19 января 2016 года PwC провела семинар «Россия-Китай 2016. Взгляд в будущее», на котором мы рассмотрели все грани развития российского рынка для китайских инвесторов, обсудили изменения в таможенном регулировании, проанализировали антикризисное управление для инвесторов Китая и на практике разобрали законодательные изменения.

1. 2016 China – Russia
Business Seminar
New Opportunities
& New Challenges
www.pwc.com

2. PwC Russia
Agenda
1. Investing into Russia - Opportunities for Chinese investors
2. China Tax Reform Blueprint and development & outbound
investment crisis management (only Chinese version available)
3. Doing business in Russia - corporate, antimonopoly, employment
and migration aspects
4. Tax and non-tax incentives available in Russia
5. Changing customs environment and modern instruments for
supporting importers in Russia
6. Forensic review of the proper use of funds & due diligence of third
parties
2
19 January 2016

3. PwC Russia
Investing into Russia − Opportunities
for Chinese investors
3
19 January 2016

4. PwC Russia
1. Russian economy at a glance
2. Russia-China economic relations
3. Key industry segments and opportunities for Chinese companies
4. PwC in Russia
Agenda
4
19 January 2016

5. PwC Russia
1. Russian economy at a glance
5
19 January 2016

6. PwC Russia
Relative growth of BRICS countries
GDP in 2000-2014 (against 2000)
Russia has historically been growing faster than the world’s
average and in line with the peers form BRICS
9.8%
4.1%
3.2%
CAGR
2000-2014 Historical growth drivers
Upward trend in a global
commodities cycle
Growth in consumption and
development of consumer
markets
Improvement of institutional
environment (incl. WTO
accession in 2012)
Development of financial
markets
Vulnerable to changes in
commodity prices in short-run,
but outperformed world-average
in 2000-2014 (4.1% vs 3.7%)
7.1%
3.1%
Source: EIU, PwC analysis
Growth pattern
Brazil
China
India
Russia
South
Africa
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010 2012 2014
USDt
6
19 January 2016

7. PwC Russia
Certain megatrends will likely drive transformation
of the Russian economy in the future
Source: Gazprombank, Census, CBR, Lukoil, HelgiLibrary, PwC analysis
Mining and O&G are shifting eastward Infrastructure challenge
Aging population Financial deepening
By 2025 25% of oil and 50% of natural gas extraction
will come from new fields (Yamal, Arctic shelf, East
Siberia)
1
Development of new world-class coal, copper and gold
projects in underway in the Russian Far East and
Eastern Siberia
2
More projects are targeting Asian markets. There is a
demand for equity and debt investments to finance
development
Russia shall invest USD 100b pa (4% GDP) in
infrastructure to secure economic growth
1
Only 2% of total infrastructure investments were
private in 2014
3
Due to the budget deficit (2,8% in 2015),
the government will foster private investments
in infrastructure
Large projects include high speed railways, FIFA 2018,
new pipelines and ports
2
By 2030 over 20% of population will be senior
(vs 13% today) – 28 mln people
1
Consumer power of new senior generation will be
significantly higher
2
Pharma, senior hospitality and healthcare markets will
grow faster than GDP. Profile of an average consumer
will change
Bank assets to GDP ratio in Russia (84% in 2013) is
significantly below the peers (250-300%) in the EU and
China
1
Bank assets to GDP shall exceed 130% by 2020 -
potential for double-digit growth rates and returns in
selected segments of financial market
7
19 January 2016

8. PwC Russia
Sanctions imposed by the US, the EU and Japan in 2014 have
an impact on trade, financial markets and production
Ban on exports of certain products
(including equipment for offshore O&G,
high-tech, defence) to Russia
Sanctions imposed by the US,
the EU and Japan
Restricted access to financial markets to
key Russian banks and companies (ban on
new stock issues and debt financing)
Implications
Russian banks have to replace foreign funding, which made up
ca 13% of bank liabilities before the sanctions
Russian O&G companies are looking for new suppliers
of off shore technologies and equipment
Valuations of Russian companies have decreased (EV/EBITDA
of 3.9* vs 8-18 in BRICS), additional impact comes from RUB
depreciation (>50% vs USD and CNY since early 2014)
4
Sanctions imposed by Russia
Ban on imports of agricultural products
and food from the EU, the US,
Ukraine and Turkey
1
Russian O&G and government majors are looking for new
sources of funding for their CAPEX projects
3
2
Trade
Financial markets
Source: Bloomberg, CBR, PwC analysis * - Note: MOEX index (top-50 liquid stocks)
Production
Trade barriers foster development of selected agricultural and
manufacturing segments in Russia
5
8
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9. PwC Russia
Sanctions and oil slump will make 2015 a tough year for the
Russian economy, recovery is expected starting from 2017
Key factors driving the forecast
2015 is a tough year for the economy due
to continuing sanctions, oil slump, weak
RUB and sovereign ratings downgrade
Nominal GDP will decrease greater than
real GDP due to RUB depreciation (>50%
vs USD/CNY)
The economy shall start recovering in
2017
Nominal GDP forecast and real growth rates
Potential opportunities
Strike deals on very favorable conditions
as assets can potentially be undervalued
EIU forecast, 2015-2019
Ride the emerging trends (changing
consumer behaviors, financial constrains,
less competitive imports)
Source: EIU 5-year forecast as of Oct 2015, PwC analysis
4.5% 4.3%
3.4%
1.3%
0.6%
(3.6%)
(0.6%)
2.0%
1.5% 1.5%
1.5
1.9
2.0 2.1
1.9
1.3 1.2
1.4
1.5
1.7
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F
Real GDP growth rate,% Nominal GDP (USD trillion)
9
19 January 2016

10. PwC Russia
Russian economy at a glance
RUB depreciation, sanctions
and megatrends reshaping
Russian economy (shifting to
the east, infrastructure
challenge, aging population
and financing deepening)
bring new investment
opportunities.
6th largest
economy (by PPP,
2014), key supplier
of natural
resources to the
global market
Outperformed
world’s average in
2000-2013
due to upward
trend in commodity
cycle
2015 is a tough
year for the economy
due to the sanctions
and oil slump.
Expected decline in
real GDP – 3.6%,
nominal - >30%
10
19 January 2016

11. PwC Russia
2. Russia – China economic relations
11
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12. PwC Russia
Russia-China economic relations have been limited due to
geography and lack of infrastructure
Source: roebuckclasses., PwC analysis
Economic cooperation has historically
been limited by As a result
Russia makes up only 2% of Chinese
international trade
There is no substantial export of
Russian natural gas to the Chinese
market
Trans-border economic cooperation
is limited
Geography - 3.5k km of the border is located in a remote sparsely
populated area
Lack of infrastructure (different rail gauges, no cross-border bridges
over Heilong Jiang or pipelines)
Limited involvement of both countries in international trade
before 00-s
1
2
3
Several large infrastructure
projects are underway/proposed
Bridge over Heilong Jiang
Natural gas pipeline East Siberia –
China
Expansion of ports in the Russian Far
East and railroad infrastructure
12
19 January 2016

13. PwC Russia
In recent years cross-border trade has demonstrated
substantial growth…
Russia – China trade
Trade between Russia and
China reached 11.8% of
Russian turnover in 2014
(still only 2% of Chinese)
In 2014 80% of Russian
export to China constituted of
mineral resources and
products
Import from China was more
diversified, with leading
categories being machinery &
equipment and consumer
goods
Source: Federal Customs Service of Russia, PwC analysis
-
20
40
60
80
100
120
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
USDb
China to Russia
Russia to China
36%
26%
37%
54
Equipment
Shoes and apparel
Other
Russian export to China, 2014
Russian import from China, 2014
72%
10%
9%
9%
42
Oil and fuels
Ore, metals and
fertilizers
Lumber and pulp
Other
13
19 January 2016

