e.g. IFRS), but only for internal use; the application of Russian accounting regulations is mandatory. In contrast to international accounting standards, only the calendar year may be used as the financial year in Russia. Different rules are provided for the recognition of provisions as well as the valuation of non-current assets, inventories and receivables. However, changes in these areas are expected soon. New depreciation rules were introduced for tax purposes in 2002. They replaced a number of older regulations in part remnants from the Soviet period - that only permitted very limited depreciation. The new regulations require taxpayers to classify equipment into one of ten different groups according to type and use. Different depreciation rates apply to the different asset groups. Taxpayers are permitted to choose between straight-line or declining balance depreciation, whereby the straight-line method is mandatory for certain assets with a longer useful life (> 20 years). This applies above all to buildings, machinery and construction equipment. The exact depreciation rates were published in a separate directive, which forms the basis for assignment to the various asset groups. These new depreciation rates are more closely linked to the actual useful life of the assets. Russian accounting standards also define explicit rules for the recognition of valuation adjustments to receivables. A write-off of 50% can be recorded to receivables that are overdue between 45 and 90 days Receivables are more than 90 days overdue can be written off in their entirety. Tax losses may be carried forward for ten years; the carry back of tax loss is not permitted. Only 30% of annual profit may be offset against losses recorded in previous years.

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4.3

TAX AND CUSTOMS LAW

A comprehensive tax reform took effect in Russia on 1 January 2004. A number of taxes were eliminated, including all taxes that are not listed in Articles 13-15 of the Federal Tax Code. In contrast, the land tax and the excise tax were increased. Corporate Tax All companies founded under Russian law, including partnerships, are subject to corporate tax on their entire earnings in Russia. Foreign companies are subject to corporate income tax on earnings from permanent branches or subsidiaries in Russia as well as on income generated by commercial activities on Russian territory. The tax on corporate profits was reduced from 24% to 20% as of 1 January 2009. As in the past, this tax includes both federal and regional taxes. The reduction took place exclusively at the expense of the federal household, which now comprises 2.5% of the total, while 17.5% will be credited to the households of the federation subjects. Corporate taxation in Russia is generally similar to Austria or Germany, and is based on section two of the Federal Tax Code. Income from foreign companies that is not connected with a branch or subsidiary is taxed at 10% to 20%. Since 1 January 2003, specific rules have applied to companies with less than 100 employees. These companies may choose to be taxed at a flat rate - either 15% of profit or 6% of gross income when gross income does not exceed RUB 11 million (approx. EUR 261,283 based on the exchange rate in 04/2010) during the first nine months of the year of application. Income Tax Taxes on income from employment or self-employment have equalled 13% since 1 January 2004. Individuals who are classified as permanent residents in Russia are liable for tax on all income earned in Russia and abroad. Non-residents are taxed at 30% of their income, with no deductions available. In order to be classified as a resident, a person must reside in Russia for at least 183 days during any calendar year. Employers are responsible for withholding taxes and transferring these funds to the tax authorities on a monthly basis. Self-employed persons must make advance income tax payments at least three times each year. Value-Added Tax The value-added tax was set at 18% on 1 January 2004, and applies to the majority of goods and services. Specific goods are taxed at a lower rate of 10%. Tax exemptions are available, among others, for goods and services supplied within the framework of production sharing agreements (PSAs) for raw materials, public transportation, essential medications or specific insurance and banking services. The sales tax was abolished as of 1 January 2004. There have been discussions for some time at the government level concerning a possible reduction in the VAT rate to 12%. Excise Duties The following items are subject to excise taxes: ethyl alcohol with the exception of cognac, beverages, beer, tobacco products, autos with over 150 PS and gasoline. The excise tax is calculated either as a percentage of the value of the produced goods or on a volume basis. Real Estate Taxes Stamp duties are charged on the notarised transfer of property at a rate equal to 1.5% of the transaction value (the rate for transactions between relatives is lower). However, certification by a notary public is not mandatory. Special features of Russian real estate law permit the ownership of land and any buildings located on this land by different persons. Local Taxes Regional taxes are charged by the federation subjects and communal taxes are charged by the local municipalities.

