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Get a glimpse of the future: discover the most attractive CIS countries for doing business in 2013!

27.12.2012

The next year will provide us with new opportunities for business. The CIS countries are trying to simplify various approval procedures. The common trend is to virtualize administrative procedures, i.e. tax, customs, approval, licensing ones. Alongside with the virtualization, the administrative procedures are being simplified, unnecessary documents and authorities are being excluded, and the entire administration system is steadily moving to an ideal one, i.e. ‘one stop’ system. The pace of the process varies from country to country, but each innovation creates extra opportunities and facilitates business.

Many countries are improving the mechanisms for operation of taxpayers’ virtual personal accounts; the interaction between businessmen and governmental authorities is becoming simpler and more transparent.

Speaking of initial registration of a company, the time needed to complete registration formalities is being minimized in many countries, and in a number of countries the minimum authorized capital requirements for a new business have been revoked.

While prior to 2006 Tajikistan required from foreign investors to pay USD 60 ths to the authorized capital of a new limited liability company, now almost all countries , to the maximum practical extent, lifted the restrictions reducing business interest to startups (probably, except for Turkmenistan, where the minimum authorized capital still must be at least USD 5000).

According to the experts of ALPS & CHASE consulting company, currently, the most popular country among businessmen is Kazakhstan. The country has a lot of appealing factors: reasonable taxation, high administrative support and, of course, membership in the Customs Union. Companies have gained the possibility to operate in Kazakhstan with lower tax rate (12% VAT in Kazakhstan vs. 18% VAT in Russia – really makes difference!), while for Kazakh companies, the removal of the customs duties facilitated selling opportunities in the vast Russian market. Moreover, within the Customs Union efforts to automate customs administration are under way, which will further facilitate efficient business.

Many governments and heads of the CIS states have already for several years aimed not only at uniting the countries within the Customs Union, but also at creating the Eurasian Union. Some Western politicians call it a desire to create a ‘quasi-European Union’, and even raise concerns about ‘sovietization’ of the region. However, businessmen have only benefits from removal of the customs control and duties, free flow of commodities, services, capital and labor resources. Negotiations on participation in the Customs Union are held also with Tajikistan, Ukraine, Kyrgyzstan.

Which of the post-Soviet countries is considered to have the most favorable climate for doing business according to intergovernmental organizations? As a basis, we can take the report made by the World Bank, which produces the annual DoingBusiness rating based on 10 major investment appeal criteria. As the 2012 Report shows, among all the countries, the leading position in easiness of business is held by Georgia. This is quite to be expected, as apart from the fact that a company may be incorporated in Georgia for a couple of business days, Georgia has only 6 taxes with quite low rates, and applies free trade agreements and the GSP (Generalized System of Preferences), which make this country really appealing for businessmen.

 

Georgia 9 Estonia 21 Latvia 25
Lithuania 27  Armenia 32 Kazakhstan 49
Belarus 58  Azerbaijan 67 Kyrgyzstan 70
Moldova 83 Russia 112 Ukraine 137
Tajikistan 141 Uzbekistan 154 Turkmenistan -

While there is apparent progress in removal of bureaucratic hurdles, governmental authorities of the CIS countries are starting to pay increasingly more attention to general tax and administrative discipline.

For example, in Kazakhstan, while the tax report processing system (SONO) is free and provides each business with an opportunity to monitor via the taxpayer’s personal account, which reports were submitted, when and which notices were made by the tax inspectorate, absence of at least one ‘zero’ report can lead to a penalty exceeding USD 800. In Azerbaijan employment of foreigners is strictly monitored, and the penalty for a missing work permit is approx. USD 39,000 per an employee. As a measure to combat fly-by-night companies, governmental authorities in Moscow and Almaty require personal presence of shareholders in the incorporation process, and conduct active raids to identify false legal addresses. Anti-offshore regulations are also being tightened. For example, Russia, thoroughly considers the opportunity to introduce the ‘real beneficiary’ term. Questions on raise of the personal income tax rates to 45-50 % and introduction of the wealth tax are also under consideration.

To summarize the aspects which are most important for business in 2013, attention should be paid to correct and proper documentation of investments and transactions, creation of individual tax solutions without the need to use ‘typical common patterns’. The struggle against fly-by-night companies and ‘grey’ patterns is enhancing every day, and in order to avoid getting the works, and to make business as reliable and secure as possible, new operation patterns should be tried not only in terms of correct application of the regulations, but also in terms of business practice in a certain country.

 


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