In order to let more companies understand the business environment of relevant overseas countries, introduce the business environment of the main destination countries for Chinese companies to "go global. This article will introduce the business environment in Russia.

Overview of 1. Economy

01

Macroeconomic

In 2019, Russia's gross domestic product (GDP) was about $1.69 trillion billion, up 1.3 percent year-on-year. Russia's Analytical Credit Rating Agency (ACRA) forecasts a return to 2-3% growth in 2021.

02

foreign trade

Foreign trade dependence of Russia 2010-2019

According to the World Bank, Russia's foreign trade dependence is relatively stable, fluctuating in the range of 46.2-51.5 percent from 2010-2019. According to Russian customs statistics, the total import and export of goods in Russia in 2019 was US $666.03 billion billion, a decrease of 3.2 percent year-on-year. Of this total, exports fell by 6.1 per cent to $422.43 billion and imports rose by 2.1 per cent to $243.6 billion. From January to September 2019, Russia's main export commodities were mineral products, including mineral fuels, mineral oil and its products, and asphalt. The main imports are mechanical and electrical products, chemical products and transport equipment. From January to September 2019, Russia's top four major exporters were China, the Netherlands, Germany and Turkey, accounting for 13 per cent, 11.2 per cent, 6.6 per cent and 5.2 per cent of Russia's total exports, respectively; Russia's top four major importers were China, Germany, the United States and Belarus, accounting for 22.1 per cent, 10.3 per cent, 5.7 per cent and 5.3 per cent of Russia's total imports, respectively.

Russian Foreign Trade Statistics 2015-2019 (Source: Ministry of Commerce of China)

03

Basic Situation of Absorbing Foreign Investment

According to the World Investment Report 2020 released by the United Nations Conference on Trade and Development, Russia absorbed US $31.7 billion billion in foreign direct investment flows in 2019, about 1.4 times that of 2018, ranking 15th in the world, up 6 places from 2018. In the same year, the stock of foreign direct investment reached $463.8 billion billion, an increase of 13.6 per cent year-on-year. In 2018, foreign investment in Russia was mainly concentrated in the mining, manufacturing and automotive industries. As of the end of 2018, Russian FDI mainly came from Cyprus, the Netherlands, Luxembourg, the Bahamas, Bermuda, Ireland, the United Kingdom and Germany.

The proportion of foreign investment in Russia in 2018

04

Business Environment

World Bank assessment:According to the "Doing Business 2020 Report" published by the World Bank, Russia's business environment convenience ranks 28th among 190 countries, up 3 places from the previous year.

Related initiatives to optimize the business environment:One is to relax market access. In 2013, the Russian President signed an amendment to the Law on the Development of small and medium-sized Enterprises, abolishing the restrictions on the participation of foreign natural and legal persons in Russian small and medium-sized enterprises, which was previously stipulated by the law to be no more than 25%. In the same year, the Russian government approved the draft of the Federal Law on Public-Private Partnerships, allowing Russian and local governments to cooperate with private entrepreneurs and domestic or foreign legal persons to build Russian public infrastructure projects, such as hospitals, roads, housing security, and public utilities. The project laid the legal foundation for foreign investment to enter Russia's monopoly industries, public services and participate in government procurement; the second is to simplify company registration procedures. The Russian Ministry of Economic Development has launched the roadmap of "simplifying the registration procedures for legal persons and individual businesses". The main measures include: allowing intermediaries (notary offices, law firms and banks) to submit enterprise registration materials, relaxing the deadline for the payment of registered capital, shortening the information exchange time between the Federal Tax Administration and extrabudgetary funds, and abolishing some restrictive regulations, such as the official seal must be held before the company is registered, legal persons and individual accounts must inform the tax authorities and non-state funds of the information on opening and closing bank accounts; the third is to improve investment laws and regulations and preferential policies. In 2019, in order to protect and encourage foreign investment, Russia is committed to formulating policy rules in line with the interests of business development. Investors can make full use of specific contract preferential rules and specific regional investment policies to invest in Russia.

