doing business in st. petersburg (russa) 2012

Doing business in St. Petersburg

St. Petersburg Government - Committee for External Relations St. Petersburg Foundation for SME Development

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2 Doing business in St. Petersburg St. Petersburg Government - Committee for External Relations St. Petersburg Foundation for SME Development

Doing business in St. Petersburg Guide for investors, exporters and start-ups The current publication was developed by St. Petersburg Foundation for SME Development by the order of the St. Petersburg Government - Committee for External Relations in collaboration with the following international legal, certification, real estate and human resources firms: Baker & McKenzie, SGS Group, Adecco, Jones Lang LaSalle.

© 2012 St. Petersburg Government - Committee for External Relations. St. Petersburg Foundation for SME Development. All rights reserved. International copyright.

Any use of materials of this publication is possible only after written agreement of St. Petersburg Foundation for SME Development and relevant contributing firms.

Online version is available at: www.kvs.spb.ru and www.doingbusiness.ru

http://www.kvs.spb.ru/

http://www.doingbusiness.ru/



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Table of contents

1. The city ....................................................................................................................... 6 1.1. Geography ............................................................................................................................. 6 1.2. Public holidays and business hours ....................................................................................... 7 1.3. Population ............................................................................................................................. 7 1.4. Political system ...................................................................................................................... 8 1.5. Economy .............................................................................................................................. 11 1.6. Foreign trade ....................................................................................................................... 13 1.7. Foreign investment ............................................................................................................. 15 1.8. International cooperation ................................................................................................... 16 1.9. Culture ................................................................................................................................. 17 1.10. Science and education ........................................................................................................ 18 1.11. Transport infrastructure ...................................................................................................... 19

2. Key industry sectors .................................................................................................. 20 2.1. Overview of St. Petersburg’s industry ................................................................................. 20 2.2. Transport machinery and equipment ................................................................................. 23 2.3. Electrical and optical equipment ........................................................................................ 26 2.4. Food and beverage production ........................................................................................... 30

3. Key business clusters ................................................................................................ 34 3.1. Automotive cluster .............................................................................................................. 34 3.2. Software and information technology services .................................................................. 37 3.3. Pharmaceutical cluster ........................................................................................................ 48 3.4. Shipbuilding cluster ............................................................................................................. 57

4. Business solutions ..................................................................................................... 62 4.1. Headquarters ...................................................................................................................... 63 4.2. Research & Development ................................................................................................... 65 4.3. Production сenter ............................................................................................................... 68 4.4. Distribution сenter .............................................................................................................. 75 4.5. Test market ......................................................................................................................... 77

5. Doing business .......................................................................................................... 79 5.1. Russian Judicial System ....................................................................................................... 79 5.2. Promoting Foreign Investment in Russia ............................................................................ 85 5.3. Establishing a Legal Presence .............................................................................................. 89 5.4. Competition Protection Law ............................................................................................... 96 5.5. Corporate Compliance ...................................................................................................... 105 5.6. Taxation ............................................................................................................................. 109 5.7. Customs ............................................................................................................................. 130 5.8. Currency Regulations ........................................................................................................ 143 5.9. Employment ...................................................................................................................... 146 5.10. Property Rights .................................................................................................................. 153 5.11. Privatization ...................................................................................................................... 165 5.12. Language Policy ................................................................................................................. 167 5.13. Civil Legislation .................................................................................................................. 169 5.14. Intellectual Property ......................................................................................................... 171 5.15. Product conformity assurance in Russia ........................................................................... 175 5.16. Banking .............................................................................................................................. 181


6. Costs of doing business ........................................................................................... 187 6.1. Costs of starting a company .............................................................................................. 187 6.2. Human resources .............................................................................................................. 189 6.3. Office, retail and warehouse market ................................................................................ 195 6.4. Communication ................................................................................................................. 201 6.5. Utilities .............................................................................................................................. 202

7. Contacts of business support infrastructure ............................................................ 204 7.1. Overview of the business support infrastructure in St. Petersburg ................................. 204 7.2. Authorities ......................................................................................................................... 204 7.3. Investment support ........................................................................................................... 207 7.4. SME business cooperation support ................................................................................... 209 7.5. SME support ...................................................................................................................... 211 7.6. Financial support ............................................................................................................... 213 7.7. Techno parks and business incubators ............................................................................. 215 7.8. Educational programs and internships ............................................................................. 217 7.9. Chambers of commerce and industry ............................................................................... 218 7.10. Business associations ........................................................................................................ 218 7.11. Audit, tax and consulting firms ......................................................................................... 219 7.12. Banks ................................................................................................................................. 220 7.13. Certification and testing .................................................................................................... 220 7.14. Exhibitions ......................................................................................................................... 221 7.15. Law firms ........................................................................................................................... 221 7.16. Real estate ......................................................................................................................... 222 7.17. Recruitment....................................................................................................................... 222 7.18. Transport and logistics ...................................................................................................... 223

8. Authors and contributors ........................................................................................ 224



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Welcome to St. Petersburg

I would like to welcome you to St. Petersburg, one of the largest centers of international cooperation in Russia and Europe. The city is a member of leading international and regional organizations and has bilateral cooperation agreements with 89 foreign cities and 27 foreign regions. Every year St. Petersburg hosts more than 200 international events, including the world’s famous St. Petersburg International Economic Forum.

St. Petersburg has always been and remains an attractive location for foreign investors due to an established and effectively operating system aimed at supporting investment activity. In 2011 foreign trade turnover reached 53.2 billion US dollars. St. Petersburg has trade relations with 187 countries, including such major trade partners as China, Germany, Netherlands, Finland, Japan and USA. 1,192 large and medium-sized companies with participation of foreign capital operate in the city. The city has successfully implemented a number of large-scale international projects, including the construction of car manufacturing plants of the world car giants. Some of the actively developing clusters with participation of international companies include pharmaceutical cluster and information technologies cluster.

St. Petersburg welcomes you and is ready for cooperation!

Alexander Prokhorenko Member of St. Petersburg Government Chairman - Committee for External Relations

Welcome to St. Petersburg, the city of enormous business opportunities and development potential. St. Petersburg is one of the largest economic, transport, academic, cultural and tourism centers in Russia as well as a growing economy with a thriving private sector and an attractive business environment.

Favorable economic and geographical location in the European part of Russia, developed infrastructure, extensive scientific, research and educational potential, highly skilled workforce as well as broad market and competitive operating costs facilitate the development of efficient, safe and stable business. During the recent years many international companies, including Coca-Cola, Pepsi, Gillett, Wrigley, British American Tobacco, Bosch Siemens and many others, have already implemented investment projects in St. Petersburg. All of them considered the city as an ideal location for their business needs, whether it is an R&D center, test market, production center or distribution hub.

We welcome you to St. Petersburg and will be glad to see you among our partners and clients!

Maxim Balanev Executive director - St. Petersburg Foundation for SME Development Regional coordinator - Enterprise Europe Network, Gate2Rubin Consortium – Russia, Module A Branch - St. Petersburg


1. The city

1.1. Geography

Coordinates: Latitude: 59° 57' North Longitude: 30° 19' East

Area: 1,439 sq.km.

Climate: Maritime, with warm damp summers and moderately cold long winters

Average temperature: July: + 25 C January: - 2 C

Time: MSK ( UTC+4)

Dialing codes: International country code: + 7 (Russia) Area code: 812



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1.2. Public holidays and business hours

Official holidays: January 1-5 - New Year holidays

January 7 - Russian Orthodox Christmas

February 23 - Armed Forces Day

March 8 - Women’s Day

May 1 - International Labor Day

May 9 - Victory Day

June 12 - Day of Russia

November 4 - National Unity Day

Business hours: Offices: Mondays through Fridays - 9.00-18.00 (9 a.m. till 6 p.m.), lunch break – 13.00-14.00 (1 p.m. till 2 p.m.)