14. PwC Russia
…so have Foreign direct investments
Inward FDI from China
Source: China Statistical Yearbooks 2004-2013, PwC Analysis
Chinese financial investors started actively investing
(mainly CIC), key markets – natural resources and consumer
Russia is set to increase its share in Chinese outward FDI
(target - 7 times by 2020) to foster economic growth and
economic development of the Russian Far East
Year Target Acquirer Vendor
Deal value
(USDm)
Stake,%
2015 Sibur Sinopec Shareholders 1,300 10%
2014 Detsky Mir RCIF AFK Sistema n/d n/d
2013 Uralkali CIC Shareholders 2,008 12.5%
2013 Yamal LNG CNPC Novatek 750 20%
2013 VTB
CCB and co-
investors
Government 2,330 13.8%
2013 MICEX CIC Shareholders n/d 5.30%
2013 RFP Group RCIF Shareholders n/d 42%
2012 Polyus Gold CIC Shareholders 450 5%
The largest M&A transactions
77 203 452 478 395 348
568
716 785
4080
794
2.7%
2.3%
4.2%
3.7%
2.3%
1.7%
1.9%
1.8%
2.1%
9.7%
1.7%
0%
2%
4%
6%
8%
10%
12%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
USDm
FDI in Russia Russia in total Chinese ODI
14
19 January 2016

15. PwC Russia
Wide range of institutions to support Chinese business and
investors in Russia were established in recent years
Top-level political cooperation
lays foundation for partnership in
various business areas
Russia-China trade
chamber
Russian-Chinese
Business Council
Russia China
Investment Fund
The Russian-Chinese
center of trade and
economic cooperation
Intergovernmental
Russian–Chinese
Investment
Cooperation
Commission
Major institutions Mission
“Coordinate efforts of all
participants of bilateral
economic relations”
Facilitate trade in machinery
& equipment and innovations
“Promote joint economic
projects” and “facilitate
cooperation between Russian
and Chinese business
community”
“… Investing in projects that
advance bilateral economic
cooperation between Russia
and China”
Facilitate investment projects
and decrease administrative
and trade barriers
Source: PwC analysis
15
19 January 2016

16. PwC Russia
Russia-China economic relations
Economic
cooperation has
historically been
limited by lack of
infrastructure
and geography
In recent years
bilateral trade and
investments have
surged (China is the
Russia’s largest
trade partner, 11.8%
of total exports)
Russian government
is set to expand
cooperation with
Chinese companies
to foster economic
growth and
development of the
Russian Far East
Several
institutions have
been set up; co-
investment from
RDIF/RCIF is
available for
Chinese companies
and banks
16
19 January 2016

17. PwC Russia
3. Key industry segments and
opportunities for Chinese companies
17
19 January 2016

18. PwC Russia
Russia has a diversified economy driven by export-oriented
O&G and mining sectors and developing consumer market
7%
6%
6%
6%
6%
5%
5%
4%
Retail & wholesale
Oil & gas
Processing industries
Transportation
Finance
Healthcare, education
Construction
Real estate
Public services
Metals & Mining
Agriculture
Power & utilities
Telecom
Other
1,801
19%
11%
11%
3%
3%
10%
Key observationsStructure of Russian GDP, 2014
Contributing ~76% in total exports, Oil & Gas and
Metals & Mining are key export-oriented industries,
which are competitive on a global arena
Other industry segments such as retail, agriculture,
industrial manufacturing, transportation and
construction present significant domestic markets
with a variety of opportunities for foreign investors
and suppliers
Russian economy is quite diversified with a wide
range of sectors contributing to GDP
USD bn






Source: Rosstat (State Statistics Agency of Russia), World Bank, PwC analysis

18
19 January 2016

19. PwC Russia
Being a Top-3 Oil & Gas producer, Russia has been recently
shifting a strategic focus on Asian markets
Russia in the global context, 2014 Industry outlook
Natural gas production
% total world production,
bn cubic meters
Oil production
% total world production,
mn barrels daily
Russia is a top-3 global oil & gas producer and
exporter
Russia has the largest natural gas reserves
and top-8 oil reserves
Oil & Gas industry is highly concentrated with
a significant state involvement
• Few major vertically integrated oil players
dominated by a state-owned Rosneft
• State-owned Gazprom is a dominant
natural gas producer with a monopoly for
export sales
• State-owned Transneft is monopoly
operator of oil pipelines
Soviet-era fields in Western Siberia are
depleting, and O&G sector is moving
eastwards and to the Arctic shelf. Target
markets also change
Source: BP, PwC analysis
Total: 3,461 Total: 88.7
162
173
177
579
728
Canada
Iran
Qatar
Russia
The US
4.2
4.3
10.8
11.5
11.6
China
Canada
Russia
Saudi
Arabia
The US
19
19 January 2016

20. PwC Russia
Prospective O&G regions
Source: Irkutsk oil
20
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21. PwC Russia
Existing cooperation and potential opportunities for Chinese
companies in Oil & Gas
Contractors in
infrastructure & pipelines
JV/ investments in
upstream
Supply of equipment and
technology
• Yamal LNG-CNPC;
• CNPC - Rosneft (Vankor)
• Chinese contractors & suppliers are
expected to participate
• Oil & Gas infrastructure
development is on top of the
agenda, i.e. investment into Russia
– China gas pipeline is expected at
~$55 bn
• Russian O&G companies need to
make significant investments in new
fields (East Siberia, Arctic shelf) to
sustain production volumes
• Financing is constrained due to the
sanctions
• Potential for Chinese O&G equipment
suppliers and service providers to gain
market share from Western
competitors
• Supplies and equipment spending of
only Rosneft reached $6 bn in 2014
• Hilong investment in coating business
in Russia
Segment
potential
Recent
deals
Source: PwC analysis
21
19 January 2016

22. PwC Russia
Russia is a top global producer across a wide range of
minerals with a solid resource base
17%
Nickel 14%
Copper 4%
Gold 7%
Iron ore 6%
Coal 5%
Steel 4%
Potash
4%
35%
8%
10%
15%
18%
n/a
Rank
#2
#3
#3
#6
#4
#2
Mineral and steel production Mineral reserves
% in world’s % in world’s
Russia in the global context Industry outlook
• Russia is among global leaders in
metals and mining
RUB depreciation improves cash
margins and NPV of Russian mining
projects
There are over 40 large-scale mining
projects in the Russian Far East on
exploration and development stages,
namely: Udokan (copper), Baimskoe
and Natalka (gold), Tuva and Elga coal
projects, Timir (iron ore)
• Focus on export, but Russia makes up
ca. 2% of Chinese imports of metals
n/a
Rank
#5
#5
#4
#6
#1
#2
#5
Source: PwC analysis
22
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23. PwC Russia
Source: PwC analysis
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17 18
19
20
21
22
23
24
25
26
2728
29
30
31
32
33
3435
36 37
38
39
40
41
42
43
44
45
46
47
China
Mongolia
Kazakhstan
Japan
Republic
of Korea
DPRK
Moscow
Iran
Iraq
Turkey
Ukraine
Large-scale mining projects in Russia on exploration and
development stages
Exploration
and design
Development Mining
Coal
Cu
Fe
Ni
Au
Mo
Ti
Zn,Pb
Other
23
19 January 2016

24. PwC Russia
Existing cooperation and potential opportunities for Chinese
companies in Metals & Mining
Equity investments in new projects Supply of machinery & equipment
• CIC – Polyus Gold
• China Shenhua – Rostech – JV to develop coal
deposits
• Chinese investors expressed interest in Mechel,
Norilsk Nickel and Metalloinvest projects in the
Russian Far East
• USD 12+ bn Capex on average per year is planned by
mining companies till 2020, driving demand for
mining equipment and solutions
• Russian companies are seeking equity partners to
develop numerous deposits in the Russian Far East
• Lack of infrastructure might be an issue
Segment
potential
Recent
deals
• Multiple niche Chinese players have increased their
presence in Russian market, specifically in price
sensitive segments (i.e. coal)
• At the recent Mining World expo in Moscow
approximately 20% of suppliers represented
China
Source: PwC analysis
24
19 January 2016