05

multilateral and bilateral economic and trade agreement

Russia joined the World Trade Organization in August 2012. Russia has signed regional trade agreements with more than 10 countries, including Georgia, Azerbaijan, Syria, Turkmenistan, Uzbekistan, etc., and has signed bilateral investment agreements with 84 countries. On January 1, 2015, the Treaty on the Eurasian Economic Union signed by Russia, Belarus and Kazakhstan entered into force. In the same year, Armenia and Kyrgyzstan joined the Eurasian Economic Union. The Union guarantees the free movement of goods, services, capital and labor within its member States and pursues a coherent economic policy. The alliance has signed agreements to promote economic and trade cooperation with Vietnam, Iran, Singapore, Serbia and China.

2. Sino-Russian Economic and Trade Cooperation

01

bilateral trade

According to data from the Ministry of Commerce, the bilateral trade in goods between China and Russia in 2020 was 107.77 billion billion U.S. dollars, a slight decrease of 2.9 percent year-on-year, breaking the 100 billion U.S. dollar mark for three consecutive years. China's share of Russia's foreign trade has further increased, ranking Russia's largest trading partner for 11 consecutive years, and Russia is China's tenth largest trading partner. Since the second half of 2020, bilateral trade has gradually picked up, with China's exports to Russia "turning from negative to positive" and growing positively for six consecutive months, with an average monthly increase of more than 7 per cent in the second half of the year. Imports of oil, gas, iron ore and other commodities from Russia have increased significantly.

02

Overview of Chinese Investment in Russia

According to China's Ministry of Commerce, China's stock of direct investment in Russia was $12.8 billion billion at the end of 2019, ranking 13th in China's stock of direct investment in countries (regions) and 3rd in China's stock of direct investment in countries along the Belt and Road. From January to July 2019, China's direct investment in Russia's entire industry increased by 13% year-on-year, which was better than the overall level of China's foreign investment in the same period. In 2018, Chinese companies invested in Russia mainly in agriculture/forestry/animal husbandry/fisheries (54.9 percent), manufacturing (29.2 percent), mining (10.2 percent), construction (9.8 percent), information transmission/software and information technology services (2.3 percent), and scientific research and technology services (1.2 percent). In 2020, China's non-financial direct investment in Russia was US $0.34 billion billion, an increase of 41.7 per cent over the same period last year, and the value of new project contracts was US $5.87 billion billion, accounting for nearly 30 per cent of the value of new contracts to Europe.

China's direct investment in Russia from 2010 to 2018 The development trend of China's investment in Russia mainly presents the following four characteristics: First, actively follow up the development strategy of the Russian Far East, and make full use of the establishment of an advanced economic development zone in the Far East and Vladivostok Free Port and other opportunities to expand cooperation with Russia in the fields of agriculture, chemical industry, construction, and raw material processing; second, diversification of investment methods, it has expanded from traditional greenfield investment to equity participation, mergers and acquisitions, and the establishment of funds; the third is the deepening of cooperation in the energy field, from pure crude oil, natural gas and other petroleum and petrochemical resources trade in goods to oil and gas exploration, refining and chemical industry and international energy trade Cooperation in other fields; fourth, new growth points have emerged in investment in Russia, and Chinese companies' investment in Russian and non-Russian raw materials, innovation projects and SME projects has become key growth points.

03

overseas economic and trade cooperation zone

Russia's Ussuriysk Economic and Trade Cooperation Zone:The cooperation zone is invested and constructed by "Kangji International Investment Co., Ltd." jointly established by Dongning Jixin Industry and Trade Group, Kangnai Group, China Resources Material Supply Company and Dazheng Saifu Investment Management Co., Ltd. The park covers an area of 2.28 million square meters and a construction area of 1.16 million square meters. It is equipped with a production and processing area, a business district, a logistics storage area and a living service area. At present, the enterprises that have settled in the park are mainly concentrated in wood processing, light industry, electromechanical, building materials, home appliances, clothing, footwear, furniture and other industries.

russia longyue forestry economic and trade cooperation zone:The cooperation zone is invested and constructed by Heilongjiang Mudanjiang Longyue Economic and Trade Co., Ltd., with an overall planning area of 9 square kilometers. In the initial stage (2014-2019), Amur Park, Pascovo Park, Iman Park and Chuguyev Park are planned and constructed, with a total area of 7.6 square kilometers. The four parks focus on wood intensive processing, forest cultivation, harvesting and primary processing, wood marketing, broad-leaved forest production and primary processing, with different emphasis and industrial interaction, the construction of the whole industry chain for the comprehensive utilization of wood resources has been realized.