Banks: Mondays through Fridays - 9.00-18.00 (9 a.m. till 6 p.m.)

Stores: Mondays through Saturdays - 10.00-19.00 (10 a.m. till 7 p.m.), most stores are also open on Sundays

Restaurants: Mondays through Sundays – 12.00-23.00 (12 p.m. till 11 p.m.), many restaurants and cafes are open 24 hours

1.3. Population

Population (01.01.2012):

4,953,200 people

Economically active population (2011):

2,677,000 people

Unemployment rate (to % of economically active population, 2011):

0.5%

Population density (2010):

3,288.3 per sq. km.

Gender ratio (2011):

male: 44.9%

female: 55.1%

Population age composition: (2010):

Male and female (0-15) Male (16-59); female (16-54)

Male (60 and above); female (55 and above)

12.9% 61.6% 25.5%

Median age (2010):

Total: 41.3 years

Male: 38.2 years

Female: 43.9 years

Birth rate (per 1,000 people, 2011):

11.6

Death rate (per 1,000 people, 2011):

12.5

Official language: Russian


1.4. Political system

City day: May 27. The city was founded on May 27, 1703

City name: Conventional long form: Saint-Petersburg

Conventional short form: St. Petersburg

Local long form: Sankt-Peterburg | Санкт-Петербург

Local short form: С.-Петербург | Петербург

Former names: St.-Petersburg (1703-1914), Petrograd (1914-1924), Leningrad (1924-1991), St.-Petersburg (1991- till present)

Administrative division: While the city is divided into 18 districts (rayons), each district is divided into municipal formations. At the moment there are 111 municipal formations (munitsipalnye obrazovaniya).

1. Admiralteysky District 10. Kurortny District 2. Vasileostrovsky District 11. Moskovsky District

3. Vyborgsky District 12. Nevsky District

4. Kalininsky District 13. Petrogradsky District

5. Kirovsky District 14. Petrodvortsovy District

6. Kolpinsky District 15. Primorsky District

7. Krasnogvardeysky District 16. Pavlovsky and Pushkinsky Districts

8. Krasnoselsky District 17. Frunzensky District

9. Kronshtadsky District 18. Central District



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Political system:

Source: Business Support Structure in St. Petersburg

Executive branch: The City Administration (www.gov.spb.ru) is the superior executive body of St. Petersburg headed by the Governor. The St. Petersburg Administration is formed of the Governor, the Government, the Governor's Chancellery, the city committees and the subordinate administrative-territorial departments of the Administration.

Legislative branch: The Legislative Assembly of St. Petersburg (www.assembly.spb.ru) is the standing effective supreme and sole legislative (representative) body of the state authority in St. Petersburg.

Judicial branch: Charter Court of St. Petersburg (www.spbustavsud.ru), Judges of the Peace of St. Petersburg (www.mirsud.spb.ru), City Court of St. Petersburg (http://sankt-peterburgsky.spb.sudrf.ru), Arbitration court of St. Petersburg and Leningrad region (www.spb.arbitr.ru) and Leningrad Military Circuit Tribunal (http://leningradskyovs.spb.sudrf.ru).

Suffrage: 18 years of age; universal

http://www.assembly.spb.ru/

http://www.spbustavsud.ru/

http://www.mirsud.spb.ru/

http://sankt-peterburgsky.spb.sudrf.ru/

http://www.spb.arbitr.ru/

http://leningradskyovs.spb.sudrf.ru/


Symbols of St. Petersburg:

Coat of arms Flag

Diplomatic representations:

55 consular offices are accredited in St. Petersburg, including:

34 consulates,

1 embassy office,

3 honorary consuls general,

19 honorary consuls.



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1.5. Economy

GRP of St. Petersburg (billion roubles):

Source: Committee for Economic Development, Industrial Policy and Trade

GRP per capita in St. Petersburg (thousand roubles):


GRP sectoral composition (2012E):


666.4 825.1

1,119.7

1,431.8 1,473.3 1,673.7

1,917.4 2,137.9

2005 2006 2007 2008 2009 2010 2011E 2012E

145.2 180.3

245

310.6 321.5 343

389.2 428.9

2005 2006 2007 2008 2009 2010 2011E 2012E

29%

17% 18%

10%

7%

19% Industrial production

Other

Real estate

Transport, communications,tourism

Construction

Wholesale and retail trade


City budget (billion roubles):


City debt (01.01.2012):

Total: 8,520.7 million roubles, including Share of internal debt: 100% Share of external debt: 0%

Credit ratings : Long-term credit international scale ratings in foreign currency: Standard&Poor’s – BBВ (May 2012), forecast – stable Moody’s Investors Service – Baa1 (May 2011), forecast – stable FitchRatings – BBВ (January 2012), forecast – stable

Long-term credit national scale ratings: Moody's Interfax – Aaa.ru (July 2005) FitchRatings – AAA(rus) (January 2012), forecast – stable

Leading industries: Machinery, vehicle and equipment manufacturing, electronic and optical equipment, food, including beverages and tobacco; metallurgy and metalworking; chemical production.

Priority sectors/clusters: Automotive, pharmaceutical, shipbuilding, power plant engineering, information technology, radiology, electronic engineering.

120.3

179.9

278.1

339.1 315.6 347

399.5

129.9

186.2 259.3

355.8 322.2 358.6 404

2005 2006 2007 2008 2009 2010 2011

Revenues Expenditures



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1.6. Foreign trade

Foreign trade turnover (million USD):

Source: Territorial branch of the Federal State Statistic Service (Petrostat);

Northwestern Customs Directorate, Federal Customs Service

Main trade partners (2011):

Source: Northwestern Customs Directorate, Federal Customs Service

Currency (code): Russian rouble (RUB)

Exchange rates: RUB per EUR – 40.38 (2012)1, 40.28 (2011), 38.2 (2010), 43.35 (2009), 36.68 (2008), 34.63 (2007), 34.06 (2006)

RUB per USD – 31.69 (2012)1,27.9 (2011), 31.45 (2010), 30.91 (2009), 23.67 (2008), 26.04 (2007), 27.08 (2006)

Source: Central Bank of the Russian Federation, Ministry of Finance of the Russian Federation

Fiscal period: calendar year

1 Official exchange rate as of November 16, 2012 (www.cbr.ru).

4,914

12,658

17,786

23,643

13,437 11,817

20,577

10,116

14,177

20,685

25,734

17,839

24,524

32,656

2005 2006 2007 2008 2009 2010 2011

Export Import

14.4%

8.7%

8.2%

5.2%

4.6%

4.2%

4.1%

3.9%

3.7%

2.8%

China

Germany

Netherlands

Finland

Japan

USA

Italy

UK

South Korea

Ukraine

http://www.cbr.ru/


1.6.1. Export

Export volume (2011): 20.6 billion USD (170% to the previous year)

Largest exporters (2011):

JSC Gazprom Neft, CJSC PNT-GSM, CJSC British American Tobacco-Spb, JSC Nevsky Mazut, JSC Transoil

Export structure (2011):


1.6.2. Import

Import volume (2011): 32.6 billion USD (133,6% to the previous year)

Largest importers (2011):

LLC Nissan Manufacturing Rus, LLC Hyudai Motor Manufacturing Rus, LLC General Motors Auto , LLC Petro, LLC Toyota Motor Manufacturing Russia

Import structure (2011):


3%

75%

2%

2%

7%

9% 2%

Food products

Mineral products

Chemical products, naturalrubber

Timber, pulp and paperproducts

Metal and metal products

Machinery, equipment,vehicles

Other

43%

7%

1% 3%

11%

6%

23%

6% Machinery, equipment,vehicles

Metals and metal products

Mineral products

Timber, pulp and paperproducts

Chemical products, naturalrubber

Textiles, textile goods,footwear

Food products

Other



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1.7. Foreign investment

Volume of foreign investment (million USD):