25. PwC Russia
Agricultural might have a good potential, although there
are certain restrictions for the foreign investors
Source: FAO trade statistics, PwC analysis
Russia in the global context Industry outlook
Russian agricultural ban fosters
development of aquaculture market
which barely exists now
There is a number of large (>USD 1b in
revenue) agricultural holdings in
Russia potentially available for sale
Oil and grains
Fishery
Russia has the 3rd largest arable land area globally, and one of the
highest arable area per capita in the world
Russia has become the 3rd largest exporter of wheat (>20 mt pa)
and sunflower oil (ca 3.2 m t) since the Soviet era
Key market – Middle East, shipped through grain terminals in
Black sea
5th largest catch in the world and abandoned biological resources
(Russian Pacific coast)
Russia makes up 30% of total Chinese fishery imports
(mostly pollock)
1
2
3
1
Constraints for foreign investors
There are restrictions on land ownership
for foreign companies/individuals. Grain
exports is highly regulated
Russian government is interested in
attracting Chinese investors
2
25
19 January 2016

26. PwC Russia
Russia is perfectly positioned to satisfy growing demand for
timber in China
Russia in the global context
Forests
Industry outlook
RUB depreciation improves bottom
line of timber companies in Russia
and encourages production of sawn
wood (less taxable)
Chinese consumption will likely
increase, thanks to growing furniture
and construction materials industries
Chinese companies started investing
abroad to secure supply
Recent deals
Source: Agroatlas, FAO, PwC analysis
Russian forests comprise 20% of global. Most of timber resources are
located close to Russia-China border.
Russia makes up only 16% of Chinese import of softwood (surpassed
by New Zealand in 2013, due to high export duties on round timber)
1
2
RCIF – RFP Group (40%, 2013)
AVIC Forestry – processing plants in
Tomsk region by 2022
1
2
26
19 January 2016

27. PwC Russia
Development of infrastructure is key to unlock natural
resources potential of the Russian Far East
Source: PwC analysis
Projects in the Russian Far East Other infrastructure projects
• RCIF invests in construction of first railway bridge
over Amur
• Dongfang Electric plans to invest in energy projects
with RAO EES Vostoka
• Existing infrastructure in the Russian Far East
(ports, bridges, power) is inadequate to fully exploit
resource potential
• Development of the infrastructure in the region is on
top of the agenda for the Russian government
(separate ministry was established in 2012)
• There is a demand for infrastructure investments in
other parts of Russia (high-speed railways, FIFA 2018,
Moscow underground)
• Certain projects might be suitable for Chinese financial
investors (PPP), Chinese contractors might be highly
competitive
Segment
potential
Recent
deals
• China Railway Construction considers participating in
expansion of Moscow underground
27
19 January 2016

28. PwC Russia
Great Wall, Lifan and GAC – plants
under construction
Dongfeng, Zotye – contracted
assembly starting 2015
Fuyao Glass –a plant launched in 2013
Chinese brands had only 3% sales in
2014 (38% in China);
Lifan, Chery, Geely and Great Wall
comprise together 93% of Chinese
cars sales in 2014;
Chinese manufacturers have a
competitive edge in a price-sensitive
market
Russian automotive market is one of the largest in the
world. Companies with localized production have advantage
Source:AEB, OICA, PwC Analysis
Russia in the global context
8th largest market in the world (2.3m new light vehicles sold in 2014,
4% of global)
The market is dominated by global conglomerates: Renault-Nissan
(31%), VW Group (11%), KIA (8%) and GM Group (8%)
Imported vehicles are subject to high customs duties and make up only
25% of the market
2015 was a very tough (-45%) due to RUB depreciation
Localization:
Localisation proved to be a sound strategy for foreign manufacturers
55% of cars sold in 2014 were foreign brands assembled in Russia (up
from 44% in 2012)
1
Industry outlook
Recent activities
1
2
2
3
3
2
1
4
28
19 January 2016

29. PwC Russia
Recession and RUB depreciation will likely lead to changes
in consumer behaviour and transformation of retail market
Source: PwC analysis
E-commerce Apparel retail
• Alibaba opened office in Russia and signed a
partnership agreement with Qiwi
• VipShop signed a partnership agreement with KupiVip
• Yota Devices purchased by REX Holdings (ca. USD
100m deal, late 2015)
• RCIF acquired stake in Detsky Mir (the largest
infant goods retailer) and had negotiations with
Gloria Jeans’ shareholders (mass market
apparel) in 2014-2015
• Valuations of Russian e-commerce companies are
at the bottom
• RUB depreciation impacts customers' behaviour
and attracts customers to low-cost e-
retailers/coupon services/etc
• Apparel makes up ca.30% of Chinese export
to Russia
• The largest apparel retailers (infant goods,
shoes, mass market) rely on Chinese
manufactures
Segment
potential
Recent
deals
29
19 January 2016

30. PwC Russia
Key industry segments and opportunities
for Chinese companies
RUB depreciation will drive transformation of
Russian e-commerce, automotive and retail
markets benefiting cost-efficient market players
Investment opportunities
exist in export-oriented
natural resources industries
and transforming
consumer markets:
O&G and metals and mining companies are facing
financial constraints due to the sanctions and are
looking for equity partners for new deposits/fields
Russian forestry and agriculture
are well positioned to meet
growing demand in China
Infrastructure investments are
highly encouraged by the
Russian government
30
19 January 2016

31. PwC Russia
4. PwC in Russia
31
19 January 2016

32. PwC Russia
PwC posses a wide range of capabilities in Russia to help
you investing and creating value
Deal
execution
Deal origination
Realizing
potential of the
investment
Divestiture
• Due diligence: financial, tax, commercial, operational,
legal, HR, environmental, IT
• Financial and tax modelling and model review
• Tax and legal structuring
• SPA, shareholder agreement, and other deal
documentation
• Negotiation support
• Strategy development
• Operational performance improvement
• Accounting function
• IT systems
• On-going tax and legal consultancy, restructuring
• HR consultancy
• Business restructuring
• Audit and assurance
• Forensic
• Exit support
• Vendor due diligence
• Tax optimisation on exit
• SPA, shareholder agreement
and other deal
documentation
• Negotiation support
• Market entry strategy
• Target screening
• Feasibility study
• Financing advice
• Bringing co-investors
32
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33. PwC Russia
We have a proven track record helping Chinese companies
to invest in Russia
Indicative value analysis and
financial and tax due
diligence of coal mines and a
sea coal terminal in Russia
Valuation, financial and tax
due diligence
Large Chinese coal
company
Large Chinese e-
commerce company
Financial and tax due
diligence of a potential target
in Russia
Financial and tax due
diligence
Large Chinese energy
company
Financial and tax due
diligence, valuation of
Russian subsidiary of a large
European banking group
Financial and tax due
diligence, valuation
Russian washing machine
market analysis
Sinopec Oil and Gas
Financial advisor on a
potential acquisition of a
major upstream company
Financial and tax due
diligence
Haier
Market analysis
RCIF
Commercial due diligence of
a e-commerce company
Commercial due diligence
Hilong
Financial and tax due
diligence of a joint venture in
Russia
Financial and tax due
diligence
Chinese investment
firm
Financial advisor on a
potential acquisition of a
stake in a mining project
Financial and tax due
diligence
33
19 January 2016

34. PwC Russia
China Tax Reform Blueprint and
development & outbound investment
crisis management (only Chinese
version available)
34
19 January 2016

35. PwC Russia
Doing business in Russia – corporate,
antimonopoly, employment and
migration aspects
35
19 January 2016

36. PwC Russia
Agenda
1. Introduction
2. Russian legal framework
• Corporate aspects
• Antimonopoly regulations
• Employment law
• Migration law
36
19 January 2016

37. PwC Russia
1. Introduction
37
19 January 2016

38. PwC Russia
2. Russian legal framework
• Corporate aspects
• Antimonopoly regulations
• Employment law
• Migration law
38
19 January 2016