china and russia tomsk timber industry and trade cooperation zone:The cooperation zone is invested and constructed by AVIC Forestry Co., Ltd. and is located in Tomsk Oblast, Russia, with a planned area of 6.95 square kilometers. The cooperation zone is the first largest cooperative development project with substantial advancement under the framework of the "Master Plan for the Cooperative Development and Utilization of Forest Resources between China and Russia" approved by the Chinese and Russian governments. The cooperation zone has four special railway lines totaling 15 kilometers, and its own special railway lines are connected to the Trans-Siberian Railway. The park is 100 kilometers away from Tomsk Oblast Airport and 360 kilometers away from Novosibirsk Airport. It can directly travel to and from Beijing, Urumqi, Sanya and other places.

3. forms of investment in Russia

01

Establishment of entities

The main forms of entities established by foreign enterprises in Russia are subsidiaries, branches or representative offices, of which subsidiaries include limited liability companies, closed joint-stock companies and open joint-stock companies. Branches and representative offices do not have legal personality and carry out activities on the basis of the authorization of the parent company.

Advantages and disadvantages of setting up different entities in Russia

the establishment of a limited liability company:A limited liability company registered in Russia is mainly based on the relevant provisions of the Law of the Russian Federation on the State Registration of Legal Persons, and the relevant provisions are equally applicable to domestic and foreign enterprises. Since July 1, 2002, the registration of enterprises is the responsibility of the tax authorities of the Russian Federation and at all levels. The main steps for an enterprise to register a company in Russia include: determining the name of a limited liability company, determining the scope of business, selecting a legal address, determining the form of tax payment, preparing the documents required for registration, paying registration fees, going through registration procedures, paying registered capital, etc.

Establishment of a branch or representative office:When an enterprise establishes a branch or representative office in Russia, it is necessary to prepare and notarize a series of necessary documents and register with the State Registration Office of the Ministry of Justice of the Russian Federation. The registration fee is 120000 rubles. After obtaining the registration documents issued by it, go to the tax bureau to register and obtain the taxpayer identification number, and at the same time go to the extra-budgetary funds (including the social security fund and the pension fund) for registration.

1. 

Materials required for the establishment of a branch or representative office in Russia

02

Mergers and Acquisitions

M & A Transaction Approval:At the time of merger and acquisition, if the assets of the target company and the operating income of the previous year exceed 0.4 billion rubles, the total value of the assets of the two parties to the acquisition exceeds 7 billion rubles, or the total sales income of the previous calendar year exceeds 10 billion rubles, the transaction shall be approved by the Federal Antimonopoly Service in advance. When applying to the Antimonopoly Office for approval, a series of documents stipulated in the Law on the Protection of Competition, such as the articles of association of the acquiring parties, financial and market information, shall be attached, and all documents in foreign languages shall be translated into Russian and notarized. The Federal Antimonopoly Service will review the transaction within 30 days of receipt of all documents. If additional materials are required or detailed transaction analysis is required, the review period may be extended by 2 months.

Transactions subject to pre-examination by the Russian Antimonopoly Service

M & A transaction mode:Russian M & A transactions include share transactions and asset transactions, the more common of which is share transactions. In a share transaction, the parties to the transaction complete the transfer of shares by entering into a written sale and purchase agreement, and the required documents usually include acquisition agreements, shareholder agreements, security documents and other necessary ancillary agreements, such as agreements for the transfer of services, loans, and employee employment claims. Asset transactions are divided into movable property transactions (including non-property transactions) and real estate transactions, and asset transactions are generally subject to an 18% VAT. Among them, if the acquisition agreement is governed by Russian law, the agreement should usually contain the following substantive provisions, namely, the transaction mechanism, the rights and obligations of the parties, the purchase price, the method of payment, termination, applicable law and dispute settlement provisions. If the terms of the acquisition are governed by non-Russian law, the acquisition agreement generally includes the transaction mechanism, the purchase price, representations and guarantees, compensation, termination conditions, etc.

4. compliance operation

01

Labor Employment

Labor contracts are generally divided into fixed-term contracts and irregular contracts. According to the provisions of the Russian labor law, the employer shall, in principle, sign an irregular labor contract with the employee, except for the circumstances prescribed by law. The situation of signing a fixed-term contract generally includes: engaging in temporary work that can be completed within 2 months, engaging in seasonal work, engaging in work other than daily business with the employer, etc. The maximum term of fixed-term labor contract is 5 years, and there is no minimum term requirement. If the employer has not terminated the contract after the expiration of the contract, the contract shall be regarded as an indefinite labor contract. According to the amendments to the Labor Code of the Russian Federation, the wages of workers in Russia are paid in rubles. If the wages include non-cash forms, this part cannot exceed 20% of the total monthly wages.