Source: Territorial branch of the Federal State Statistic Service (Petrostat)

Structure of foreign investments (million USD, 2011):


Foreign investment by sector of the economy (2011):


706 1,160

1,171 881 696

985 1,417

5,255

6,284 5,928

5,525 5,231

6,121

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Foreign directinvestment (FDI)

Foreign portfolioinvestment (FPI)

Other foreigninvestment

4,836 (79%)

1,074 (18%)

211 (3%)

72%

6%

5%

12% 5% Manufacturing

Wholesale andretail trade

Transporation andcommunication

Real estate

Other


Major investors (2011):


1.8. International cooperation

Bilateral cooperation documents:

with 89 foreign cities and 27 foreign regions

with 41 regions and 3 cities in Russia

Participation in international and regional organizations:

The Union of Baltic Cities

The Conference of the Major Cities of the Baltic Sea "Baltic Metropolis”

The Organizations for Sub-regional Cooperation of the Baltic Sea Countries

The Tourism Commission of the Baltic Sea Countries

Cooperation with intergovernmental organizations:

The Council of the Baltic Sea Countries

The Nordic Council of Ministers

The Forum Regions of the Coast of Europe

The Baltic Development Forum

The Association of Chambers of Commerce and Industry in the Baltic region

Membership in international associations:

Associate member of the Association of European cities "EUROCITIES"

Member of the International Congress and Convention Association

17%

9.5%

9.3%

8.8% 6.8%

5.1%

4.9%

4.6%

4.3%

5%

3.8%

3.5% 4%

UK

South Korea

Cyprus

China

Germany

Austria

Kazakhstan

Switzerland

Sweden

Belgium

Finland

Kyrgyzstan

Belarus



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1.9. Culture

Cultural sites: 8,464 cultural sites located in the city, including 4,213 sites of federal significance

UNESCO World Cultural Heritage List:

Historic Center of St. Petersburg and Related Group of Monuments

Museums: 182 museums , including:

41 (with branches) museums and local reserve museums;

24 (with branches) museums of federal jurisdiction;

31 departmental museums;

86 other museums.

Libraries: 1,103 libraries, including:

2 libraries under federal jurisdiction;

1 library of the Academy of Sciences of Russia ;

196 local libraries;

904 libraries of institutions and organizations.

Theatres: 82 theatres, including:

24 local theaters;

5 theaters under federal jurisdiction ;

3 theatres of regional subordination operating in the city;

50 non-state theaters.

Concert organizations: 17 concert organizations, including:

15 local concert organizations;

2 concert organizations under federal jurisdiction.

Cultural and leisure institutions:

52 cultural and leisure institutions, including:

26 local cultural and leisure institutions;

26 cultural and leisure institutions under the supervision of other agencies.

Educational institutions:

71 educational institutions, including:

7 local secondary vocational schools;

63 music and art schools, local art schools;

1 music school under federal jurisdiction.

Parks: 5 parks, including:

4 recreation and entertainment parks in the city network;

1 Zoo.

Cinemas: 46 cinemas, including:

8 cinemas of the city network ( 6 - for children);

38 cinemas of non-state network.


1.10. Science and education

Scientific organizations: 350 scientific organizations, including:

more than 70 organizations of the Russian Academy of Sciences and other state academies,

more than 250 governmental organizations involved in research and development,

10 state research centers.

Scientific personnel potential:

165,000 employees of research institutions and Universities, including:

more than 9,000 Doctors of Science,

more than 26,000 Candidates of Science.

State educational institutions:

1,909 educational institutions, including:

1,054 preschool educational institutions,

690 general educational institutions,

58 institutions of supplementary education for children,

18 children's homes,

36 beginners' vocational schools,

12 institutions of secondary professional education,

1 academy of postgraduate pedagogical education.

Number of school children:

368,390 school children, including 187,791 school children enrolled in in preschool educational institutions

Higher and vocational education institutions:

45 civil public institutions of higher education;

6 branches of civil institutions of higher education;

43 private higher educational institutions;

45 public educational institutions of secondary vocational education;

30 state civil institutions of higher education offering training in secondary vocational education;

5 non-governmental educational institutions of secondary vocational education.

Number of students: 493.1 thousand people, including:

400.9 thousand students enrolled in state and private civil institutions of higher education programs of higher education,

61,600 students enrolled in secondary vocational education.

Teaching staff: 73,425 people working in educational institutions, including:

30,000 - in higher educational institutions,

5,100 - in educational institutions of secondary vocational education.



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1.11. Transport infrastructure

Urban passenger transport:

Metro (5 lines);

Ground electric transport (40 tram routes and 44 trolleybus routes);

Buses (677 bus routes);

Commuter rail transport (80 stations of the suburban passenger line);

Passenger taxis.

Annual traffic of the urban passenger transport:

About 2 billion trips (5 million trips a day):

Metro - 41%;

Coaches - 40%;

Ground electric transport - 16%;

Commuter rail transport - 3%.

Transportation complex:

12 radii of railroads;

15 highways;

sea and river ports;

Airport;

5 railway stations.

Large Port of St. Petersburg:

Ranks 1st among the ports of the Russian Federation and the Baltic Sea in container trans-shipment and 3d in Russia in terms of total cargo volume (60 mln. tons in 2011).

Marine Passenger Terminal:

Commissioned in 2011

Port facilities include 7 berths and 4 stations

214 cruise ships and 113 ferries with about half a million passengers (2011)

Rail transportation: Mainly represented by "October Railways", a branch of OJSC "Russian Railways"

2d in volume of rail freight in Russia (following Moscow)

Includes 10 rail lines and connects Russia to Finland and Estonia

Air transport: Pulkovo Airport is one of the largest airports in Russia and ranks 3d in passenger traffic (9.6 mln by end of 2011)

New terminal scheduled for completion in 2013 will increase the Airport’s capacity to up to 14 million people

Urban water passenger transportation:

20 stopping piers

4 city routes commissioned in 2010


2. Key industry sectors

2.1. Overview of St. Petersburg’s industry

2.1.1. Structure and main indicators

St. Petersburg is one of the largest industrial centers in Russia. The city ranks second in the volume of manufacturing shipments, thus providing 8% 0f the total production volume in the country.

St. Petersburg’s industrial complex represents the basis of the regional economic growth, accounting for the major source of budget.

Efficient operation of the industrial complex significantly affects the development of other sectors of the economy, including transportation, construction, communication, trade and provides real opportunities for the solution of socio-economic goals of the city.

Industrial complex of the city is represented by almost all industries. 730 large and medium enterprises, a number of which represent the leading industrial enterprises of the Russian Federation, constitute the basis of the city’s industrial complex. More than 21 thousand small enterprises, including microenterprises, also contribute to the development of the local economy.

Number of large and medium-sized enterprises, 2011

Manufacturing (total) 676

Electronic equipment, electronic and optical equipment 148

Machinery and equipment 96

Food, including beverages and tobacco 84

Metallurgy and metal products 65

Pulp and paper, publishing and polygraphic products 62

Motor vehicles and equipment 47

Non-metallic mineral products 44

Chemical products 37

Rubber and plastics 24

Textiles and clothing 17

Timber processing and timber products 14

Leather, leather and footwear products 6

Petroleum coke and petroleum products 5

Other 27

Electricity, gas and water production and distribution 54

Mineral resources extraction 2

Source: Committee for Economic Development, Industrial Policy and Trade, 2012

In 2011 industrial production growth of St. Petersburg (113.8%) significantly exceeded the similar indices of the Russian Federation and Northwestern Federal District.

