Premier Vision Special EditionTax Free Shopping in Russia

Contents

Tax Free shopping introduced in Russia 03

Premier Tax Free enters Russian market 04

GDP and Travel & Tourism growth: 2010 to 2020 05

Travel & Tourism Market Size vs Arrivals 06

Arrivals to Russia by nationality 07

EUR vs RUB exchange rates 08

RUB vs CNY exchange rates 09

Premier Vision | 2

IntroductionThis special edition of Premier Vision focusses on the exciting opportunity presented by Russia joining the list of destinations that are eligible for Tax Free shopping. 2018 is also set to see the United Arab Emirates join this list, followed by other primary destinations markets in the Middle East.

A tax refund of up to 18% on goods in excess of 10k Rubles (approximately €130), for countries outside the Eurasian Economic Union (EAEU), is set to further ignite inbound tourism to Russia and stimulate retail sales. This compares to the introduction of VAT in the United Arab Emirates this year at a rate of 5%, although this is likely to increase in time.

Illustrating the the attractiveness of Russia as a destination choice, 2016 saw c.18m tourist arrivals in 2016 that would have been eligible for Tax Free shopping. This rivals France for Tax Free eligible tourists of c.23m and, with the influx of overseas visitors expected for the upcoming World Cup, it is predicted that Russia’s tourist arrivals will increase to just under 19m in 2018.

Tax Free shopping introduced in Russia

Russian furs, caviar and football set to boost sales and provide economic stimulusIn a ‘Russia Briefing’ update by Dezan Shira & Associates, a spokesperson states:1

“Russian furs and caviar are obvious choices for foreign tourists, however, Russia also has a thriving electronics industry and is well known for its high fashion, jewelry and watches as well as its excellent sea food. There will be plenty of choices for foreign travelers to take advantage of this tax refund scheme, and will help boost the Russian economy as well as provide bargains. The Ruble has dropped to half the previous value of the Euro and Dollar, and an additional 18 percent discount means there will be significant bargains to be had.”

Furthermore, they highlight the potential savings in the table below:

From the 14th June through to the 15th July, Russia will host the FIFA World Cup for the first time. Matches are set to be held in Moscow, St. Petersburg, Rostov-on- Don, Sochi, Yekaterinburg, Saransk, Kaliningrad, Nizhny Novgorod, Kazan, Volgograd, and Samara.

The Deputy Head of the Russsian Federal Tax Service, Timur Maksimov, stated that the Tax Free system will go live in all cities hosting the 2018 World Cup matches before its start, with this list expected to increase over time. This announcement followed the signing of a decree for the introduction of the Tax Free shopping program by Russian Prime Minister Dmitry Medvedev.

The Travel & Tourism industry is estimated to represent just under 5% of Russia’s GDP. This compares to an average of 11% for the main destination markets in Europe, and c.9% for the top 10 global economies. Therefore, the introduction of Tax Free shopping should provide an economic stimulus to an ailing economy, with significant opportunities for retailers in this market.

1 https://www.russia-briefing.com/news/ russia-offers-18-discounted-tax-free -shopping-foreign-visitors.html/

Commodity Purchase Price (US$)Saving after Tax

Refund

Full Length Mink Coat

8,750 1,575

Alena Gorchakova Earrings

7,800 1,400

1ct Yakutia Diamond 3,750 675

1kg Ossetra Caviar 2,400 432

Alena Akmadullina Dress

1800 324

Strela Russian Watch 527 95

Premier Vision Special Edition

Premier Tax Free enters Russian market

Premier Tax Free issues first electronic Tax Free form in Russia12th April – Premier Tax Free, a leader in multi-currency payment processing and the management of tax-free shopping for international tourists, has issued its first Electronic Tax Free Form in Russia. The Form was issued in Central Moscow on 11th April by a store owned by BOSCO di CILIEGI Group.

This historic process follows the announcement made by the Government of Russia in 2017 of legislation allowing shoppers from outside the Eurasian Economic Union (EEU) to save up to 18% when spending a minimum of 10,000 Roubles on a range of goods including fashion, technology and jewellery. This was one initiative to promote tourism in advance of and following the upcoming FIFA World Cup, where it’s estimated over one million fans will travel to the country’s capital1.

Gary Byrne, Director of New markets Worldwide in Fintrax Group, parent company of Premier Tax Free commented: “According to recent data, one million Chinese tourists visited Russia in 2016 where they spent US$2 billion2, highlighting the scale of the Tax Free market now this legislation is in place.

“Premier Tax Free has been instrumental in the launch of the Tax Free shopping services now available, through working closely with the Government, regulators and potential Merchants for almost two years. Following issuing this Electronic Tax Free Form, our innovative Premier Online VAT refund system will be rolled out to qualifying Merchants on a daily basis.”

To further support this new market, Premier Tax Free has appointed Andrey Silantiev as the Country Manager for Russia. Mr Silantiev joins from Deloitte and will provide on the ground support to Merchants.