In accordance with the Law on the Legal Status of Foreign Citizens in the Russian Federation, the Government of the Russian Federation has the right to set annual limits on the number of foreign labor used in each region and on the number of foreign workers to work in Russia, in accordance with the labor market conditions in each region and in order to prioritize the employment of its citizens. Based on the above-mentioned laws, the government of the Russian Federation issues relevant decrees from September to December each year to stipulate the employment ratio of foreign labor in specific industries in the next year. If the employer belongs to the industry specified in the decree, the ratio of foreign employees to local employees employed in the next year shall not exceed the upper limit of the prescribed ratio. In terms of quota application for foreign employees, before June 30 of each year, enterprises should submit materials to the immigration bureau in their jurisdiction to propose the number of foreign employees to be employed in the following year. Staff members of branch offices or representative offices are not subject to quota restrictions. After receiving the materials and reviewing them, the Immigration Bureau will send a letter to the Russian Federal Bureau of Labor and Employment asking for opinions. If the Bureau believes that the Russian job market lacks personnel to meet the requirements of the job application, it will approve the enterprise's employment application, and the Immigration Bureau will refer to this opinion to issue an employment permit to the enterprise.

Materials required for quota application for foreign employees

02

intellectual property protection

At present, Russia does not have special legislation on the protection of intellectual property rights. Part IV of the Civil Code of the Russian Federation stipulates the relevant contents of intellectual property protection.

• Patents:The Russian patent protection system provides protection for invention patents, utility model patents, and designs. The longest protection period for invention patents is 20 years, the longest protection period for utility model patents is 10 years, and the longest protection period for designs is 25 years. Applicants are required to submit a patent application to the Intellectual Property Office. The application materials include the inventor and the applicant for the invention patent and their place of residence, description of the invention, composition of the invention, abstract, etc. Patent registration in Russia generally takes 2-4 years.
• Trademark:The subject of a trademark registration application in Russia can be a legal person or a self-employed person, and the applicant can directly submit a trademark registration application to the Federal Intellectual Property Office. The application documents must be in Russian, and the trademark application takes about 1 year and 6 months from submission to completion of registration. The exclusive right to use a trademark shall be valid for 10 years from the date of filing an application for trademark registration with the Intellectual Property Office of the Russian Federation, and may be renewed for another 10 years within the last 1 year of the validity period. Well-known trademarks enjoy exclusive trademark rights, subject to indefinite legal protection, and enjoy cross-class protection.
• Trade Secrets:The term of protection of a trade secret is uncertain, that is, it is only valid if the information that constitutes its content is kept confidential, which is different from other intellectual property rights that have a specific validity period. The exclusive right to trade secrets of all right holders shall terminate upon the loss of the confidentiality of the corresponding information. The exclusive right to trade secrets may be transferred. The right holder may transfer all his trade secret rights to others through a contract of transfer of exclusive rights to trade secrets. The party that transfers the exclusive right to a trade secret shall continue to keep the trade secret confidential until the exclusive right to the trade secret ceases to be effective.

commodity origin name right:The appellation of origin of goods may be registered by one or more citizens or legal persons, and the registrant shall have the exclusive right to the appellation of origin of goods and shall not transfer or grant a license to others. The term of protection shall be valid for 10 years from the date of application for registration, and an application for extension may be filed within the last year before the expiration and within 6 months after the expiration.

03

Trade regulation

Russia and the members of the Eurasian Economic Union implement a unified import and export management system. According to the resolution of the Executive Committee of the Eurasian Economic Commission on non-tariff supervision (Resolution 30) in April 2015, the members of the Union take unified prohibition or restriction measures on the import and export of some products within the Union. According to the public information disclosure of the Russian General Administration of Customs, Russia clearly prohibits the import and export of goods including civilian weapons and parts, hazardous waste, stored or printed sensitive information, and special electronic products used to obtain confidential information. Russia explicitly restricts the types of import and export commodities, including encrypted products, wild animals, some wild plants and drug raw materials.

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