In 2011 the industry shipments of St. Petersburg’s enterprises constituted 1,966 billion roubles which represents 135% to the level of 2010. Manufacturing enterprises determine operation of the local industry. Such enterprises account for more than 90% of the total volume of industrial products



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produced in St. Petersburg (1,827 billion roubles). Machinery (138%) enterprises contributed the most to the growth of production volumes.2

Structure of the volume of industry shipments, 2011


2.1.2. Profitability

In 2011 industrial complex accounted for 349.8 billion roubles in profit, including 327.1 billion roubles from manufacturing industries. The share of profitable enterprises within the total number of manufacturing enterprises constituted 81.2% (79.6% in 2010). The most significant growth in profit in comparison with the previous year is reported in the production of motor vehicles and equipment (2.6 times). In 2011 a high level of profitability remained in the production of food, beverages and tobacco (19.8%) as well as machinery and equipment (15.1%).3

Profitability of manufacturing enterprises, 2011


2.1.3. Budget receipts

In 2011 the tax revenues from industrial enterprises constituted 161 billion roubles (more than 36% of the total amount), including 149 billion roubles received from manufacturing enterprises. Food

2 Committee for Economic Development, Industrial Policy and Trade, Government of St. Petersburg



Electricity, gas and water production and distribution

6.6%

Mineral resources extraction

0.4%

Manufacturing 93%

14.8%

13.2%

St. Petersburg

Russian Federation


production, including beverages and tobacco, motor vehicle and other types of equipment production accounted for approximately 80% of all budget receipts from the manufacturing sector.4

Dynamics of receipts into the budget of the Russian Federation from St. Petersburg's industry, 2010-2011



116.1

149.2

124.8

160.9

100

160

2010 2011

bill

ion

ro

ub

les Industry in total

Including manufacturing



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2.2. Transport machinery and equipment

2.2.1. General overview

Major production sectors include power plant engineering, handling machinery, household appliances manufacturing, mining and construction equipment manufacturing.

Characteristics of transport machinery and equipment industry, 2011

Number of large and medium-sized enterprises, units 96

Volume of shipped products, bln RUB

70

Number of employees, thousand people

34.2


2.2.2. Industry in numbers

The products of power plant engineering, including steam, hydraulic and gas turbines, turbo and hydro generators and nuclear power plants equipment, represent a considerable share of transport machinery and equipment industry of the city. OJSC Silovye Mashiny, which unites the Leningrad Metal Plant, Electrosila, Turbine Blades Plant, accounts for the major share of production. These enterprises are the leading Russian manufacturers of equipment for hydraulic, thermal, gas-fired and nuclear power plants.

OJSC Silovye Mashiny is ranked 4th in the world in terms of the volume of installed equipment and is listed among the five world’s leading energy companies. The company accounts for 80% of the energy equipment market in Russia and CIS. Currently, the company is engaged in construction of a new energy machinery plant organized on a principle of integrated complex, one of the largest investment projects in St. Petersburg.

Another leading enterprise, OJSC Izhorskie Plants, is a Russian leader in engineering, manufacturing, sales and servicing of nuclear power plant equipment and machinery. The company also manufactures equipment for storage and transportation of used nuclear fuel.

During the recent years St. Petersburg’s energy machinery enterprises supplied equipment for hydraulic, thermal and nuclear power plants in China, India, Vietnam, Iran, Mexico and Chili.

2.2.3. Companies

Power plant engineering

Electrosila Established more than hundred years ago, today Electrosila is the largest manufacturer of generators in Russia. The plant manufactured more than 2.7 thousand turbine-generators and more than hydro-generators. It is the first plant in the world to manufacture hydro-generators with the capacity of more than 200 MW. Electrosila supplies its products in more than 57 countries in Europe, Asia, South and North America, Africa.


Leningrad Metal Plant Established in 1857, Leningrad Metal Plant is one of the oldest enterprises of the city. The plant has manufactured more than 2.7 thousand steam turbines and more than 780 hydraulic turbines. Today, the plant is the largest Russian energy machinery enterprise engaged in design, manufacturing and servicing of steam, hydraulic and gas turbines of various capacities. In 2000 the plant was incorporated in OJSC Silovye Mashiny.

Nevsky Zavod JSC Nevsky zavod (NZL) is one of the leading companies in Russia engaged in design and manufacturing of power engineering equipment, including gas and steam turbines, centrifugal and axial compressors, blowers. NZL® is the registered trade mark which belongs to the plant since 1965. The products of Nevsky Zavod are famous in 30 countries of the world. The largest customers abroad are National Iranian Gas Company, iron and steel plants in India, China, Egypt, Turkey, Hungary, Poland, Rumania, chemical plants in Bulgaria, China.

Silovye Mashiny (Power Machines) OJSC Power Machines is the leading Russian manufacturer and supplier of end-to-end products and solutions for the power-plant industry, including engineering, production, supply, assembly, service and equipment upgrades for thermal, nuclear, hydraulic and gas-turbine power plants. The company has manufactured equipment with a combined capacity of 300,000 MW, which is installed and is successfully operating in 57 countries across the world. Established in 2000, OJSC Power Machines unites engineering, production and intellectual resources of Russia’s largest enterprises, including the ones located in St. Petersburg - Leningrad Metal Plant, Electrosila, Turbine Blades Plant, Polzunov Power Engineering Research and Design Institute.

Turbine Blades Plant Turbine Blades Plant is the major enterprise in Russia specialized in production of blades for steam and gas turbines. The plant started its production in 1964 and since then has been providing turbine blades for all types of power units in the CIS and in about 20 countries abroad. The plant is a permanent partner of the Leningrad Metal Plant.

Handling equipment

Otis Elevator Company The world's largest manufacturer of vertical transportation systems has three manufacturing plants in Russia, including the one operating in St. Petersburg since 1994. Otis St. Petersburg was established in 1991 to meet the elevator need for new construction as well as for the replacement market. With 470 employees, Otis St. Petersburg is the only company that manufactures European standard elevators in Russia. Since the opening of the production line, St. Petersburg’s plant has shipped more than 3,000 elevator units to CIS countries and other Russian regions.



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Household appliances

Bosch and Siemens The largest manufacturer of home appliances in Europe and one of the leading home appliances companies in the world opened its manufacturing plant in St. Petersburg in 2007. Today, two full cycle manufacturing lines with the capacity of 500 thousand two-compartment refrigerators per year manufacture more than 20 refrigerator models with A+ Energy Efficiency Class. In 2007 the company laid the foundations for a washing machine factory with the capacity of 350,000 machines per year, which is due to be launched in 2012.

Mining and construction equipment

IZ-Karteks The company, which is a part of JSC United Heavy Machinery Plants, specializes in engineering, manufacturing, supply and servicing of mining equipment. IZ-Karteks manufactures high-performance equipment used in all stages of mineral surface extraction and processing, including rock drilling machines, mine excavators, crushing and grinding equipment.


2.3. Electrical and optical equipment


Major production sectors include production of electric machines and electrical equipment, electronics, radio, television and communication systems, medical devices, measurement, control, management and testing instruments, optical equipment, photo and cine equipment.

Characteristics of electrical and optical industry, 2011

Number of large and medium-sized enterprises, units 148

Volume of shipped products, bln RUB

133.1

Number of employees, thousand people

57.4



Production of electrical products, electronics and instrumentation is one of the key industrial sectors of St. Petersburg. St. Petersburg’s enterprises produce almost the entire range of electrical products, including welding equipment, batteries, wiring products, electro gas high-voltage equipment, electro porcelain, power and fiber optic cables and other equipment.

The consumers of electrical products manufactured by St. Petersburg’s leading enterprises, such as CJSC REP Holding and OJSC Electroapparat, include almost all types of mining and manufacturing industries, including oil and gas, shipbuilding, metallurgy, military-industrial sector, agriculture and others. The long-term partners include OJSC Gazprom, OJSC Russian Railways, CJSC AvtoVAZ as well as Russian and international oil and energy companies.