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General Tax Incentives The regional share of corporate tax may be reduced by up to 4% in certain areas. The free trade zones in Russia offer a variety of tax incentives. In the new industrial and special trade zones, companies that invest a minimum of EUR 10 million may apply for an exemption from land and asset taxes for a period of five years. The technology and special trade zones offer a reduction in the social tax to 14% and accelerated depreciation as well as other tax and customs benefits. Custom Duties and Trade Barriers Customs tariffs generally reflect the principles that form the basis for the harmonised system of the European Union. However, further harmonisation will be required in connection with WTO membership. The CIS states have concluded an internal free trade agreement.

4.4

LITIGATION

The judicial system in Russia is comprised of the Constitutional Court of the Russian Federation, civil courts, arbitration courts and military tribunals. One change planned in connection with a reform of the court system is the introduction of administrative courts. In accordance with Article 46 of the Russian constitution and Article 210 (2) of the Russian arbitration process directive of 1995, foreign parties are accorded equal treatment with Russian citizens in court proceedings. Civil Proceedings Non-commercial disputes between individuals or legal entities fall under the jurisdiction of the civil courts or arbitration courts. The former are limited to handling disputes between private persons and deal primarily with consumer protection, copyright, labour, family and inheritance issues. The federal arbitration courts have jurisdiction over proceedings involving legal entities and businesspersons. The civil courts will only become involved on issues concerning the recognition of decisions from foreign civil and arbitration courts or appeals against decisions by Russian arbitration courts. Arbitration Proceedings Even though the number of arbitration courts in the Russian Federation is increasing continuously, disputes involving foreign trade are normally brought before the International Trade Arbitration Court of the Chamber of Industry and Commerce of the Russian Federation (Mezhdunarodnyi Kommertscheskyi Arbitrazhnyi Sud, abbrev.: MKAS). The activities of both the MKAS and the Maritime Arbitration Commission, which is also located in this chamber, are regulated by the 1993 law on International Commercial Arbitration. The Russian Federation is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and is therefore obliged to recognise and execute arbitration decisions issued in another signatory state. Contracts with foreign counter-parties may designate the International Arbitral Centre of the Austrian Federal Economic Chamber (Wirtschaftskammer sterreich, WKO), the International Chamber of Commerce (ICC) or another arbitration institution as the party responsible for arbitration. Austrian companies and members of the WKO may use the services of the WKOs International Arbitral Centre, but this close relationship could possibly disturb a strong foreign partner. In contrast, the International Chamber of Commerce (in Austria, represented by the ICC Austria) is an internationally recognised organisation. The arbitration clause of the International Arbitral Centre of the WKO states that: All disputes arising out of this contract or related to its violation, termination or nullity shall be finally settled under the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal Economic Chamber in Vienna (Vienna Rules) by one or more arbitrators appointed in accordance with these Rules.

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The arbitration clause of the ICC states that: All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. Both clauses are also available in many other languages. Detailed information is available in the Internet under http://wko.at/arbitration (International Arbitration Court of the Austrian Federal Economic Chamber) or under www.iccaustria.org (ICC Austria, International Chamber of Commerce).