39. PwC Russia
2.1. Corporate aspects
39
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40. PwC Russia
Corporate aspects
A subsidiary, i.e. a Russian
Legal Entity (RLE) can be
established in the following
forms:
− Limited Liability
Company – the form
which is most commonly
used by the investors;
− Joint Stock Company
(“JSC”) (either a public
JSC or non-public JSC);
− Other forms
A representative office
(RepOffice)
Foreign legal entity (FLE) may carry out activity in Russia via:
RepOffice is a FLE
subdivision located
remotely from the place
of FLE official location.
RepOffice shall
represent and defense
FLE’s interests in
Russia. RepOffice is not
eligible to carry out any
commercial activity;
A branch office
(Branch)
Branch is a subdivision of
FLE located remotely
from the place of FLE
official location. Branch
is eligible to carry out any
activity permitted for FLE
by its foundation
documents including the
activities usually
performed by a
RepOffice;
A subsidiary
40
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41. PwC Russia
Corporate aspects
Legal forms
of
commercial
(for profit)
companies
Other legal forms of commercial companies (in addition to LLC,
Non-public JSC and Public JSC include:
 Full Partnership;
 Trust Partnership;
 Production Co-operative;
 Peasant (Farm) Enterprise
Basically, we recommend to set up a limited liability company
(“LLC”) if there is a 100% foreign investor.
In cases of a joint venture non-public JSC may be a better option.
If a company plans to go public over time, Non-public JSC is again a
better option since (1) conversion into a Public JSC is not deemed
reorganization and (2) does not result in acceleration of creditors’
claims and shareholders’ rights revision.
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42. PwC Russia
Preparation of
documents for
registration
For the documents
issued abroad
legalization
procedures* must
be completed.
Registration with the
state authorities
Registration
procedure takes
5 working days.
Tax authorities,
Non-budgetary funds
and statistics
authorities will
provide the company
with the registration
certificates.
Opening the bank
account and payment
of the charter capital
Production of
corporate seal,
open the bank
account(s) for
operations in Russia,
payment of
the charter capital
within 4 months.
Corporate aspects
*Legalisation requirements. Documents originating from the foreign jurisdictions must be properly authenticated in order to be
recognised in Russia. The 1961 Hague Convention applies to the Special Administrative Regions of Hong Kong and Macao only, so
the legalization requirements for these regions can be met by affixing an apostille on the relevant “public documents”. There is the
Agreement between Russia and China on Legal Assistance in Civil and Criminal Matters (Beijing, June 19, 1992), however it is not
widely used in practice, so legalization requirements generally apply.
Incorporation of an LLC – major steps for registration process
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43. PwC Russia
2.2. Antimonopoly regulations
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44. PwC Russia
Antimonopoly regulations
Antimonopoly Regulations in Russia –
Key Requirements to Conducting Business
• Modern Russian anti-trust legislation has only 10-year history. Key Russian anti-trust
law is the Federal Law No. 135-FZ “On Protection of Competition” (has been
significantly amended several times during its existence and likely to change in the
future);
• Russian anti-trust authorities (“FAS”) became one of the leading law enforcement
agencies in Russia with significant powers (including dawn raids, cooperation with
police and other state bodies). It has offices in most of regions of Russia;
• Unlike traditional anti-trust authorities, FAS deals not only with competition matters,
but with tariff regulations, state procurement, investments into strategic sectors, food
retail;
• Key industries under control include: oil and oil products, chemicals, food,
automotive, pharmaceuticals, state procurement, transportation and logistics
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45. PwC Russia
Antimonopoly regulations
Antimonopoly Regulations in Russia –
Key Requirements to Conducting Business
• Similarly to most jurisdictions, key Russian anti-trust concepts include:
− abuse of dominant position (key concerns include refusal to deal, discriminatory
practices, effect of foreign anti-bribery rules);
− cartels (including various communications in the business associations);
− vertical agreements (key focus is on distribution agreements and various
restrictions and exclusive rights; IP-related defense is not always available);
− other prohibited agreements (list is not exhaustive);
− unfair competition;
− merger control (significant number of transactions, even intra-group, may require
antimonopoly clearance)
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46. PwC Russia
Antimonopoly regulations
Antimonopoly Regulations in Russia –
Key Requirements to Conducting Business
• Careful consideration of planned practices is recommended since claims from FAS
may significantly disrupt the business:
− reputational damage;
− turnover penalties (up to 15%) for companies;
− criminal liability for company officers;
− disqualification from office;
− civil suits from damaged party
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2.3. Employment law
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48. PwC Russia
Employment law
In addition to employment agreements employment relations in Russia are regulated by:
The Russian
Employment Code
and other Federal Laws
(i.e., the law on minimum monthly
salary; the law on trade unions, their
rights and guarantees of their
activity; the law on occupation in
Russia; etc.)
Legislation of the
Russian constituent
subjects
(i.e., Law of Moscow on employment
in Moscow; Law of Moscow on social
partnership; etc.)
Social agreements
(i.e., agreements between several
employers and their employees
establishing general principals for
economic relations related to
respective employees and
employers)
Collective
agreements
(i.e., agreements between employers
and employees regulating social and
employment relations within the
companies in more detail)
Local normative
regulations
(each employer shall adopt at least
the following three local
normative regulations:
(i) internal labour regulations
(i.e., staff handbook),
(ii) the regulation on personal data
and
(iii)the regulation on salary
payment (bonus payment)
(or the respective provisions of ii and
iii above shall be included in internal
labour regulations)
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49. PwC Russia
Employment law
• The employment agreement shall include, inter alia, the following terms:
− the place of work;
− job function;
− duration (as a general rule the employment agreement shall be concluded for an
indefinite term. If the employment agreement is concluded for a fixed term, the
reason for concluding the agreement for the fixed term shall be provided);
− salary payment and compensation terms
• Conclusion of the employment agreement implies:
− familiarization of the employee against the signature with duly local normative
regulations (i.e., internal policies);
− actual signature of the agreement by the employer and the employee;
− formalising HR documents (order on employment, labour book, personal card)
• Termination of the employment agreement
− the agreement may be terminated only based on the grounds stipulated in the
Russian employment law;
− on the last working day the employer must make all final settlements with the
employee and formalize the respective HR documentation
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50. PwC Russia
Employment law
The main guarantees for the employee
• Employer is obliged to pay the salary in RUB not less than every half a month on days
established by internal labour regulations, state authorities require to specify and pay
salary in RUB;
• Salary and other work related payments (i.e., bonuses) shall be made by the
employer, not by a third party (e.g. another company of the employer’s group);
• The employee is entitled to annual paid vacation of duration not less than
28 calendar days, the normal duration of working hours per week shall not exceed
40 hours;
• The employee may be engaged into work on weekends and on public holidays only in
accordance with the procedure established by the law (generally employers have to
pay twice as much for the employees’ working on weekends and public holidays);
• The employee shall be reimbursed for expenses incurred during a business trip and
shall be paid during the period of temporary disability (time of business trips and
vacations shall be paid based on average salary)
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51. PwC Russia
Employment law
Administrative liability
For legal entities: administrative fine of up to RUB 50,000, or administrative
suspension of the activity for the period up to 90 days
For executives: administrative fine of up to RUB 5,000
Material liability
The employer may be hold materially liable for the violation of the terms for salary
payment, payment for vacation, payment due to the termination of the employment
agreement and other payments. If this is the case, the employer will be obliged to make
respective payments with interest in the amount established by the law for each day of
delay starting from the next day after the due payment date.
Compensation of moral damage
The employer shall compensate moral damage caused to the employee by the employer’s
unlawful actions or inaction in a monetary form in the amount to be determined upon
mutual agreement between parties to the employment agreement.
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2.4. Migration law
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53. PwC Russia