The products of electronic instrument companies located in St. Petersburg include aircraft avionics, equipment for professional radio and television stations, telephone and telecommunications systems of closed and open communications, radar and instrumentation safety for air passenger transport, and cell component bases. The leading businesses in this area include OJSC HK Leninets, OJSC Svetlana, OJSC SPE Radar MMS, OJSC Research Institute 'Vektor', JSC Russian Institute of Radio navigation and Time, OJSC Inteltech, OJSC Avangard.

The leading companies producing electrical, electronic and power equipment include OJSC New Era, CJSC NIIEFA-Energo, and CJSC NPF System Service. These companies design and manufacture high-tech transformer substations, complete switchgear, power units, automation and control, main switchboards, power semiconductor converter systems used by OJSC Gazprom, OJSC Russian Railways as well as other leading oil companies in Russia.



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2.3.3. Companies

Electric machines and electrical equipment

Efremov scientific research institute of electrophysical apparatus (NIIEFA) NIIEFA is the leading scientific, design and research, production center of Russia in electrophysical equipment and installations for research in plasma physics, nuclear physics, elementary particle physics, health care, radiation and energy technologies, nondestructive inspection. More than 2,000 of NIIEFA facilities were designed as inventions. Units designed in NIIEFA are successfully operated in many scientific research and industrial organizations of Russia, CIS countries, Bulgaria, Hungary, Germany, Egypt, India, China, Cuba, USA, Finland, France, Japan, Korea.

NE NE Open Joint Stock Company is a modern industrial enterprise specialized in producing a wide range of low-voltage & medium-voltage electrical equipment for marine and industrial application. NE was established in 1993 on the basis of apparatus manufacturing of the Leningrad state enterprise «ERA». Today, NE manufactures electrical equipment for almost all branches of industry, including power engineering, nuclear industry, oil & gas industry, offshore projects, shipbuilding, ore mining & metallurgy, communal services, construction, transport system, chemical industry.

Electronics, radio, television and communication systems

INTELTECH INTELTECH is one of the leading Russian companies in the fields of scientific research, development and production of telecommunication and automatic control systems. Today, the company is a well-known provider of hardware and software systems for automatic control and data exchange, digital networks for secured telephone communication and protected telecommunication systems for government, civil and military departments of the Russian Federation.

Leninets Holding Company Leninets holding company is a leading Russian developer and manufacturer of avionics, navigation equipment and high precision target systems. The company is specialized in development and manufacturing of on-board avionics, navigation equipment, high precision arms guidance systems for heavy aircraft and target-seeking equipment for air-to-surface rockets. Leninets holding company includes a number of enterprises engaged in R&D, design and experimental, project and construction activities as well as warranty services.


Radar MMS Research and scientific enterprise Radar MMS, established in 1950, is a leader in development of intelligence guidance systems. The company is engaged in a full cycle of R&D and manufacturing activities, including R&D, testing, manufacturing, distribution and maintenance.

Russian Institute of Radionavigation and Time (RIRT) RIRT is the leading organization engaged in development of systems and coordinate-time support. The systems developed by the Institute are used to determine the current time and mestopo-proposal objects in sea-surface of the Earth, the world's oceans and inland waters, airspace as well as solve problems in astrophysics, geodesy and geodynamics.

Svetlana JSC Svetlana is one of the leaders of electronic industry in Russia. The history of the enterprise dates back to 1889. Today, Svetlana involves a parent company and subsidiaries specialized in output of specific production lines. The enterprise has the strongest positions in development and production of power electrovacuum devices, klystrons and x-ray tubes. Svetlana-microelectronics is one of the major Russian design centers for sophisticated microprocessors with original architecture and standard instruction sets and information and control systems. Svetlana – Electrondevice is the only enterprise that develops and produces protective microwave devices and discrete phase shifters as well as vacuum and semiconductor microwave devices mainly for radar engineering. Svetlana-SED-SPb is a leading enterprise of Russia in field of development and production of power transmitting, modulator, regulator and receiving tubes.

Scientific and Research Institute Vektor Scientific and Research Institute Vektor is engaged in development and manufacturing of electronic equipment used in the following application areas: EM waves propagation physics, radio reception at communication complexes, monitoring of electromagnetic radiation, acoustic monitoring, testing of radioelectronic equipment and many others.

Medical devices, measurement, control, management and testing instruments, optical equipment, photo and cine equipment

NPO Impuls NPO Impuls is one of the main Russian organizations engaged in development of state-of-the-art automated control systems for Russian armed forces and strategic rocket forces.

Tekhpribor Founded in 1942, JSC Tekhpribor is one of the oldest air instrument-making companies. The company focuses on development, production, certification and technical operation of various airborne equipment for all airplanes and helicopters manufactured in Russia and CIS.



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Electron Electron is one of the leaders in the Russian market of X-ray and diagnostic equipment as well as programming solutions for healthcare. The company’s product line of digital X-ray diagnostic equipment includes chest examination devices, two workplace X-ray devices, multipurpose X-ray diagnostic complexes, including remotely operated complexes, interventional radiology devices.

LOMO Founded in 1914, LOMO is a leading Russian and international company as well as the largest Russian company involved in production and sales of optic-mechanical and optic-electronical devices. LOMO manufactures a wide range of products, including microscopes, endoscopes, spotting scopes - telescopes and night vision devices and cameras.


2.4. Food and beverage production


Food complex in St. Petersburg is represented by 11 major industries, which include more than 80 large and medium as well as 180 small enterprises. Brewing and tobacco manufacturing are the two most developed sectors of the local food industry.

High investment activity of St. Petersburg’s enterprises is one of the major factors accounting for the successful development of food industry in the city. Increased automation and production improvements allowed companies to significantly diversify the assortment of produced food products and improve their consumer appeal. Continuous renewal of assortment is one of the characteristics of the food industry in St. Petersburg. St. Petersburg’s enterprises develop at least 100 new sorts of various bakery and pastry products, including bread and rolls, dried bread and biscuits, pies and cookies. Assortment of the produced bakery products totals more than 400 items which makes it the most diversified assortment present in Russia.


In 2011 the volume of food industry shipments, including beverage and tobacco, constituted 12% of the total manufacturing industry in St. Petersburg.

Structure of industry shipments, 2011

Investment in fixed assets by industry, 2011


As of 2011, food and beverage industry employs 11% of the total number of employees occupied in the St. Petersburg industrial complex. Food industry, including beverage and tobacco, is the most profitable industrial sector in St. Petersburg (19.8%), which is attributable to high production indices of tobacco (34.9%), alcohol (25.8%) and beer (24.8%) producing enterprises. Approximately 13% of all investment into industrial sector accounts for food manufacturing, including beverages and tobacco.

12%

81%

7%

Food manufacturing, including beverargres and tobacco

Other manufacturing industries

Electric power, gas and water production

50%

13%

12%

10%

8%

4% 3%

Other manufacturing industriesFood manufacturing, including beverages and tobaccoMotor vehicle and equipment manufacturingOther manufacturing industriesMachinery and equipmentMetallurgy and metal product manufacturingElectronic and optical equipment



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2.4.3. Companies

Bakery

Hlebny Dom JSC Hlebny Dom has operating at the Russian market for more than 70 years and is one of the largest baking enterprises in Russia. The company became a part of the Fazer Group in 1997. It is represented by 4 production sites in St. Petersburg as well as one in Moscow. Hlebny Dom produces bakery and confectionery products, long term storage foods as well as frozen and flaky dough products.