4.5

INSOLVENCY

Insolvency Law Although the wording of Russian insolvency law reflects western standards (in particular following the 2002 amendment of the bankruptcy act), there are still many weaknesses in the area of execution. The law on Insolvency / Bankruptcy dated 2 November 2002 was preceded by the 1992 law on the Insolvency of Companies and the 1998 law on Insolvency / Bankruptcy. Other relevant standards for bankruptcy proceedings are contained in the 2002 Commercial Process Code and the 1997 Execution Code. The jurisdiction of the arbitration courts over insolvency cases is determined by the residence of the debtor, whereby decisions are made by a senate of three judges. Any legal entity may file for bankruptcy, with the exception of state-owned companies, religious organisations, political parties, operators of nuclear power plants and the state. Bankruptcy proceedings will be opened at the request of one or more creditors when their individual or combined receivables equal at least RUB 100,000 (approx. EUR 2,375 based on the exchange rate in 04/2010). The inability to pay is considered to represent sufficient grounds for the start of bankruptcy proceedings; it is not necessary to provide proof of overindebtedness as demonstrated by the financial statements. Under certain circumstances defined by law, the debtor is required to initiate these proceedings himself/herself. Russian law provides for five types of insolvency proceedings for legal entities: observation, financial rehabilitation, external management, competitive proceedings and amicable agreement. Financial rehabilitation, liquidation and settlement are based on the same legal foundation. The most suitable of the various bankruptcy models can be selected after the proceedings are opened. There is a clear preference for financial rehabilitation (which is also connected with a substantial limitation of creditors rights) under Russian law, but only a very limited number of such procedures are successful in Russia. Rehabilitation comprises financial rehabilitation and external management. Financial rehabilitation allows the debtors management to continue operations under the authority of an administrator. The management bodies of the debtor remain in office and are able to contribute their know-how to the turnaround. This model is appropriate above all when the company has encountered difficulties through no fault of its own and/or when there is still a basis of trust with creditors. The other alternative is external management, when an outside manager replaces the managerial bodies of the debtor company and assumes wide-ranging authority. Settlement is similar to rehabilitation. It may be elected at any time until the sale of bankruptcy assets is concluded if the majority of creditors and all lien holders agree and the process is approved by the court. Rehabilitation proceedings that are unsuccessful or classified as likely to fail will lead to bankruptcy and the sale of the debtors assets by a bankruptcy administrator. The ranking of creditors was changed once again by the last amendment to the bankruptcy law and is now as follows: The first priority is given to bankruptcy receivables, e.g. the costs incurred during the bankruptcy proceedings; the next level includes preferred creditors, e.g. employees and other persons holding claims based on the endangerment of health (e.g. compensation); all other claims then follow, whereby creditors whose receivables are secured by a pledge will be satisfied separately from the resulting proceeds.

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After all assets have been distributed, the bankruptcy administrator will file an application to delete the debtor from the federal register. This act terminates the existence of the debtor as a legal entity, and receivables that are still unpaid will be cancelled. Legal regulations provide for the recognition of foreign bankruptcy proceedings in the Russian Federation on the basis of international agreements. However, no such agreements have been concluded to date. The principle of reciprocity also applies to the recognition of bankruptcy proceedings, but experience shows that application is extremely restrictive in this respect.

4.6

SECURITIES

The most important regulations for security interests are found in Chapter 23 of the Russian Civil Code (Section I issued on 30 November 1994, Section II issued on 26 January 1996). Other regulations applicable to specific types of security are found in other chapters of the Civil Code and in federal laws (e.g. mortgage law, budget code). Article 329 (1) of the Civil Code defines the following forms of security: contractual penalty, pledge, right of retention, surety, bank guarantee and deposit. Additional forms of security are the retention of title (Art. 491 of the Civil Code) and state guarantee (Art. 115, 117 of the Budget Code). Legal regulations also permit the designation of other types of security by contractual agreement. Mortgage (Land Register) The pledge of immovable assets is regulated by the special provisions of the federal law "on Mortgages (the pledge of real property)" dated 16 July 1998. An agreement covering the pledge of a property (mortgage contract) must be notarised and registered with the state before it can take effect. Pledge The conclusion of a written contract is required for the creation of a pledge. The Civil Code defines the minimum content for this contract as: the name of the contract parties, designation of the pledged asset and its valuation as well as the nature, scope and term for fulfilment of the obligation to be secured by the pledge. Movable and immovable items, rights and real estate as well as receivables (both existing and future) can serve as pledged assets. Guarantee A frequent practice in Russia is the delivery of goods by foreign producers to Russian companies in exchange for a guarantee by the responsible public authorities. In this connection, the special regulations of the Budget Code from 31 July 1988 are applied. These guarantees are issued in writing and oblige public legal entities to meet the full or partial scope of obligations to third parties, which were incurred by the company on whose behalf the guarantee was granted. Guarantees for the Russian Federation are assumed by the government, while guarantees for its federal subjects are assumed by the relevant supreme administrative bodies. A guarantee must be signed by the civil servant in charge for it to become effective and enforceable. Assignment of Claim Russian law does not provide for the assignment of claims. However, the freedom of contract does apply in Russia, and it should theoretically be possible for the parties to a contract to agree on the assignment of a claim.

