investment profile: russia

Oryx Business Intelligence


Business Environment - Russia

Published: August 2013

Oryx Business Intelligence 2

Why Russia

• GDP growth of 3.4% in 2012• FDI recorded at USD 51.4 billion in 2012, or a total of

USD 356.8 billon in years 2005-2012• In accordance to the World Bank ranking Russia is

ranked:• ‘High income level country’• 8th largest economy in the world• 5th largest economy by purchasing power

parity in the world• The Customs Union with Belarus, Kazakhstan and

Russia• Advanced information technology and retail sectors• Extensive expertise in aviation, machinery,

automotive, space and agriculture industries• Favorable environment and resource for the

manufacturing and trade/ retail activity• Cheap supply of raw materials, abundant water

resources• A presidential decree issued in May 2013 states that

Russia must be in the top 20 in the Doing Businessranking by the year 2020

The Information Technology and Retail

sectors are the fastest growing segments

of the Russian economy

Core AdvantagesThe Moscow City


Investment Environment – Russian Federation

According to the Ernst & Young's EuropeanInvestment Monitor 2012, Foreign DirectInvestment (FDI) inflow in Russia isPositioned for growth

19 percent of international investors perceiveRussia as one of the most attractive globalregions in 2012, an increase of 8 percent in2012 is the largest investor attractiveness toinvest increase globally

Investors already present in Russia continueto demonstrate their confidence in theRussian market. Nearly 80 percent of theseinvestors plan to increase or maintain theiroperations in the country

Foreign investment in the capital slumped 34percent in 2012

Russian Investment Environment Global Investment Trend 2006-12

Source: Oryx Research, Ernst & Young EU Investment Monitor 2012


Economy Dynamics – Russian Federation

Retail Sector: Russia is the second largestRetail market and the fastest growing market forluxury goods in Europe. Russia has around 16.5million square meters of retail space. TheRussian Retail sector is one of the mostdeveloping sectors in the economy with Russiansspending around 60 per cent of pre-tax incomeon retail goods - the highest spent level inEurope.

Manufacturing Sector: Russia has a developingManufacturing sector which is the second largestsector in Russian economy. Manufacturing inRussia include aircraft, automotive, defense,electronics, railroad and space industries.

GDP breakdown by Sector, 2012, % Russian Economy

Source: Oryx Research, Ministry of Economic Development

0 5 10 15

Fishing

Hotels and Restaurants

Education

Utilities

Healthcare and social services

Agriculture, Hunting and Forestry

Finance

PA and military security

Construction

Transport and Communication

Natural Resource Extraction

Real Estate

Manufacturing

Retail, Wholesale and Repair Services

Infrastructure Sector: Russia is planning to invest around US$ 380 billion in infrastructure sectorprojects by 2020. The investment is projected to be formed from state budged and public-privatepartnerships. Russia has a developing transport network which includes more than 120.000 km of railwayroads, 1 million km of roads and highways, 230.000 km of pipelines and 100.000 km of inland motorways.Russian transport network needs modernization, especially roads and highways.


0 10000 20000 30000 40000 50000

United Arab Emirates

United States

Saudi Arabia

Turkmenistan

Qatar

Iran

Russia

CU M in billion

5

Economy Dynamics – Russian Federation

Real Estate Sector: Russian real estatesector is one of the fastest growing sectors inRussian economy. More than 37 millionsquare meters of real estate was built in thefirst six months of 2013, representing a 7.6 percent growth pattern. The most profitable andgrowing real estate is retail real estate, officebuildings and residential properties. The mostpreferred regions for office real estate areMoscow and St. Petersburg. The mostpreferred cities for retail real estate andresidential properties are cities with apopulation more than 1 million people.

Top World Gas ReservesRussian Economy

Source: Oryx Research

Natural Resource Extraction: Russian natural resources are among the largest in the world whichincludes oil, natural gas, coal, iron ore, apatite, diamonds and other. Russia natural gas reserve is thebiggest in the world, and remains one of the largest producers and exporters of oil and gold.


Investment Environment – Russian Federation

According to the HSBC Trade Forecast, Russian trade is expected to perform better than theworld average during the next 15 years. Russian trade is mainly driven by exports of oil andcoal, and import of motor vehicles and technology equipment and gadgets.

World Trade, Annual Growth Rates, Russia Vs. World, 2012-2026 (f)

Source: Oryx Research, HSBC Trade Forecast


Why Russia

Russia’s RetailInvestment Environment

• The Russian jurisdiction recognizes generallyaccepted principles of the legal regulation ofinvestments

• Both local and foreign investors are subject toequal business conditions in relation to theRussian Law of Investment and other Laws

• An investor is entitled to manage, use and disposehis/ her possessions on his/ her own discretion. Aninvestor is entitled to transfer the profit owned byhim/ her into foreign country without any restriction,except a tax payment as prescribed by theRussian legislation

• Russia has 79 double-tax treaties providing a taxbenefit for foreign investors in Russia

Several Double Taxation Avoidance Agreements with Russia

The government sets an objectiveimproving Russia's investmentclimate as a matter of urgencyA presidential decree issued in

May 2013 states that Russia must

be in the top 20 in the Doing

Business ranking by 2020

Australia EU Kuwait South-Korea

Brazil India Norway USA

Canada Israel Qatar Venezuela

China Japan Saudi Arabia Vietnam


Special Economic Zones and Incentives

Tax IncentivesSpecial Economic Zones

Major Benefits to Consider • Russia’s SEZs count 61 foreign companies in 2012, sixUS companies came on board the same year. GeneralMotors invested US 180 million, 3M – US 30 million,and – US 75.4 million.