Migration law
Legal status of foreign nationals in the Russian Federation
Foreign nationals in Russia have the same rights and obligations in terms of
the employment law as the Russian nationals, except as otherwise provided by
law (e.g. it is prohibited for a foreign national to do the military and civil
service in Russia).
Most issues regarding the legal status of foreign nationals in Russia are
governed by Federal Law "On Legal Status of Foreign Nationals in the
Russian Federation" No. 115-FZ of 25 July 2002, other laws and bylaws.
Chinese nationals shall generally obtain visas to entry Russia. The visa, its
category, type and the travel purpose should correspond to the real
purpose of coming into Russia and the foreigner's activity in Russia.
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54. PwC Russia
Migration law
1. Those belonging to privileged category of highly qualified specialists
(the “HQS”) (foreigners belonging to categories 2 and 3 below may be
formalized as HQS) work under HQS work permits
2. Citizens of countries which have visa regime with Russia, including
People’s Republic of China work under regular work permits
3. Citizens of countries which have non-visa regime with Russia
(e.g. most of the countries of Commonwealth of Independent States) work
under patents
4. Citizens of the Eurasian Economic Union’s countries, including Belarus,
Kazakhstan and Armenia work without work permits/ patents
Categoriesofexpatriates
Please kindly note that People’s Republic of China is one of the countries, citizens of
which may face additional requirements of the migration authorities (for instance,
additional confirmation documents/ papers may be requested by the authorities)!
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55. PwC Russia
Migration law
HQS as a privileged category
• Salary level of not less than 167,000 RUB per month payable through a Russian
payroll;
• Quarterly reports of salary payments;
• NO quota;
• NO employment permit;
• Generally employer is judging the HQS’ qualification based on its own expectations;
• Multi entry work visa and HQS work permit are issued for up to 3 years;
• Multi entry work visas for accompanying family members are issued for
up to 3 years;
• Simplified migration registration requirements;
• The migration authorities formalise HQS work permit within 14 working days
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56. PwC Russia
General procedure for obtaining permissive documents to hire expatriate
employees who are HQS
Step 1
Work permit
request and
entry invitation
Step 2
Issue of work
visa (up to 3
years)
Step 4
Notification on
employment
Start of employment
Step 5
Tax
registration
Step 6
Quarterly
report
Step 3
Collection of
work permit
HQS personally receives
the work permit
Migration law
3 weeks
(14 business days)
1 week 1 -2 weeks On a quarterly
basis
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57. PwC Russia
Business trips aspects to be considered
Business visa is NOT a permissive document authorizing employment in Russia.
Generally a Chinese national may work in Russia only provided that he/ she has
both work permit and work visa.
!
With regard to business and other trips to Russia the following treaties may by
considered:
• APEC* Business Travel Card Operating Framework joined by People’s Republic of
China in February 2002
• The Treaty between the governments of Russia and SAR Hong Kong dated 23 April
2009 On Mutual Cancellation of Visa Requirements for the Citizens of the Russian
Federation and the Permanent Residents of SAR Hong Kong
• The Treaty between the governments of Russia and SAR Macao dated 19 June 2012
On Mutual Cancellation of Visa Requirements for the Citizens of the Russian
Federation and the Permanent Residents of SAR Macao
*Asia-Pacific Economic Cooperation
Migration law
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58. PwC Russia
Business trips aspects to be considered
• Business Visa is subdivided into different sub-types of purpose of the visit, e.g.
Business Visa sub-type Commercial, Business Visa sub-type Technical Maintenance,
etc.;
• If a foreign national entered Russia on the basis of Business Visa sub-type
Commercial, he/ she may attend business meetings, participate in auctions, negotiate
and sign contracts but may not install, service, or repair the equipment (the activities
that are allowed under Business Visa sub-type Technical Maintenance);
• The description of the activities permitted under each sub-type of Business Visa may
be found in Purposes of the Visit approved by the Order of the Russian Ministry of
Foreign Affairs No. 19723A, Order of the Russian Ministry of Internal Affairs No.
1048, Order of the Russian Federal Security Service No. 922 on 27 December 2003
Migration law
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59. PwC Russia
Administrative liability
• Violation by an employer of employment rules (i.е. employment of foreign nationals
without permission) – up to RUB 1,000,000 per each foreign employee, depending
on the region of Russia. For company’s officers – up to RUB 70,000, depending on
the region of Russia;
• Failure to notify the executive authorities on employment of foreign nationals up to
RUB 1,000,000 per each foreign employee, depending on the region of Russia;
• A foreign national, who works without a work permit – up to RUB 7,000 with
deportation from Russia, depending on the region of Russia;
• Failure to comply with the migration law may lead to the ban on employing HQS for
the term of up to two years;
• Some audits and control measures of the Russian migration authorities in Moscow
and in St. Petersburg have recently dealt with the projects of Chinese investors and,
also, affected Chinese citizens*
* http://www.dp.ru/a/2015/08/11/FMS_i_prokuratura_ne_nashl/ http://www.rg.ru/2015/04/24/migraciya.html
Migration law
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60. PwC Russia
Legal contacts in Russia
Gennady Odarich
Director
Legal practice
Business set-up, migration
gennady.odarich@ru.pwc.com
Dmitry Bessolitsyn
Senior Associate
Legal practice
Business set-up, migration
dmitry.bessolitsyn@ru.pwc.com
Alexei Dingin
Senior Associate
Legal practice
Employment law
alexei.dingin@ru.pwc.com
Ekaterina Avilova
Associate
Legal practice
Business set-up, migration
ekaterina.avilova@ru.pwc.com
Ivan Popov
Associate
Legal practice
Business set-up, migration
ivan.popov@ru.pwc.com
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61. PwC Russia
Tax and non-tax incentives available
in Russia
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62. PwC Russia
Types of tax and non-tax incentives available for investors in
Russian regions
*All calculations in this presentation made are based on the exchange rate USD 1 = RR 55
Special investment contract
• Special investment contract is established to foster the
development of manufacturing and innovative sectors of the
Russian economy;
• Tax and non-tax incentives (tax and customs incentives, privilege
on rent payment for land plot, grandfather clause etc.);
• Currently is a matter of legislative process.
Some federal non-tax incentives
• Subsidies of part of interests for financing of investment project;
• Free railway transportation to and from Russian Far East.
• Special-purpose loans for investment projects using the
mechanism of project finance.
Free port Vladivostok
• Designed to develop near-bordered Primorsk region;
• Tax incentives (profits tax, social contributions reduced rates);
• Other non-tax incentives (facilitated processes for foreign citizens
etc.);
• Free customs zone.
Advanced development zones
• Designed for investment attraction to Russian Federation and
first implementation planned for Russian Far East and small
towns;
• Tax incentives (profits tax, property tax, social contributions
reduced rates);
• Other non-tax incentives (eg, simplified migration rules for
foreign citizens employment, special land use regime, etc);
• Free customs zone.
Regional investment project
• Established for investment attraction to Russian Far East;
• Tax incentives (profits tax, property tax, land tax).
Industrial special economic zones
• Designed to develop Russian industry;
• Tax incentives (profits tax, property tax, land tax);
• Free customs zone;
• Other non-tax incentives in some regions (eg, simplified
migration rules for foreigners, fixed lease of land payment, etc);
• State and regional guarantees to banks granting loans to
investors.
Regional tax incentives
• Tax incentives (profits tax, property tax, land tax, transport tax);
• Regional monetary subsidies;
• Regional guarantees to banks financing investors;
• Informational support.
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1. Regional tax incentives
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64. PwC Russia
Regional tax incentives and non-tax forms of support for
investors: overview
• Russian Tax Law assumes possibility for regions to develop their own systems
of tax incentives and non-tax forms of support for investors.
• Such incentives in respect of regional taxes shall be established and abolished
by Russian Tax Code and (or) by tax laws of regions of the Russian Federation.
• Under article 56 of Russian Tax Code tax incentives are privileges granted to
individual categories of taxpayers and envisaged by the tax legislation as
compared with other taxpayers; such privilege includes the possibility not to
pay a tax or to pay a smaller amount of tax.
• Non-tax incentives include but are not limited to the following:
− Provision of budget subsidies, investments for the partial compensation of
investment expenses;
− Provision of government guarantee to banks granting loans to investors;
− Simplified access to infrastructure facilities;
− Provision of regional property on lease or as concession or as contribution
into the charter capital;