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Warranty Russian warranty law is based primarily on the UN right of purchase. The seller is liable for the faultlessness of the sold goods until ownership is transferred to the buyer. If the goods are defective, the buyer may demand an appropriate reduction of the purchase price, free-of-charge repair or the reimbursement of costs if he/she remedies the defects. If the defects are severe, the buyer may also choose to cancel the purchase contract or, under certain circumstances, may request the replacement of the item. The buyer is also entitled to claim compensation for damages. The general warranty period equals three years beginning on the date the goods are delivered. Retention of Title Clauses for the retention of title have been valid under Russian law since 1996 (Art. 491 of the Commercial Code). This type of agreement prohibits the Russian buyer from selling or otherwise disposing over the goods until full payment is made. However, terms such as extended retention of title, expanded retention of title and contingent rights have not yet gained acceptance under Russian law.

4.7

LABOUR LAW

The legal basis for labour relations in Russia is the Russian Labour Code, which took effect on 1 February 2002. Normal working hours in Russia are set at 8 hours per day and 40 hours per week. Overtime is subject to previous written approval by the employee and is understood to be compensated at an increased rate. Employees are entitled to 28 calendar days of paid vacation each year. Employment contracts generally have an unlimited term; limited term contracts may only be concluded for a limited number of cases defined by law. Work Permits Foreign citizens require a valid work permit to be employed in the Russian Federation. The employer-company must first file an application with the federal migration service (www.fms.gov.ru) for a license and permission to employ foreign citizens, and can only apply for the necessary work permit after these approvals have been received. There are quotas for temporary residence permits and the employment of foreigners, which are defined in official directives. Termination of Contract Employees with unlimited employment contracts may terminate on two weeks notice. This two-week notice period also applies to the employer, who must also observe the legally recognised grounds for termination. The following persons may not be terminated: pregnant women, mothers with children less than three years of age, single mothers with a child under 14 or a handicapped child under 18. Social Security Contributions The uniform social security tax was eliminated as of 1 January 2010 and replaced by an insurance scheme that is financed by contributions. Similar to the previous system, the contributions are paid by the employer. Payments must be made to the pension fund, social security fund and legally required health insurance scheme. These duties were set at 20% for the pension fund, 2.9% for the social security fund and 3.1% for health insurance as of 1 January 2010. The percentage rates will be adjusted again as of 1 January 2011 to equal 26% for the pension fund, 2.9% for the social security fund and 5.1% for health insurance. Plans also call for the introduction of a maximum assessment base, which is not expected to exceed RUB 415,000 (approx. EUR 9,857 based on the exchange rate in 04/2010). However, the government may adjust this assessment base beginning in 2011 to reflect the increase in average wages.

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Work Permits Foreign citizens require a valid work permit to be employed in the Russian Federation. The employer-company must first file an application with the federal migration service for a license and permission to employ foreign citizens, and can only apply for the necessary work permit after these approvals have been received. There are quotas for temporary residence permits and the employment of foreigners, which are defined in official directives. Termination of Contract Employees with unlimited employment contracts may terminate on two weeks notice. This two-week notice period also applies to the employer, who must also observe the legally recognised grounds for termination. The following persons may not be terminated: pregnant women, mothers with children less than three years of age, single mothers with children under 14 years of age and employees younger than 18. Social Security Contributions The uniform social security tax was eliminated as of 1 January 2010 and replaced by an insurance scheme that is financed by contributions. Similar to the previous system, the contributions are paid by the employer. Payments must be made to the pension fund, social security fund and legally required health insurance scheme. These duties were set at 20% for the pension fund, 2.9% for the social security fund and 3.1% for health insurance as of 1 January 2010. The percentage rates will be adjusted again as of 1 January 2011 to equal 26% for the pension fund, 2.9% for the social security fund and 5.1% for health insurance. Plans also call for the introduction of a maximum assessment base, which is not expected to exceed RUB 415,000 (approx. EUR 9,857 based on the exchange rate in 04/2010). However, the government may adjust this assessment base beginning in 2011 to reflect the increase in average wages.