Karavay JSC Karavay was established in St. Petersburg more than 80 years ago. Today, it is a modern fully-equipped bakery which produces more than 170 items of fancy and bakery products. Karavay is one of the leaders of baking industry in St. Petersburg. It currently possesses 4 baking plants.

Beverage production

Carlsberg Group Baltic Beverages Holding, a leader at the Russian beer market which manages Baltika, became a part of the Carlsberg Group in 2008. Carlsberg currently owns 89.01% of Baltika stock. Today, Baltika Brewery, founded in 1990, is the largest brewery in Eastern Europe and the second-largest brewery in Europe after Heineken Brewery.

Coca-Cola Company Coca-Cola’s plant, opened in St. Petersburg in 1995, produces Coca-Cola products for more than 13 million customers in St. Petersburg and Northwestern Russia. It employs more than 1,000 people, while creating up to 200 additional seasonal workplaces during the peak seasons.

Heineken Heineken has been operating in Russia since 2002 when it acquired the Bravo plant in St. Petersburg. St. Petersburg’s Heineken brewery also produces and distributes Budweiser beer, having signed a licensing agreement with Bud’s brand owner Anheuser-Busch.

Pepsi Bottling Group, Inc. (PBG) PepsiCo drinks are produced by Pepsi Bottling Group at its four plants in Russia. One of the top global FMCG companies in Russia opened its St. Petersburg’s plant in 1992. PBG produces and distributes all PepsiCo products, including carbonated soft drinks, water, snacks, juices, teas.

Russian Standard Company A leading Russian premium vodka producer opened its distillery in St. Petersburg in 2006. Total investments into the facility amounted to 60 million dollars. The distillery produces 3.6 million dekaliters of vodka annually. A 30,000 square meter facility handles the production of the company's entire vodka portfolio, including Russian Standard Original, Russian Standard Platinum and Imperia.


Candy

Chupa Chups S.A. The Spanish candy maker launched its St. Petersburg’s production facility in 1991. Neva Chupa Chups produces Chupa Chups caramel lollipop candies of various flavors and colors not only for the Russian market but also for export to CIS countries. St. Petersburg’s factory has the capacity of making up to 200 million 200-gram rolls per year.

Confectionery factory named after N.K. Krupskaya The history of the Confectionery factory began in 1938. In 2006 the factory was acquired by the Norwegian Concern Orkla which is one of the leading suppliers of branded consumer goods to Nordic food retailers as well as Central and Eastern Europe and Russia. Today, the factory is a modern industrial complex with capacity to produce more than 20 thousand tons of confectionery products per year. It produces more than 130 confectionery products, including chocolate of different sorts, diabetic products, chocolate semi-finished products for food industry.

Chewing gum

Wm. Wrigley Jr. Company The world’s largest maker of chewing gum has been operating a 70 million dollar plant in St. Petersburg since 1999. Wrigley is planning to expand its St. Petersburg plant with an investment of 100 million dollars. The company also announced that it might build a second factory in Russia and acquire local producers to tap its growth at the Russian market.

Dairy

Petmol dairy plant, Unimilk Petmol dairy plant launched the production of dairy products in 1934. In 2003 LLC Unimilk became the main shareholder of the company. Today, Unimilk is one of the leading manufacturers of dairy products in Russia and CIS. Established in 2002, the company employs more than 14 thousand people and unites 28 enterprises in Russia, Ukraine and Belarus specialized in the production of dairy products and baby food.

Baltic Milk, Wimm-Bill-Dann Baltic Milk Dairy Factory was launched in 1987. The factory became a part of the Wimm-Bill-Dann production and trade group in 2000. Will-Bill-Dann is the leader at the Russian market of dairy products and baby food as well as one of the leading producers at the soft drinks market in Russia and CIS. The company operates more than 35 processing plants in Russia, Ukraine and Central Asia and employs more than 18 thousand people.

Tobacco

British American Tobacco (BAT) BAT’s plant in St. Petersburg operates 13 production lines producing five premium brands. It provides about 25% of BAT’s production volume in Russia. The company completed the construction of new production facilities at its plant in St. Petersburg in 2007 with the total investment of 110 million dollars, thus increasing St. Petersburg plant’s production capacity to 40 billion cigarettes a year.



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Japan Tobacco International (JTI) Petro JTI Petro's cigarette making facility in St. Petersburg is the company’s biggest worldwide plant with the total of 400 million dollars invested. The brand portfolio includes over 30 brand names, both international and local. It supplies the firm's Russian and Ukrainian plants with main tobacco components used for cigarette production.

Philip Morris International (PMI) Philip Morris Inc. officially opened its third Russian cigarette factory in St. Petersburg in 2000. The total investment of 335 million dollars made this project the company’s largest cigarette plant in Europe. The plant, which employs 750 workers and operates 15 conveyer belts, produces the Marlboro, Parliament, Virginia Slims, L&M, Chesterfield and Bond Street brands. In 2002 the company began construction of a new processing line and a warehouse with the total investment estimated at 240 million dollars.


3. Key business clusters

3.1. Automotive cluster


Automotive industry and automotive parts manufacturing play an important role in St. Petersburg’s transport machinery complex. The city locates production facilities of the world’s leading car manufacturers, including Nissan, Toyota, General Motors, Hyundai and Scania.

Leading car manufacturing plants in St. Petersburg, 2011

Brand name Opening Production volume, th.units/year

Volume of investment

Employees Model range

Toyota 2007 25 133 mln USD 600 Toyota Camry

General Motors 2008 60 303 mln USD 1,300 Chevrolet Cruze, Opel Astra

Nissan 2009 50 200 mln USD 1,500 Teana, X-trail, Murano

Hyundai 2010 120 650 mln USD 2,400 Solaris, Kia Rio

Scania 2010 6.5 10 mln Euro 600 all types of trucks



Development of automotive cluster is one of the prerequisites of successful development of automotive industry. St. Petersburg has one of the fastest-growing and promising automotive clusters, which makes the city a leading center of Russian car manufacturing industry. During the first stage of cluster development from 2005 to 2010 Nissan, Toyota, General Motors, Hyundai, Scania built their car assembling facilities in the city. With the total area of allocated land lots of 686.3 hectares and more than 6 thousand workplaces created, the volume of investment into the construction of new car manufacturing facilities constituted 1.3 billion dollars. The total volume of budget spendings directed towards the implementation of investment projects constituted 6.6 billion roubles.

The first quarter of 2012 saw significant growth in the volume of motor vehicles and equipment production (123.2% to the first quarter of 2011) which is attributable to increase in car volumes manufactured at all car manufacturing plants located in St. Petersburg. Hyundai Motor Manufacturing Rus showed the largest production growth rates. Total volume of car manufacturing reached 182.2 thousand units during the first quarter of 2012 which is 2.7 times larger than the corresponding period in 2011.

Volume of car manufacturing in St. Petersburg, thousand units, 2011


47.5 19.9

69.4 259

182.2

2008

20092010

2011

1st Q 2012



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3.1.3. Companies

Light motor vehicles

General Motors General Motors opened its automobile factory in St. Petersburg in 2008. Global car making giant became the second foreign carmaker to open a factory in St. Petersburg. Investment in the project totalled 300 million dollars with up to 1,700 jobs created, followed by the opening of a second production line in 2010.

Hyundai Motor Company Hyundai officially launched its full-cycle manufacturing plant in St. Petersburg in 2010. St. Petersburg’s plant is Hyundai’s sixth production facility outside its home market of South Korea. The facility is expected to roll out 105,000 vehicles in its first year of operation with the rise to 150,000 in 2012. Hyundai plans to create 5,300 jobs by 2012 in St. Petersburg together with eleven parts suppliers from Korea.

Nissan Nissan Manufacturing Rus was established in St. Petersburg in 2009. The plant currently represents approximately a 150 million euro investment with the total volume of 28,500 units since the start of production. The plant currently employs 2,000 employees.