− Decrease of rent payments for investors renting land from the regional
government;
− Information, administrative and legal support;
− Others.
• As of today many Russian industrial regions have diverse systems of
stimulation measures for investors, which generally assume profit, property,
transport or land tax exemptions.
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65. PwC Russia
Moscow City (come into force from 1 January 2016)
Value of investment Currently not specified
Tax incentives
Corporate profits tax:
rate
15,5%
Property tax:
rate
Exemption for immovable property, 50% of tax for immovable property of industrial
complex
Comments The incentives (profit tax, property tax, land tax) are applicable for investors during
the term of prioritized investment project, technopark, technopolis, industrial park or
industrial complex
Land tax Tax determined as 0,7% from calculated amount of land tax (applicable for subjects of
prioritised investment projects, technoparks, industrial parks) and 20% from
calculated amount of land tax (applicable for industrial complex)
Type of activity
Implementation of the investment project on particular type of business activity. Covered the majority of types of
industrial activity (including automotive industry), except production or sale of tobacco, the implementation of
investment projects in the sphere of housing construction, construction of hotels, other accommodation facilities,
administrative, business and shopping centers and investments in banks and insurance industries
Resident of
technopark or
industrial park
Resident must not have a separate subdivision outside Moscow
Resident must provide to the investment authority full information about tax payments
Core resident of
technopark or
industrial park
Resident is an entity who satisfies the following criteria:
• Does not use simplified taxation system;
• Located within the territory of technopark or industrial park and does not have a separate subdivision outside
Moscow;
• Agreed to provide data on actual tax payments to the investment authority;
• During the two years preceding the year of application for assignment of the anchor resident, has at least two
indicators which are above average among the residents of the technopark or industrial park: the number of
jobs per square meter; the amount of taxes paid to the budget of Moscow, etc.
Additional
comments
Currently, the issues of amount of investments, process of obtaining status of prioritized investment project, order
of providing non-tax incentives are a matter of legislation process
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66. PwC Russia
2. Special economic zones
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67. PwC Russia
Special economic zones: overview
Russian special economic zones are established to foster the development of
manufacturing and innovative sectors of the Russian economy, to develop
tourism, health and resort activity, to stimulate the development of new
technology and types of products and improve the port and transport
infrastructure in Russia
Each type of SEZ provides tax and customs benefits as well as other kinds of
economic incentives in order to stimulate economic development of the
particular region
• Industrial SEZ (main activity – manufacturing of goods);
• Technological SEZ (main activity – creation of innovative
and IT products);
• Tourism SEZ (main activity – construction and
development of health and resort facilities);
• Port SEZ (main activity – warehousing, supply services
for ships, ships maintenance and service works,
wholesale trading, etc.).
The current Russian
law on special
economic zones
(“SEZ”) envisages the
following types of SEZ:
1
2
3
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68. PwC Russia
Kaliningrad region
Kaluga region
Samara region
Republic of
Tatarstan
Sverdlovsk region
Lipetsk region
Pskov region
Moscow
Crimea
Primorsk region
Stupino (Moscow region)
Industrial special economic zones on a map
Astrakhan region
Developing ISEZ
Developed ISEZ
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69. PwC Russia
Industrial special economic zones: overview
• Industrial special economic zones (“ISEZ”) are established by the
Government of Russia on the territories of certain regions where (i) a special
regime for business activity is applied and (ii) a free customs zone regime is
applicable;
• The term of ISEZ is fixed for the period of 49 years and cannot be prolonged
though for some regions the period might vary by law;
• Both tax and non-tax incentives are provided to the residents of ISEZ;
• In order to become a resident of ISEZ a candidate company must enter into an
agreement with the Russian Ministry of Economic Development on carrying
out industrial production and operational activities (“Agreement”);
• The status of the resident of ISEZ may be cancelled only by the court;
• The amount of investment to be eligible for the incentives shall not be less
than 40 mln RR (0,73 mln USD) (except for Kaliningrad region where the
minimum threshold is set at 150 mln RR (2,7 mln USD));
• Favourable rate of social contribution is established for residents of ISEZ in
case of carrying out R&D activity.
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70. PwC Russia
3. Regional investment projects
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71. PwC Russia
Regional investment projects: overview
• Regional investment project is an investment project aimed at production of
goods in a number of the East regions of the Russian Federation;
• The amount of investment shall not be less than 50 mln RR (0,91 mln USD)
within the first 3 years or 500 mln RR (9.1 mln USD) within the first 5 years of
an investment project (thresholds may be increased by regional law);
• Each Regional investment project shall be performed by one company only;
• The participant of a Regional investment project cannot be (i) a resident of
SEZ, (ii) a resident of ADZ, (iii) has branches outside the region of Regional
investment project, (iv) be in a consolidated group of taxpayers, (v) be non-
commercial organisation, bank, insurance company, etc.;
• The federal part of profits tax rate for a participant of a Regional investment
project is 0% (standard rate is 2%) during 10 years when the first revenues
from sale of goods produced under the Regional investment project were
received (these revenues should amount to 90% of all revenues of the
participant);
• The regional part of profits tax rate (standard rate is 18%) for a participant of a
Regional investment project cannot be more than 10% during first five years of
implementation of the Regional investment project and cannot be less than
10% during the following 5 years (specific rates are established by regional
law);
• Tax incentives remain in force through 1 Jan 2029 (the period of tax incentives
for those investors who invested not less than 50 mln RR (0,91 mln USD)
during first three years of implementation of a Regional investment project
ends on 1 Jan 2027);
• Regional investment project regime applies to all Russian East Siberia and Far
East regions.
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72. PwC Russia
Selected regional investment project on a map
Primorsk region
Moscow
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73. PwC Russia
Regional investment project: Primorsk region
Profits tax incentives
Rate Period Comment
0% 0-5 years
1. If a participant of a Regional investment project having invested 50 mln RR
(0,91 mln USD) or more does not receive revenues during the first three years
of implementation of the Regional investment project, the profits tax
incentives (both in federal and regional parts) will be applicable from the 4th
year from the date of obtaining the Regional investment project participant
status.
2. If a participant of a Regional investment project having invested 500 mln
RR (9,1 mln USD) or more does not receive revenues during first five years of
implementation of the Regional investment project, the profits tax incentives
(both in federal and regional parts) will be applicable from the 6th year from
the date of obtaining the Regional investment project participant status.
10% 6-10 years
20%
After the
10th year
Property tax incentives 0% (0-5 years) 0,5% (6-10 years)
Land tax incentives in
some Primorsk regions
(instead of standard
1,5% rate)
Vladivostok Ussuriysk district
500 mln RR (9,1 mln USD)
investment within 5 years
0,3% during
5 years
0% during 5 years
(tax preference ends 1 Jan 2027)
150 mln RR (2,7 mln USD)
investment within 3 years
0,6% during
3 years
Type of activity
Any type of activity (except for oil and gas production, transportation of oil and gas, petrol, tobacco and
alcohol production)
Investment declaration Required
Investment project Required
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74. PwC Russia
4. Advanced development zones
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75. PwC Russia
Advanced development zones: overview (1/2)
• Advanced development zones (“ADZ”) are established by the Government of
Russia in the territories of the Far East regions of the Russian Federation and in
specified monotown`s territory during the first three years, after three years –
in each Russian regions where a special regime for business activity is applied;
• Now there are nine ADZs in Russia;
• The term of ADZ is fixed for the period of 70 years and can be prolonged in
accordance with Governmental Decision;
• In order to become a resident of ADZ a candidate company must enter into an
agreement with the special management company;
• Territory of ADZ cannot be the same with the territory of SEZ;
• The resident of an ADZ cannot be (i) a resident of SEZ, (ii) a participant of a
Regional investment project, (iii) has branches outside of ADZ, (iv) be in a
consolidated group of taxpayers, (v) be non-commercial organisation, bank,