4.8

ACQUISITION OF REAL ESTATE

New legislation governing the private ownership of land was introduced in 2001. The land code now gives foreign legal entities the right to purchase and own land, subject to certain restrictions depending on the location (e.g. near state borders, agricultural property). However, the legal situation is still confusing. Usage rights with a limited term (up to a maximum of 49 years) are therefore common, and are also available to foreign investors through a Russian legal entity.

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DOING BUSINESS IN RUSSIA

After recording, in 2009, the severest recession it has known since the 1998 crisis, activity in Russia revived with GDP growth of 0.5% year-on-year in February 2010, thanks to the upturn in the oil prices, to base effects and capital inflows after several months of lost confidence. In 2010, the Russian economy should record positive but moderate growth. The solid gains made recently by net exports, however, hide the persistent weakness of household consumption in spite of an expected upturn in the course of the second half of 2010. The Moscow stock market continues to recover after the sharp fall recorded in 2008 and at the beginning of 2009; securities have recovered some of their value, bond spreads have gone back to the pre-crisis levels and the rouble is gradually strengthening thanks to the recovery of oil prices and the return of direct foreign investment. Some recent signs of improvement on the job market augur well for a positive change in household expenditure in the coming quarters, but the unemployment rate remains unchanged and consumer credit rare. Corporates, which have suffered from the consequences of the credit crunch, are nevertheless posting improved access to credit and a better refinancing rate. The persistence of certain structural factors lack of an efficient banking system, lag in technology, insufficient investment in the oil sector, and problems associated with the business climate also affects the recovery.

5.1

MARKET ACCESS

EU citizens require a visa to reside in Russia. The prerequisites are a passport that is valid for at least six months after the intended stay, a ticket valid for return or further travel and sufficient funds for the stay. The traveller must also supply proof of health insurance that is valid in foreign countries. An executive order regulates residence by foreign citizens in Russia. In accordance with this directive, temporary residence permits are issued by the local offices of the Ministry of the Interior and may not exceed the quota defined by the government. A foreign citizen can receive a permanent residence permit after he/she has lived in Russia for at least one year on the basis of a temporary residence permit. Permanent residence permits are issued for a maximum of five years, and must be confirmed on an annual basis.

5.2

PAYMENT CONDITIONS AND PAYMENT PERFORMANCE

Business partners can establish any desired payment conditions by mutual agreement and make use of all standard international conditions. However, enquiries concerning the credit standing of the business partner should be made prior to the conclusion of contracts. Payment Performance Payment performance in Russia is generally classified as poor. Recent data from the international collection indicator shows Russia in last place. Credit Information Before any deliveries are made on open account, information on the financial situation of possible business partners should always be obtained and existing credit lines should be adjusted to reflect the customers credit standing. Coface Central Europe offers specially designed solutions as part of a broad-based product portfolio. Instalments Business partners can establish any desired payment conditions including instalment payments - by mutual agreement and make use of all standard international conditions. The use of letters of credit is highly recommended, especially with initial deliveries and new customers. For smaller deliveries, the minimum agreement should provide for a documentpayment exchange.

