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Interview with Partner of Law Firm «ALPS & CHASE» regarding issues of doing business in Russia and CIS countries

12.06.2006

Is it difficult for Italian companies to open legal entities in Russia?

Today, the most popular and least complicated form of starting a business in Russiais the Limited Liability Company. It does not require significant volume of charter capital (minimum charter capital at present constitutes 350 Euros) and the state duty for company registration is only 60 Euros. The setup procedure requires a legal entity to provide its notarized foundation documents with Apostille and an individual to provide his/her translated and notarized passport. The only requirement is the presence of one of the Participants in Russiaduring the time of the registration (at least for 1 working day). However, we do have a legal mechanism, which enables us to overcome such complications and to register the company without the presence of a Participant.

What is more efficient – working with distributors or opening your own office?

Working with distributors does not always satisfy Italian businessmen for the reason that it is really hard to control marketing policies and prices. The registration of your own office enables you not only to control such questions, but also to increase trust from potential clients and allows the company to manage the cash flow better. However, in reality it is possible to achieve all necessary results working with distributors if a professionally prepared distribution contract is signed, which includes all provisions of responsibility and proper conditions of distribution.

Are there any special taxation systems for small businesses, which can be used for tax optimization?

In Russiathe profit tax is even lower than in most European countries – only 24%. VAT is only 18%. Moreover, there is a special simplified taxation system, which enables one not to pay most taxes (e.g. profit tax, VAT (excluding customs payments), social tax) – instead of all these taxes it is possible to pay a Unified tax at the rate of 6% from turnover or 15% from turnover minus expenses. However, one of the most important conditions enabling a company to use the simplified taxation system is that 75% of all shares must be owned by individuals and not corporate entities. Therefore, it is important to consider individual characteristics of a company in order to advise on which tax system is most suitable. Paying taxes is an obligation, and paying less in taxes is an art.

Are there any special requirements from state bodies for trading in Russia?

The answer depends on the type of activities a company will be involved in, on the form of trading a company will choose (show-room, store), and on which sector it will trade in, retail or wholesale.  For example, if a company chooses a store, it would be necessary to obtain special trade permits from different state bodies. In the event that a company will organize a retail network, it would be obliged to register cashiers and to recruit personnel with experience in this area.

What complications do Italian businessmen face with customs control when crossing the Russian border?

One of the most frequent errors, made not only by Italians but by all Europeans in general, is an improper registering of their goods weight.  In addition, many businessmen do not have competently prepared customs documents. In Europethe weight of goods is quite irrelevant. At the same time, when goods are passing the border of the Russian Federation– tax bodies pay attention to all details including total weight of all goods as well as an individual weight of each unit. This data is written in all invoices and export declarations, which are attached to the goods. In the event the documents are not properly prepared, authorities may uphold these goods for up to 2 months and the owner of these goods will need to pay for loading and unloading services of the goods, their inspection and the time of delay. In the event that customs rules are broken, customs authorities may confiscate all goods. We highly recommend our clients to work with our customs broker, who knows how to prepare everything in a proper manner in order to avoid potential problems.

You work with CIS countries. Are there any serious legal differences in running a business in these countries?

Yes, we work with all CIS countries (former USSR) and, notwithstanding that we were a single country just 15 years ago, the differences in doing business in these countries and the application of “legal rules” are now really significant between different CIS countries. There are differences not only in the company registration procedures of each country, but also in the interpretation of concrete legal questions. One of the best examples is that in Ukraine charter capital constitutes around 6 000 Euros, while in Kyrgyzstanit is only 3 Euros.

In any cases, when you decide to open your own business in one of these countries, it is necessary to find out all peculiarities of legal, tax and accounting issues, associated with your activity.

Clarification of such questions is our credo. We are always attentive to business needs of our clients and ready to assist them with all possible questions.


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