insurance company, etc.;
• The federal part of profits tax rate for ADZ resident is 0% (standard rate is 2%)
during 5 years when the first profits from sale of goods produced in ADZ were
received (the revenues from ADZ should amount not less than 90% of all
revenues of the participant);
• The regional part of profits tax rate (standard rate is 18%) for ADZ resident
cannot be more than 5% during the first five years when the first profits from
sale of goods produced in ADZ were received and cannot be less than 10%
during the following 5 years (specific rates are established by regional law);
• The insurance contribution rate for a resident of ADZ is decreased (7,6%
instead of maximum standard 30% for 2015-2017 years) during the first
10 years;
• A free customs zone regime may be applicable for a resident of ADZ.
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76. PwC Russia
Advanced development zones: overview (2/2)
Moscow
Mikhailovskiy
(Primorsk region)
Beringovskiy
(Chukotka Autonomous okrug)
Kamchatka
(the Kamchatka region)
Kangalassy
(The Republic of Sakha (Yakutia))
Belogorsk
(Amur region)
Priamurskaya
(Amur Region)
The number of ADZ has rapidly increased within the last couple of months.
The following ADZs have been recently established:
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77. PwC Russia
Advanced development zones: Khabarovsk and Primorsk
region
Territory “Komsomolsk” “Khabarovsk” “Nadezhdinskaya”
Region Khabarovsk region Primorsk region
Tax incentives
Rate Period Comments Rate Period
Profit tax
0% 0-5 years
Applicable from
1 January 2016
0% 0-5 years
12% 6-10 years 12% 6-10 years
Property tax
0% 0-5 years 0% 0-5 years
1,1% 6-10 years 0,5% 6-10 years
Social contributions 7,6%
Type of activity
Agriculture; tobacco production; food, beverage, textile, oil products, chemical, pharmaceutical, automotive,
furniture, metal manufacture; telecommunication activities; creation and usage databases and informational
resources; administrative activities; education; public health services; science and technology; provision of
personnel; services; etc.
Investments > 0,5 mln RR (9,1 k USD)
Free customs zone
Applicable. For equipment – no VAT and customs duties applicable. For stock and materials – no VAT and
customs duties at the moment of import but subsequent payment is obligatory at the moment of transfer of the
products from the territory of the region. Hence only deferring of payments is possible for stock and materials
Business plan Required
Investment
agreement
Required, concluded with special management company
Subsidies Subsidies for payment of interest on investment loans
Non-tax benefits Project financing
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78. PwC Russia
5. Free port Vladivostok
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79. PwC Russia
Free port Vladivostok: overview
• Free port Vladivostok is established by the Government of Russia in the
territories of Primorsk region;
• The term of Free port Vladivostok is fixed for the period of 70 years and can
be prolonged in accordance with Governmental Decision;
• In order to become a resident of Free port Vladivostok a candidate company
must enter into an agreement with the special management company;
• Territory of an Free port Vladivostok cannot be the same with territory of
SEZ or ADZ;
• The resident of Free port Vladivostok cannot be (i) a resident of SEZ, (ii) a
participant of a Regional investment project, (iii) has branches outside of
Free port Vladivostok , (iv) in a consolidated group of taxpayers, (v) non-
commercial organisation, bank, insurance company, etc.;
• The federal part of profits tax rate for Free port Vladivostok residents is 0%
(standard rate is 2%) during 5 years, social contributions rate for a Free port
Vladivostok residents is 7,6% (standard rate is 30 %) during the first 10
years. The regional part of profits tax rate (standard rate is 18%) for Free port
Vladivostok residents cannot be more than 5% during the first five years
when the first profits from sale of goods produced in Free port Vladivostok
were received and cannot be less than 10% during the following 5 years
(specific rates are established by regional law);
• A free customs zone regime may be applicable for a resident of Free port
Vladivostok;
• The above mentioned provisions will come into force from 1 January 2016.
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80. PwC Russia
Free port Vladivostok
Investments > 5 mln RR (0,9 mln USD)
Property Tax
0% 0-5 years
0,5% 6-10 years
Free customs zone
(treated as SEZ)
For equipment – no VAT and customs duties applicable. For stock and materials – no VAT and
customs duties at the moment of import but subsequent payment is obligatory at the moment of
transfer of the products from the territory of the region. Hence only deferring of payments is
possible for stock and materials
Business plan Required
Investment
agreement
Required, concluded with special management company
Investment project
Required (or business activity stated by investment agreement should be new for the participant
of selection)
Non-tax benefits
Facilitated visa process for foreign citizens (presence within 8 days);
Elimination of recruitment permission for foreign citizens;
Provision of work permission for foreign citizens without regard to quota;
Special management company’s right to protect residents’ legitimate interests.
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81. PwC Russia
6. Special Investment Contracts (SpIC)
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82. PwC Russia
Special Investment Contracts: overview
• Special Investment Contracts are established to foster the development
of manufacturing and innovative sectors of the Russian economy;
• The following tax and non-tax incentives will be granted to investors:
− Individual tax benefits valid through the whole period of the special
investment contract (but not more than 10 years);
− Beneficial ‘made in Russia’ criteria;
− Non-tax incentives (e. g. access to state tenders);
− Grandfathering tax clause;
− Moratorium on tax audits;
− Other industry stimulation measures.
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83. PwC Russia
7. Main problems facing by investors
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84. PwC Russia
Main problems facing by investors
Therefore detailed analysis of the legislative provisions and the terms of the investment agreement are needed to minimise
potential risks.
Investment
agreement
The application procedure
for conclusion of the
investment agreement, the
list of documents/
information and criteria are
not well elaborated which
creates uncertain
environment for investors.
Tax
audits
Tax authorities may
challenge application of tax
incentives by investor based
on their own interpretation
or ambiguity of the regional
legislation provisions and
terms of the investment
agreement.
.
Grandfathering
provisions
Sometimes the changes of
"rules of the game" may
occur during the lifetime of
investment project and the
application of
grandfathering clauses may
not be guaranteed.
Subsidies
Due to budget constraints
some of the compensations
and subsidies promised by
the regional authorities are
not received by investor.
Our experience shows that despite all the efforts of Russian Government and regional authorities to create attractive environment
for investors, in practice investors can face the following issues:
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85. PwC Russia
Changing customs environment and
modern instruments for supporting
importers in Russia
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86. PwC Russia
1. Changing customs environment
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87. PwC Russia
Changing customs environment
• Modernized Customs Code is under development;
• Development of unified approach to treatment of
license fees from customs perspective.
• Accession of Armenia and Kyrgyzstan to the EAEU
expands interconnected market of the EAEU and
provides for additional opportunities for business;
• The EAEU Treaty facilitates trade of goods and services
within the EAEU by unification of legislative
requirements (e.g. regulations related to technical
standards and safety requirements, access to the state
procurements, etc.).
Expansion and
further
integration
within the
Eurasian
Economic
Union (EAEU)
Further
development of
common
customs
legislation
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88. PwC Russia
Changing customs environment
• Some of Kazakhstan’s commitments taken upon
accession to WTO differs from the EAEU legislation,
which may create additional opportunities or challenges
for companies working in Kazakhstan:
− Reduction of import customs duties for some goods
imported into Kazakhstan (more than 3,000
customs codes);
− Withdrawal of special incentives programs
• Therefore, influence of Kazakhstani commitments on
the current supply chain of companies operating within
the EAEU requires further analysis and monitoring.
• Electronic declaration and development of “single
window” approach;
• Managing of “low risk” importers;
• Testing of “Green Channel” for goods imported
from China.
Approaches
of the Russian
customs
authorities to
administration
of the customs
clearance
Accession of
Kazakhstan to
the WTO
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89. PwC Russia
Changing customs environment
New challenges
• New Free Trade Agreement with Vietnam;
• Negotiations with Israel and Egypt regarding Free
Trade Agreements;
• Withdrawal from the Free Trade Zone in respect of
the Ukrainian goods
Change of the
trade regimes
Trade
barriers
• Bans on imports into Russia of some goods from a
number of countries;
• Introduction of barriers to foreign goods
(e.g. for participation in state procurement tenders)
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90. PwC Russia