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Default Interest Default interest rates may be concluded between trading partners. Banking System The ten largest of the more than 1,000 banks in Russia are Sberbank, VTB, Gazprombank, Rosselchosbank, Bank of Moscow, VTB 24, Alfa-Bank, the Bank Austria subsidiary UniCreditBank, the Russian subsidiary of Raiffeisen International and MDM Bank. In reaction to the economic crisis, the Russian government provided bank subsidies of RUB 1,500 billion (approx. EUR 36 billion based on the exchange rate in 04/2010) in 2008 and added a further RUB 1,000 billion (approx. EUR 24 billion based on the exchange rate in 04/2010) during February 2009. A rescue plan for troubled banks was approved in spring 2010, which also provides the legal framework for the temporary takeover of financial institutions. Four banks have requested government assistance to date in 2010 and have received loans of approx. EUR 45 billion. Incoterms Incoterms are prepared and issued by the International Chamber of Commerce (ICC), and are included in nearly all contracts for the cross-border sale of goods. Incoterms regulate the time and place of the transfer of risk and costs from the seller to the buyer. They also regulate the obligations of the buyer and the seller with respect to loading and unloading, transport, insurance, customs clearance, etc. Incoterms are standardised clauses that are designed to guarantee the uncomplicated and uniform settlement of purchases and transportation throughout the world. In this way, Incoterms facilitate international trade and make it possible for business people in different countries to speak the same language. Additional information can be obtained from the International Chamber of Commerce under http://www.icc-austria.org.

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5.3

COLLECTION PROCEDURES

General Information Business-to-business claims involving foreign persons or legal entities are regulated in the Russian Code of Arbitration Procedure (CAP). If the following conditions are met, the claim will fall under the jurisdiction of the Russian arbitration courts: If the respondent maintains his/her residence in Russia (Art. 212 (1) CAP). The same applies to joint ventures with foreign participation and subsidiaries of a foreign company that are the respondents in such cases. If the foreign respondent is represented in Russia by a business establishment or other representation (in the sense of Art. 55 (1) of the Civil Code) or branch office (in the sense of Art. 55 (2) of the Civil Code, Art. 212 (2) 1 CAP). This provision is frequently used by Russian creditors when they file a claim with a Russian arbitration court for violation of a former jurisdiction agreement. As indicted below, the reference to Art. 212 (2) 1 CAP in the derogation of the Russian judicial organ (court) is against the law. Additionally, the delivery of a court summons to a representation does not qualify as correct delivery. If the respondent has assets in Russia (Art. 212 (2) 2 CAP). This applies above all when a foreign person or legal entity holds shares or a stake in a Russian company. When the place of performance is located in Russia (Art. 212 (2) 3 CAP). If there is no applicable contract provision, an appropriate contractual provision concerning the place of performance of an obligation can be derived from Art. 316 of the Civil Code, e.g. the place of performance for a monetary obligation is considered to be the registered office of the creditor. When the lawsuit is based on an offense committed in Russia (Art. 212 (2) 4 CAP) or unlawful gain (Art. 212 (2) 5 CAP). When a claimant with registered offices in Russia files a claim for the protection of honour, dignity or business reputation (Art. 212 (2) 6 CAP) If a previous agreement defines the jurisdiction (Art. 212 (2) 7 CAP; also see nr. 3). The Russian arbitration courts have jurisdiction over cases when the following conditions are met: Proceedings related to the ownership of real estate that is located in Russia (Art. 212 (3) CAP) Lawsuits against transportation companies that maintain their registered headquarters in Russia (Art. 212 (4) CAP) Bankruptcy proceedings against a Russian bankruptcy debtor (Art 28 CAP) Proceedings concerning the legality of a non-normative act by a Russian state body and the resulting damages (Art. 29 (3) CAP) Receivables arising from contracts that were financed with federal funds (Art. 239 of the Budget Code). The fast transfer of outstanding receivables to a local collection agency is urgently recommended. Coface Central Europe has an extensive network through the entire CEE region and cooperates with partners throughout the world. Statute of Limitations Russian civil law provides for a three-year statute of limitations.