Patrick Waldron, CEO of Premier Tax Free, says: “The processing of this Tax Free Form brings to an end almost two years of hard work to make this new market a reality. We are excited about the opportunities and products that we will be able to develop with key Russian stakeholders and pioneers within the digital payment space, to further enhance the shopping opportunities available to the international traveller”. 1 http://welcome2018.com/en/journal/materials/moskva-

ozhidaet-do-1-mln-bolelshchikov-v-dni-chm-2018/

2 http://www.scmp.com/lifestyle/fashion-luxury/article/2134088/how-russias-red-tourism-luring-wealthy-chinese-visitors

Premier Vision | 4

GDP and Travel & Tourism growth: 2010 to 2020

1.2

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%

4.54.0

3.6

1.8

0.8

-2.8

-0.1

2.1 1.81.5

20202019201820172016201520142013201220112010

Total GDP growth

Travel & Tourism growth premium

The first half of the decade saw a lower rate of growth in the Travel & Tourism sector versus total GDP, however, it is predicted that there will be a growth premium in the Travel & Tourism sector in the second half of the decade. However, the gains in the Travel & Tourism sector are predicted to see a recovery to the proportion of GDP that was seen at the start of the decade.

Travel & Tourism growth6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

1.2

-4.2

0.6

3.5

-6.1

1.3

3.13.9 4.1

3.4

20202019201820172016201520142013201220112010

-5.7

Travel & Tourism % of GDP4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

-10.%

-12.0%

-2.7

-7.8

-1.1

2.7

-3.2

1.5 1.021

2.6 2.2

20202019201820172016201520142013201220112010

-10.2

5.4%

5.3%

5.2%

5.1%

5.0%

4.9%

4.8%

4.7%

4.6%

4.5%

4.4%20202019201820172016201520142013201220112010

5.3

5.2

4.84.8

4.9

4.74.8

4.8

4.9

5.1

5.2

Source: WTTC

Premier Vision | 5 Premier Vision Special Edition

Travel & Tourism market size vs arrivals

Relative to the main European destination markets and significant developed economies, there is significant headroom to increase the sector beyond the current c.5% of GDP that the Travel & Tourism sector currently represents. However, the number of Tax Free eligible arrivals rivals that of the main European destination markets, with strong gains predicted.

18.0%

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

0 050 5100 10150 15200 20250 25300 30350 400 450

Italy 11.1%

Italy 6.2%

Spain 14.2%

Spain 4.8%UK 10.8%

UK 3.5%

Russia 4.8%

Russia 6.7%

Germany 10.8%

Germany 4.2%

France 8.9%

France 2.9%

Trav

el a

nd T

our

ism

% o

f GD

P

Travel and Tourism GDP (bn) Number of arrivals (m)

2018

Y -

Y g

row

th

Source: WTTC & Oxford Economics

Travel & Tourism Size and % of GDP Tax Free Eligible Arrivals Forecast: 2018

Premier Vision | 6 Premier Vision Special Edition

Arrivals to Russia by nationality

Declines in arrival numbers predominantly attributable to decline in numbers from Ukraine. However, arrivals from China have registered continued gains, and are predicted to continue to post gains of between 7-10% per annum between 2018 and 2020.

2010

15,995

17,902

20,027

21,801

23,152

20,877

17,93017,407

18,576

19,773

21,066

Ukraine

Finland

China

Poland

Azerbaijan

Uzbekistan

Germany

Mongolia

Moldova

Estonia

Latvia

Rest

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

5,315

966713

3,418 3,517 3,653 4,043 3,8212,926 2,715 2,599 2,838 3,152 3,493

806

9321,155

1,310

1,322

1,021 1,377

1,072

1,349

1,1561,256

1,227

1,307

1,243

1,447

1,372

1,560

1,475

1,667

1,574

5,788

6,194

6,745 9,375

9,327

8,1627,601

7,585

7,479

7,431

Source: Oxford Economics

Arr

ival

s (K

)

Premier Vision | 7 Premier Vision Special Edition

EUR vs RUB exchange rates

Following two years of weakness in the Ruble, 2017 represented a resurgence in its value and in outbound travel and tourism. This resulted in a renaissance in Tax Free shopping sales across Europe. Recent weakness in the currency has resulted in a return to declines in tourism and Tax Free shopping sales.

100.0

90.0

80.0

70.0

60.0

50.0

40.0

30.0

2010 2011 2012 2013 2014 2015 2016 2017 2018

70 - 90 Range

Source: Oanda

Premier Vision | 8 Premier Vision Special Edition

RUB vs CNY exchange rates

Conversely to the impact to Russian outbound tourism, inbound tourism attractiveness for Chinese tourists has been enhanced by increased purchasing power and propensity to spend. This is due to foreign exchange fluctuations and the depreciation in the value of the Ruble. The introduction of Tax Free shopping is expected to provide a multiplier effect opportunity for retailers in Russia, with the propensity for incremental spend significantly enhanced as a result of the accretive arbitrage opportunities of Tax Free shopping savings.

0.25

0.23

0.21

0.19

0.17

0.15

0.13

0.11

0.09

0.07

0.05

2010 2011 2012 2013 2014 2015 2016 2017 2018

0.08 - 0.12 Range

Source: Oanda

Premier Vision | 9 Premier Vision Special Edition

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