2. Special Investment Contracts
(SpIC) — New instrument to support
investors in Russia
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91. PwC Russia
SpIC and spheres of its application
Public Partner (Government)
Encouraging manufacturing
activity
Private Investor (Business)
Manufacturing of industrial
products
Aim
Encouraging investments in
manufacturing of industrial
products:
- ensuring stable business environment;
- industry incentives and preferences.
New instrument for realization of the public-private partnership which is used for
encouraging industrial-production growth in Russia
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92. PwC Russia
For which industries SpIC is already available?
• machinery manufacturing
• automotive,
• machine tool,
• metallurgical,
• chemical,
• pharmaceutical,
• biotechnological,
• medical,
• textile, clothing and footwear,
• forest,
• pulp and paper,
• electrical engineering,
• aviation,
• shipbuilding,
• radio-electronic
Rules for contracting and form of SpIC
are approved for the following industries:
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93. PwC Russia
Mutual guarantees and commitments
Other guarantees Other commitments
To provide priority
to use the state
property
To meet the agreed level
of localization
To give various
stimulation
measures
To implement new
technology
To provide legal
stability
To invest not less than
RUB 750 million
Not to increase the
overall tax burden
To set up or modernize
production facilities
SpIC
InvestorGovernment
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94. PwC Russia
What conditions should be established in a SpIC?
• Validity period (not longer than 10 years)
• Information about the investment project:
− characteristics of the products
− the amount of investments
− share of foreign materials, etc.
• Rights and obligations of the parties
• The control procedure
• The reporting procedure
• The list of incentive measures
• Responsibilities of the parties
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95. PwC Russia
Responsibility for non compliance with SpIC conditions
In case of government’s
failure
In case of investor’s
failure • Cease of incentive measures and guarantees
• Compensate unpaid taxes and pay late payment
interest (if tax incentives were provided)
• Compensation of the damage caused to the state
• Investor may require termination of the SpIC and
compensation of losses/damages in court
• Incentive measures are not further applied, but
the Governmental guarantees stay valid
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96. PwC Russia
Conclusions
• Dynamic and changing customs environment brings
not only challenges but also opportunities for
business;
• Business should constantly monitor and analyze
changes in order to timely respond the
challenges;
• Foreign companies should find out whether it is
feasible and realistic to establish production
in Russia in order to enjoy new incentives.
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97. PwC Russia
Forensic review of the proper use of
funds & due diligence of third parties
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98. PwC Russia
1. Forensic review of the proper use of
funds in joint ventures and joint
operations
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99. PwC Russia
Typical schemes for withdrawal of funds
Investment
projects
“Black”
revenue
Vendors (shell
companies)
Loans and
borrowings
Intermediaries
in offshore
zones and other
jurisdictions
Companies,
affiliated with
management
Salary project
and ghost
employees
Distributors
Advance
payments
Withdrawal
of funds
from
the business
Purchases at
artificially high
prices
“Black”
revenue
Intermediaries
in offshore
zones and other
jurisdictions
Distributors
Advance
payments
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100. PwC Russia
Key fraud risks in joint operations / joint ventures (1/2)
Shareholder 1 Shareholder 2
Local management
Withdrawal
of funds
Joint venture / joint operations
Distributors / agents
Suppliers / Sub-contractors
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101. PwC Russia
Key fraud risks in joint operations / joint ventures (2/2)
Ghost employees
are on payroll
• Usage of intermediaries affiliated with management
• Lack of economic substance of services purchased or
fictitious services (consulting, marketing, legal services)
• Payments for no delivery or poor quality delivery of
services by vendors
Procurement
• Sales through agents and intermediaries affiliated with
management
• Improper pricing, inadequate usage of discounts /
rebates / bonuses leading to the decrease of revenue
Sales of goods
• Overstatement of expenditure scale
• Duplication of construction work
• Fictitious design repair and maintenance works
• Lack of transparency in pricing
• Chain of sub-contractors affiliated with local management
Construction and repair
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102. PwC Russia
Example of a fraud scheme in procurement
Cooperation agreement
(marketing)
50%/50%
Producer Local dealer/
Marketing team
Marketing
company 1
Marketing
company 2
Individual
entrepreneur
Potentially
connected
• Non-transparent Coop activities cost allocation
• Marketing, consulting or legal services provided by low-profile companies, off-shore entities,
individual entrepreneurs
• Inflated pricing for marketing services provided
• Engaging agents and other third-parties for organising advertising and promotional events
Risk
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103. PwC Russia
Example of a fraud scheme in construction
Construction
project
Delivery of works by a sub-contractor
Manager in the
procurement team
Sub-contractor
• Purchase of works / services at artificially high prices
• Purchase of fictitious or low quality works / services
• Corruption risk
Risk
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104. PwC Russia
Successful strategy of Chinese companies operating
in the Russian and CIS market
• Know your customer (due diligence of customers,
vendors)
• Control over joint venture activities
• Strong Internal Audit function
• Robust system of internal controls over assets and
operations including:
− ‘four eyes’ principle
− contract authorization compliance
• Enhancing corporate culture and business ethics
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105. PwC Russia
How PwC Forensic can help
Review of the proper usage of the funds
Procurement review
Integrity due diligence review of subcontractors, distributors, vendors,
customers etc.
Financial analysis and construction contracts review
Forensic support of the internal audit function in the investigation of the
misconduct
Review of the overseas transactions
Anti-corruption compliance and remediation
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106. PwC Russia
2. Due diligence of third parties
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107. PwC Russia
Key third-party risks facing foreign investors in Russia (1/4)
Wide spread use of shell companies and/or
intermediaries for tax and legal purposes
No requirement for companies
to have unique names
Use of mass registration addresses
Close ties to politically exposed persons (PEPs) or ownership
or management roles held by family members of PEPs
Sophisticated business structure with
offshore element
Potential involvement in non-transparent asset acquisitions;
instances of regulatory scrutiny; disqualifications; tax discipline
• Regulatory
actions
• Financial losses
• Legal liabilities
• Damage to
reputation
Non-transparent ownership structures,
possible hidden interests involved
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108. PwC Russia
Example 1 – registration address is a demolition site of Hotel Russia
(demolition started in 2006)
Address:
Varvarka street 6,
Moscow
According to a Russian
corporate database, there are
156legal entities still
registered at the address of
former Hotel Russia.
Key third-party risks facing foreign investors in Russia (2/4)
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109. PwC Russia
Example 2 – Mass registration address
Address:
Garibaldi Street 21,
Moscow
The Russian Tax
Authorities reports this
address as being one of
mass registration
(with 314legal
entities registered there).
Key third-party risks facing foreign investors in Russia (3/4)
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110. PwC Russia
Key third-party risks facing foreign investors in Russia (4/4)
Example 3 – This is a visualization of the corporate structure of a Russian business
group with noteworthy affiliations
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111. Thank you for your attention!
This publication has been prepared for general guidance on matters of interest only, and does
not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty
(express or implied) is given as to the accuracy or completeness of the information contained in
this publication, and, to the extent permitted by law, PwC Russia, its members, employees and
agents do not accept or assume any liability, responsibility or duty of care for any consequences
of you or anyone else acting, or refraining to act, in reliance on the information contained in this
publication or for any decision based on it.
© 2016 PwC Russia. All rights reserved. Not for further distribution without the permission of
PwC Russia. "PwC Russia" refers to PwCIL member-firms operating in Russia.
"PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited
(PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm
in the network is a separate legal entity and does not act as agent of PwCIL or any other
member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable
for the acts or omissions of any of its member firms nor can it control the exercise of their
professional judgment or bind them in any way.