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5.4

THE INVESTMENT CLIMATE FOR FOREIGNERS

Foreign investments are regulated in the federal law on Foreign Investment in the Russian Federation from 9 July 1999, which guarantees equal rights for foreign and Russian investors. However, there are several exceptions to this general rule: it does not cover foreign investments in banks, financial institutions or insurance companies because separate laws apply to these sectors of business. A so-called grandfather clause protects investors by providing for the delayed application of subsequent amendments to federal laws that create a less favourable climate for foreign investors. The law on Proceedings related to Foreign Investment in Corporations that have a Strategic Significance for National Defence and State Security took effect on 7 May 2008. This law standardises the approval procedure for investments in 42 branches that were designated as strategic (e.g. branches related with production of weapons). Applications for the necessary approvals must be filed with the responsible department of the federal anti-monopoly service. The final decision rests with a 17-member government commission, which is chaired by the prime minister. The system of controlled floating versus the US Dollar was abolished in February 2005, and the exchange rate was subsequently tied to a basket of currencies. This basket comprises the US Dollar (weighted at 65%) and the Euro (weighted at 35%). In conjunction with the gradual liberalisation of foreign exchange regulations, the Russian Rouble became a fully convertible currency in July 2006. Russia is determined to create an environment that supports the development of private investments. The country does not intend to target foreign investors as such, but instead will accord them equal treatment with their Russian counterparts. Under Russian law, domestic and foreign are treated equally. The 2000/2001 tax reform reduced the overall tax burden. Company profits are now taxed at a maximum of 24% and personal income is taxed at a flat rate of 13%. The value-added tax equals 18%, 10% or 0% depending on the product group. Foreign investors in Russia are faced with three types of difficulties: - Tax audits are conducted frequently and almost always end in additional tax payments. - In spite of a clearly defined procedure under tax law, VAT reimbursements are difficult to obtain. - Tax and accounting regulations are generally complex, and can be interpreted differently by each taxation office. Progress has been made in the enactment of laws to support administrative reform, which is intended to reduce the states role in the economy. Examples are the simplification of procedures for the registration of companies and granting of licenses. However, the reform process is still in its early stages. Licenses are required for an extensive range of economic activities in Russia: some apply at the federal level, while others concern only specific regions, above all the greater Moscow area. Federal law No. 128 On the application for and granting of licenses for various types of activity lists 105 different activities that require federal licenses. The business climate in Russia continues to offer little security. However, the need for legal security in commercial matters has become apparent and the fourth section of the Civil law Code now regulates these issues. The text that will merge the legal regulations governing commercial legal security into a consistent and uniform body of law took effect on 1 January 2008. However, intellectual property rights above all copyright regulations are still frequently violated in Russia. The special economic zones created in 2005 could be attractive for foreign investors because they provide tax benefits as well as relief from customs duties.

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5.5

RISK ASSESSMENT

Faced with a worse than expected economic situation late 2008, the government adopted counter-cyclical fiscal policy entailing costly emergency measures intended to avert the collapse of the financial system and the private sector. Hardly indebted, the government undeniably has a large security cushion to fall back on via its Reserve Fund. It has also resumed the programme of partial privatisation of state-run companies in 2010-2011. The stabilisation of the rouble in 2010 and the decline of risk aversion make it possible to build up foreign exchange reserves. But the fall in oil revenues, the rescue plan in response to the problem of excessive private external debt and the recession had less success in 2009 in reducing the budgetary deficit than was expected. It is likely to remain high in 2010. The government will continue its stimulus policy directed to the automobile, agricultural and military industrial sectors, while reducing public investment spending. It is thus likely that some Russian companies and small banks not protected by the government will suffer new financial difficulties in 2010. Corporate payment behaviour, which deteriorated sharply in the crisis, will remain poor. Meanwhile, the banking sector remains very risky. Despite the recapitalisation of many banks, the sharp deterioration in the quality of loan portfolios has affected all banks. Large state-run banks, strengthened by government backing, seem to be holding up better thanks to consequential provisions for non-performing loans and play a preponderate role in financing the economy. Many small private banks meanwhile have been suffering from the deterioration of their solvency and struggling to refinance their operations. The Russian banking sector is now the object of a greater concentration of banking assets around the four big public banks. Credit activity is expected to take off more strongly once the banks have cleaned up their loan portfolios.