Toyota Motor Corporation Toyota became the first Japanese carmaker to start production in Russia with its car assembly plant opened in St. Petersburg in 2007. The plant, with an annual output capacity of about 50,000 vehicles, initially built 20,000 Camry sedans per year while gradually expanding its production since then.

Trucks

Scania Scania opened its industrial facility for assembling and bodyworking trucks for the Russian market in St. Petersburg in late 2010. This Russian facility is Scania’s sixth delivery center. From the new Delivery Center in St. Petersburg, Scania supplies complete trucks that are adapted to the requirements and operating conditions that apply in Russia. St. Petersburg’s facility has a technical assembly capacity of about 5,000 truck chassis and 1,500 superstructures per year. It employs about 70 employees.

Yarovit Motors Yarovit is a Russian manufacturer of cargo trucks, dump trucks, bolster trucks and concrete mixers. Yarovit’s manufacturing facility was set up in St. Petersburg in 2003. In 2012 ë-Auto, a joint venture of Yarovit and the Onexim investment group, are planning to start the production of a hybrid electric car yo-mobile.

http://www.scania.com/

http://en.wikipedia.org/w/index.php?title=Yarovit&action=edit&redlink=1


Components suppliers

Magna International A global automotive supplier currently operates five production sites in Russia, three of which are located in the St. Petersburg region since 2010. The Cosym stamping and assembly plant in Shushary has 170 employees and produces body, chassis and energy-management systems for OEM customers such as Hyundai, General Motors, Nissan and Volkswagen. The Cosym assembly and sequencing plant in Kamenka is a Hyundai-dedicated production site that employs 50 employees. Magna announced the opening of a Magna Exteriors and Interiors facility in Kolpino which has approximately 25 employees producing exterior and interior components for OEM customers, including Ford and Nissan.

3.1.4. Supporting institutions

3.1.4.1. Associations

St. Petersburg Association of Manufactures of Automotive Components (SPbAPAC) St. Petersburg Association of Manufactures of Automotive Components is the largest professional association of automotive components manufacturers in Russia which functions on the principle of a cluster. At present the association unties more than 60 enterprises which manufacture over 1,500 products. Active participation in regional, interregional and international exhibitions and conferences as well as support of the Government of St. Petersburg and the Union of Industrialists and Entrepreneurs makes the association one of the key players at automotive and automotive components market of the Russian Federation.



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3.2. Software and information technology services


St. Petersburg is an absolute Russian leader in attracting international investments into IT-related R&D. Dozens of global vendors have already established R&D centers in the city.

Every year over 4,500 IT specialists graduate Universities and enter IT market, thus creating an important pool of talents available for IT-related R&D and commercial software development. St. Petersburg’s Universities have been ranked high in the ACM International Programming Collegiate Contests, the most prestigious world championship in software development among Universities. Within the last 13 years St. Petersburg’s Universities earned 6 Absolute Champion titles and numerous medals.

Availability of engineers in other high-tech R&D and application areas alongside with software community provides an exclusive opportunity for finding breakthrough solutions on the edge of different sciences and technologies. Creativity and managerial skills of local engineers have been successfully transferred into global successes of local IT businesses in both software development services and software products.


St. Petersburg’s domestic IT market has the capacity of more than 100 billion roubles (3.5 billion US dollars, as of 2011) and accounts for about 14% of the Russian market. Approximately 16% of all income from software development business in Russia is generated by St. Petersburg-based providers. The study conducted in 2012 estimates over 300 software companies operating in St. Petersburg with the total number of employees about 17,000 software developers.

St. Petersburg’s companies account for 20% of the Russian export of software and IT related services. As of 2011, the city received about 750 million US dollars from IT export which is represented mainly by software products and software development services. St. Petersburg-based companies are mainly oriented to the US and Canada markets (50%), Germany (40%), Scandinavia (30%), and other Western European countries (38%).5

Structure of St. Petersburg’s IT export, 2011

5 St. Petersburg Software and Information Technology Services Industry: industry overview, catalogue of export

oriented companies & promising start-ups, Enterprise Europe Network - Russia, Module A Regional Center – St. Petersburg (2012)

40%

27%

33% Services from R&D internationalcenters to mother companies

Software products

Customized softwaredevelopment and other services


3.2.3. Companies

St. Petersburg’s software companies and IT-service providers

Arcadia Arcadia is an innovative offshore software development company based in St. Petersburg. The company provides a wide range of software development outsourcing services to customers worldwide. Today, Arcadia unites team of more than 170 software professionals with over 18 years of experience in custom development of business applications.

ASCON ASCON (CAD/CAM/CAPP/PDM systems developer) has not yet become a global company. The company dominates the post-Soviet area only, but its development strategy envisages active promotion of its software products in new markets within the next 10 years. According to the approved strategy, the company is planning to start operating on all continents at the beginning of the next decade. ASCON opened its first foreign office in Munich at the beginning of 2012. The office is engaged in development of a partner network in German-speaking European countries, including Germany, Austria, and Switzerland. Entry into foreign markets was delayed due to the global financial crisis which led to essential reduction of the Russian CAD/CAM/CAPP/PDM systems’ IT market, thus causing decrease in ASCON sales.

Astrosoft Arcadia, Astrosoft and Digital Design are the companies engaged in custom software development for foreign companies. While Astrosoft and Digital Design are more oriented to the fast-growing Russian market, Astrosoft has strong positions at the Finnish market. It is a premium level IT-services supplier with more than 10-year expertise in implementing projects all over Europe.

Bercut Bercut and Peter-Service, located in St. Petersburg, are the leading Russian solutions providers for telecom operators. Though both companies are more oriented to the Russian and the CIS markets, they also have installations in other foreign countries. Bercut is a supplier of end-to-end solutions in the field of telecom services (for example, to Tele2 in Russia) which offers a unique integrated approach to VAS development and management based on cooperation between operator and subscriber. Outside Russia and the CIS, systems installed by the company can be found in Africa and in the Middle East.

DataArt DataArt is a custom software development company that provides advanced solutions for financial services, healthcare, hospitality and other industries. The company’s services include application development, quality assurance, team completion, reengineering and R&D.



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DevExperts DevExperts is one of the global leaders in developing software for financial markets. The company provides professional software systems for on-line brokerage, exchange, and financial activities mostly on stock, options, and Forex markets. DevExperts is specialized in development, implementation, and support of financial systems intended to handle complex business activities, including a full set of advanced tools to meet both trader and broker requirements.

Digital Design Headquartered in St. Petersburg, Digital Design is an IT consultancy which offers a full range of IT services to clients in Russia and all over the world. Based on its own research, the company creates new companies which promote their solutions not only in Russia but also abroad (DocsVision and AvroRAID). DocsVision is a developer of the self-named document and corporate business processes management system. It dominates the markets of Russia and neighboring countries. AvroRAID is engaged in data storage software development. Its main solution, AVRORA 2.0 platform, assists in creating a high performance and fault tolerant data storage system based on inexpensive widespread standard hardware components. This platform has customers not only in Russia and the CIS countries, but also in India and the US.

FirstLineSoftware Both Lanit-Tercom and FirstLineSoftware were listed in the ratings of the top 100 world’s leading outsourcing technological companies during the last two years.

i-Free i-Free content provider is another St. Petersburg’s company with the turnover estimated at hundreds of millions of US dollars in recent years. The company’s sales volume exceeded 200 million US dollars in 2011. Though it a relatively young company created in 2011, i-Fee has been present at the world's largest markets since 2006. The company’s offices are located in Kiev (Ukraine), Minsk (Belarus), Almaty (Kazakhstan), Mumbai (India), Beijing (China), and San Paulo (Brazil). The company's products and services are delivered to more than 100 countries across the world. i-Free specializes in implementation of innovative projects in the field of mobile and NFC technologies, electronic finance, digital content distribution, electronic payment systems and micropayments, application development for smartphones and new network devices, as well as promotion of digital products in the B2C market and implementation of B2B projects in the mobile marketing sphere. The company uses its foreign divisions to promote other Russian developers' solutions in the foreign markets. i-Free has good development prospects, and its turnover is expected to increase several times.