• The tax incentives alone would have influenced thedecision makers to operate in SEZ: 3M will pay 2 percent for the first five years of profit-making operations,instead of the standard rate of 20 per cent.

• Other privileges are provided to Alabuga: Given aminimum investment of US 3.8 million to operate in thezone, it will be exempted from the VAT and importduties on equipment, on which, Denmark's Rockwool,for instance, already saved US 12.6 million.

Foreign Players in Russia’s SEZ

� Innovation zones: Dubna, Zelenograd, St. Petersburg and Tomsk SEZ

� Industrial zones: Alabuga, Lipetsk and Togliatti SEZ

� Tourist zones: Baikal Haven, Baikal Gates, Altai Valley and the Turquoise Katun SEZ

� Logistic zones: Ulyanovsk Vostochny and Sovetskaya Havan SEZ

- Comfortable administrative procedures- Federal and regional government support- Tax benefits- Free customs zones- No connection fees- Logistics terminals- Customs terminals

SEZ Russia

Profit tax, % 2-15.5 20

Social security taxes, % 14-30 30

Property tax, % nil 2.2

Land purchase price, %4-50 (cadastral

price)

100 (market price)


Fastest Growing Export Sectors – Russian Federation

Russia’s Fastest Growing Export Sectors 2012 - 2016f



Fastest Growing Import Sectors – Russian Deferation

Russia’s Fastest Growing Import Sectors 2012 - 2016f



Logistics Network

Logistics JunctionLogistics Network

• Railway links between Russia and Lithuania,Finland, Ukraine, Belarus, Georgia,Azerbaijan, Kazakhstan, Mongolia, China,North-Korea and Poland

• High-speed railway, currently beingexpanded

• Widespread sea network. Direct link to theBlack Sea, the Sea of Azov, the Baltic Sea,the Barents Sea, the White Sea, the Sea ofJapan and the Caspian Sea

• Developed logistics network: rail, sea

and sky

• Rail junction between Europe and Asia

• The shortest way from Europe to Asia

Train Network

• The world’s second largest railway network• Trans-Siberian Railway - the largest railway

line in the world• Trans-Eurasia logistics – Russian and

German joint venture is operating freighttrains between Germany and China viaRussia


Registering Business and Tax Environment

Tax EnvironmentTypes of Business Entities

Limited liability company

• Minimal capital – 10,000 RUB (USD 310)• Min number of founders – 1• The shareholders are liable to the amount of

their individual capital contribution

Joint-stock companies

• Minimal capital – 10,000 RUB (USD 310)• Min number of founders – 1

Branch

- is a subdivision of a foreign legal entity that canconduct commercial activity.Accreditation fees: USD 4,100. Accreditation bodies charge a processing fee of between USD 500 and USD 2,000 (from one to five years of accreditation).

Representative office

- is a subdivision of a foreign legal entity thatrepresents company. Commercial activity is not allowed.Accreditation fees:

1 year – USD 1,0002 years – USD 2,0003 years – USD 2,500

The standard corporate income tax – 20%• Reduced to 15.5% in some regions

Standard value added tax (VAT) – 18%The general personal income tax

– 13% for residents– 30% for non-residents

Basic social security rate for employers– 30% (salary is under USD 17,579)– plus 10% of amount exceeding USD

17,579

15% is applied for dividends paid to non-resident company20% on interest20% on royalties

Withholding Tax Rate


Tax Rates – European Countries

Statutory Tax Rates And Standard VAT Rates, EU Countries And Russia, 2012, %

Dividends paid 15%

Interest paid 20%

Withholding Tax Rates To Non-Resident Entity

No CountryCorporate Income

TaxVAT

Personal Income

Tax

1 France 36.1 19.6 46.8

2 Malta 35.0 18.0 35.0

3 Belgium 34.0 21.0 53.7

4 Portugal 31.5 23.0 49.0

5 Italy 31.4 21.0 47.3

6 Greece 30.0 23.0 49.0

7 Spain 30.0 18.0 52.0

8 Germany 29.8 19.0 47.5

9 Luxembourg 28.8 15.0 42.1

10 Norway 28.0 25.0 40.0

11 Sweden 26.3 25.0 56.6

12 Denmark 25.0 25.0 55.4

13 Netherlands 25.0 19.0 52.0

14 Austria 25.0 20.0 50.0

15 Finland 24.5 23.0 49.0

16 United Kingdom 24.0 20.0 50.0

17 Estonia 21.0 20.0 21.0

18 Hungary 20.6 27.0 20.3

19 Slovenia 20.0 20.0 41.0

20 Iceland 20.0 25.5 31.8

21 Russia 20.0 18.0 13.0

22 Czech Republic 19.0 20.0 15.0

23 Poland 19.0 23.0 32.0

24 Slovakia 19.0 20.0 19.0

25 Romania 16.0 24.0 16.0

26 Latvia 15.0 22.0 25.0

27 Lithuania 15.0 21.0 15.0

28 Ireland 12.5 23.0 41.0

29 Bulgaria 10.0 20.0 10.0

30 Cyprus 10.0 17.0 38.5


Contact Details

www.oryx.lt/ www.oryx.eu

Contact Us

Ionna Trofimova

Email [email protected] / [email protected]

Tel +792 (68) 512186

Vadim Berets

[email protected] / [email protected]

Tel +792 (50) 771801


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