5.6

CORRUPTION

The international corruption index is issued annually, and lists countries according to the perceived level of public sector corruption (the higher the value, the lower the corruption). The Russian Federation placed 146th in 2009 with a score of 2.2 and, together with Sierra Leone and Kenya, was one of the lowest rated countries. In comparison, Austria ranked 16th with a value of 7.9. The Doing Business 2010 report ranks Russia 120th of 183 countries according to the quality of the country as a business location. In this listing, Austria is number 28.

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CHECKLIST FOR BUSINESS OPERATIONS IN RUSSIA

The following table provides important facts and figures on Russia for investors and exporters. The information in this table does not claim to be complete. The branch office is not a common form of company organisation. The representation is not a legal entity and may not carry out business activities; however, it can prepare contracts for signing and carry out other functions. Min. capital for joint stock company: minimum wage x 1,000 Min. capital for limited liability company: minimum wage x 100 Corporate tax 20% Income tax 13% (30% for non-resident employees) VAT 18% (certain product groups 10%) Asset tax up to 2.2% of the book value of non-current assets Advertising tax 5% of advertising expenses The 1999 law on foreign investment confirmed the equal treatment of foreign and Russian investors The 2008 law on foreign investment in corporations with strategic significance is also important for foreign investors Residents and non-residents may import an unlimited amount of foreign currency Legal minimum wage (since 1 Jan. 2009): RUB 4,330 (approx. EUR 103 based on the exchange rate in 04/2010) Customs tariffs reflect the standards of the harmonised system of the European Union EU citizens require a visa There are residence permits for temporary and longer (up to max. 5 years) stays

Corporate law:

Tax law:

Investments:

Foreign exchange: Labour law: Customs: Travel and residence:

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OTHER USEFUL CONTACTS IN THE WEB

The following organisations and their websites provide additional information on Russia. Government of the Russian Federation (available in English) President of the Russian Federation (available in English) Foreign Ministry of the Russian Federation Ministry of Trade of the Russian Federation (only available in English) Central Bank of the Russian Federation (available in English) http://www.gov.ru http://www.kremlin.ru http://www.mid.ru http://www.economy.gov.ru http://www.cbr.ru

References Internet http://www.amcham.ru http://www.bankaustria.at http://www.bmwa.gv.at http://www.cofacecentraleurope.com >> Country Risk and Economic Research http://www.dsgv.de http://www.economist.com http://www.gks.ru http://www.icc-austria.org http://www.osteuropa-infoseite.de http://www.ostportal.de http://www.wiiw.ac.at http://www.wko.at http://www.worldwide-tax.com Print Der Fischer Weltalmanach 2010, Fischer Taschenbuch Verlag, Frankfurt am Main 2009. Eva Micheler/Ingeborg Bauer-Mitterlehner (2003), Rechtliche Rahmenbedingungen fr die Durchfhrung von auslndischen Investitionen in der Russischen Fderation, Forschungsinstitut fr mittel- und osteuropisches Wirtschaftsrecht, Arbeitspapier Nr. 96, Juni 2003. Handbuch Lnderrisiken 2010, Coface Deutschland AG, Mainz 2010. Karimullin Rustem, Besicherung und Geltendmachung von Forderungen in der Russischen Fderation, Forschungsinstitut fr mittel- und osteuropisches Wirtschaftsrecht, Arbeitspapier Nr. 74, Wien 2000.

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Imprint Owner and Publisher: Coface Central Europe Holding AG, Stubenring 24, 1010 Vienna, Austria; Editor: Martina Dobringer; Editorial Office: Susanne Krnes; Content: Clara Grblacher. Layout: Tamara Schwed; KSV1870 Holding AG, Wagenseilgasse 7, 1120 Wien; Copyright and Liability Coface Central Europe Holding AG (Stubenring 24, 1010 Vienna, Austria) copyright, conditions of use: you may copy and publish the information on this site provided that you do not make commercial use of it and clearly indicate that it originates from Coface Central Europe Holding AG. This information is provided without guarantee and does not bind Coface Central Europe Holding AG in any way. The Coface Rating was included in this country report as of April 2010. Coface Central Europe Holding AG cannot accept responsibility for changes made at a later date.

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