Www.mannheimerswartling.se European Business towards the Russian Market Russia’s Legal Framework.

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European Business towards the Russian Market

Russia’s Legal Framework

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“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.”

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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

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Corporate Profits Tax in Russia and some European countries

0

5

10

15

20

25

30

35

Ryssland

Sverige

Norge

Finland

Danm

ark

Storbritanien

Luxem

burg

Frankrike

Spanien

Italien

Tyskland

5


Individual Income Tax in Russia

100 200 300 400 500 10.000

Wages in USD

%

13

6


Social Contributions in Sweden and Russia

200 500 1 000 1 500 2 000 2 500 20 000Lön i USD

0

5

10

15

20

25

30

35

40

Wages in USD

200 500 1 000 1 500 2 000 3000

Sweden

Russia

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EU vs. RUSSIA

Differences

Slide A – Authorized bodies

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“CODES”

EU vs. RUSSIA

Differences

Slide B – Legislation

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Sources of law

EU Russia

Legislation

Court precedents

Legislative pre-history

Academic writing

Trade practices and customs

Legislation

EU vs. RUSSIA

Differences

Slide C – Legislation

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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

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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

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1. Legislation and agreements are interpreted literally

2. Agreement with a Russian party must be in writing

3. A Russian party may insist on Russian form (graphical form) of agreement

4. A Russian party may insist that agreement be stamped with company stamp

5. Some agreements must be notarized

6. Importance to keep originals

7. Foundation documents (Articles of Association) are large

Specific Features of Russian Law and Legal Practice

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Fundamental Agreements effective in most EU countries and Russia

United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980)

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Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

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Convention providing a Uniform Law for Bills of Exchange and Promissory Notes (Geneva, 1930)

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Convention Abolishing the Requirement of Legalization for Foreign Public Documents (The

Hague, 1961)

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Conventions on Protection of Intellectual Property (e.g. Paris, 1883, Washington, 1970, Madrid, 1891, etc.)

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Conventions and Agreements on Avoidance of Double Taxation of Income and Capital

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EU vs. RUSSIA

Differences - Bureaucracy

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1. Antimonopoly Law - 1991

2. Law on Currency Control - 2004 (no restrictions since 2007)

3. Customs Code - 2003

4. Civil Code 1994-1996

5. Law on Joint Stock Companies - 1995

6. Law on Limited Liability Companies - 1998

7. Tax Code – 1998

8. Law on Foreign Investments - 1999

9. Land Code - 2001

Development of Russian legislation - most important acts

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1. Supplies to unrelated Russian wholesaler (Representative office to market trade mark and goods)

2. Supplies via Russian daughter – wholesaler

3. Production in Russia

Levels of Market Penetration by Manufacturer of Goods

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(1) Supplies to unrelated Russian wholesaler

Producer

Russian wholesaler

Intermediaries

Retailers

Retailers

Representative office

EX WORKS

Customs procedures Russia

EU

Daughter ofproducer

??

?

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(2) Supplies via Russian daughter - wholesaler

Producer

Russian daughter- wholesaler

Intermediaries

Retailers

Retailers

EX WORKS

Customs procedures

EU100%

Russia

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(3) Production in Russia

supplies ofraw materials

EU mother

Russian daughter- producer

Intermediaries

Retailers

Retailers

Russia

EU

Supplies of raw material

XYZ

100%

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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

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Buyer Seller

Target

100%

Alternative: buying existing business

Share Purchase

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Tax liabilities

Strange agreements

Committments to employees

Social infrastructure

objects

Buyer

Target

(subsidiary)


Due Diligence

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EU Co RusCo

Target

100%


Asset Purchase

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Asset Purchase

EU Co RusCo

Target

100%

Russian Sub

100%

Asset Transfer Agreement


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RusCo

Target

100%

EU Co

Russian Sub

100%

Result:

1. EU Russian Sub is clean and has all assets of Target

2. Target has cash and all old liabilities


Asset Purchase

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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

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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 [email protected]

- TÜV Rheinland, Brunnsgatan 21B S – 111 38 Stockholm tel. +46 (8) 21 05 65

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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)

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Usual Kinds of Security

• Mortgage

• Pledge of equipment

• Pledge of goods

• Bank guarantees (expensive)

• Insurance (very rare)

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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

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Foreclosure (Enforcement)

• Mortgages and pledges are very difficult to foreclose

• This is in line with Russia’s biggest problem – enforcement

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MANNHEIMER SWARTLING

Sweden House

Malaya Konyushennaya gatan 1/3 a

191186 S:t Petersburg, Ryssland

Telefone: + 7 (812) 329 25 05

Telefax: + (812) 329 25 07

ANDREI GUSEV

Avokat, S:t Petersburgsregistret

E-post: [email protected] (ryskt)

[email protected] (svenskt)

Mobil: +46 (709) 777562 (svenskt)

Mobil: +7 (812) 938 2990 (ryskt)

Www.mannheimerswartling.se European Business towards the Russian Market Russia’s Legal Framework.

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