JetBrains JetBrains and DevExperts are excellent examples of the success of new Russian companies at the global market. JetBrain develops tools for software developers which regularly win prizes at the most prestigious software competitions.

Lanit-Tercom Lanit-Tercom is based in St. Petersburg State University. The company also has a number of spin-offs which develop new technologies for the global market.

Peter-Service Peter-Service is engaged in development of billing solutions for large telecom operators and renders services for products’ implementation, integration and technical maintenance. The company has about 100 successful projects implemented for 50 telecom operators in 10 countries across the world (mainly, in the CIS). One of the company's projects has been implemented in Turkey.

PROMPT The turnover of such St. Petersburg’s companies as PROMT (machine translation system developer) and Speech Technology Center (speech recognition and synthesis system developer) will most likely not exceed 100 million US dollars, though considering their partners and customers across the world, these companies are already global. PROMT is a leading Russian developer of linguistic IT solutions for business and private users which has good positions in Western Europe. The company has been successfully operating at the market of innovative linguistic technologies for 20 years and, today, provides its services to more than 10 thousand client companies all over the world.

Reksoft Reksoft and DataArt should be specifically noted among outsourcing software developers. For several years both companies were listed in various versions of the top 100 world’s leading outsourcing technological companies, including the IAOP Global Outsourcing 100 and the Global Services 100. Reksoft specializes in supplying software development services, products and solutions to enterprises, ISVs, and system integrators operating in a variety of industries.

SPB Software SPB Software is another example of successful development. The company which specializes in mobile application development was acquired by Yandex in 2011 and became the center of mobile solutions development for the leading Russian internet company.



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Speech Technology Center Speech Technology Center (STC) is an international leader in speech technology and multimodal biometrics. It has over 20 years of research, development and implementation experience in Russia and internationally. STC is a leading global provider of innovative systems in high-quality recording, audio and video processing and analysis, speech synthesis and recognition, and real-time, high-accuracy voice and facial biometrics solutions. STC innovations are used in both public and commercial sectors, from small expert laboratories, to large, distributed contact centers, to nation-wide security systems. STC is ISO 9001:2008 certified.

Transas group Transas group of companies is the largest St. Petersburg’s IT solution developer. It occupies leading positions in the world market in the field of software for synthesis of 3-D images, vessel navigation and traffic control systems, as well as sea and air transport simulators. The company’s annual turnover has exceeded 300 million US dollars with export accounting for about a half of the turnover. Transas aims to increase these numbers to 1 billion US dollars during the next years. With some of its products, the company dominates such large markets as China and the US.

R&D centers of multinational companies located in St. Petersburg

Alcatel-Lucent The Alcatel-Lucent experts working in St. Petersburg are engaged not only in development of solutions for the Russian market, but also participate in the company's global projects. They develop software solutions for corporate telecommunications, IPTV and contact centers. In the field of IPTV, a priority task lies in developing a fully functional service platform for large operators. Particularly, St. Petersburg’s center develops over-the-top solutions for delivery of multimedia applications via public. As for corporate communication field of activity, the center created a group working on MyTeamwork, a product for on-line conferences. The R&D center launched from-the-scratch development of analytical solutions for the Genesys Interactive Insight contact centers. This project is interesting since “extreme programming” approaches were first applied in St. Petersburg on demand of Alcatel-Lucent. In cooperation with the Russian Technologies State Corporation Alcatel-Lucent established a joint venture engaged in development, production and promotion of IP protocol-based hi-tech equipment in the Russian and the CIS markets. Subsequently, the partners decided to organize production of equipment for Russian LTE networks as well as launch another research and development center in St. Petersburg (which is now integrated into the Alcatel-Lucent wireless solutions group).

ECTACO An American company ECTACO is one of the leaders in the world market of pocket electronic translators. In 1998 the company opened the Center for advanced development on the basis of its Russian office in St. Petersburg. The center eventually became the company’s main development center. Thus, in many respects St. Petersburg’s experts determine design and quality of the linguistic base and wide functionality of ECTACO translators.


EMC EMC R&D center in St. Petersburg is oriented towards implementation of projects that require high qualification, although it is not as large as the company’s centers in other countries. At the moment of the center’s opening, the Captiva engineering division acquired by EMC, which was engaged in development of software for transfer of information from paper to electronic media, was located in the city. 50 employees of the division joined the center. The key direction of the company's activities is storage devices. St. Petersburg’s center is engaged in activities associated with Symmetrix, a flagman family of EMC storage systems.

Google Google's software development centers in Russia are located in Moscow and St. Petersburg. There is not much information available regarding their operation. Most likely, the centers develop solutions used by the company in Russia. However, it is known that the Russian software development centers carry out projects for the entire company. Thus, the centers possess the authorship for Google Code, a search service for programmers, as well as perform a large share of work on the Google toolbar development.

HP Labs HP opened a unique research laboratory in St. Petersburg. Unlike other international R&D centers located in Russia, it is not engaged in localization and development of short-term technologies, but focuses on pursuing fundamental science research with the expected return in at least 5 years. Its staff mostly includes scientists employed on a permanent basis. At the same time, the HP laboratory in St. Petersburg actively cooperates with the leading Russian Universities and academic institutions. Particularly, the laboratory in St. Petersburg implements a unique project for corporation's research division aimed at developing the Contextualized Information Delivery Platform (CIDP). The platform is intended for so-called knowledge workers (financial or political analysts, sales or marketing experts, researchers and other users) who constantly work with large data sets to make decisions and provide recommendations. In close collaboration with HP Labs scientists, Russian professors, teachers, postgraduate students and students conduct research in the laboratory focusing on such fields as natural language processing; extraction of semantic information from multimedia data; extraction of objects, events, complex events, facts for deep text analysis; integration of information from heterogeneous sources; contextual compression, automatic summarization; scalable graph algorithms; service-oriented architectures and cloud services.

Intel Among all corporations in Russia, Intel has the largest contingent of developers and researchers which includes about 2 thousand people. They work in 5 cities, including Moscow, Nizhny Novgorod, Sarov, Novosibirsk, and St. Petersburg. Intel R&D centers in Russia are mainly oriented to computer technologies development. Nevertheless, some employees are involved in implementation of specific projects, such as development of the Intel Wireless Display technology (Wi-Di) used to connect big screens to a laptop or a desktop computer via wireless channel.



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In July 2004, the R&D center was opened in St. Petersburg. 8 years ago, its employees started to work on the development of the Managed Run Time Environment (MRTE) software which is a new field for the company. Intel's R&D center in St. Petersburg was created on the basis of the Elbrus MCST company, which was one of the Russian leading scientific centers in the field of computer technologies. Together with the regional offices, the company employed over 500 highly-qualified experts, including three laureates of the Lenin Prize and five laureates of the State Prize, six professors, eight Doctors of Science, and more than fifty Candidates of Science. They developed a new generation of microprocessors, E2K and Elbrus, and the Elbrus-3M universal multiprocessor computer complex.

Motorola Motorola is one of the first foreign corporations which opened a development center in Russia. The division has four basic lines of activity, including optimization and solutions for wireless platforms, automobile electronics and telematics, cellular network infrastructure, and remote access systems and solutions for them. In cooperation with a Russian holding InformInvestGroup Motorola corporation started to localize production of equipment for 4G broadband mobile communication networks. Russian experts conduct preliminary research and development for the project.

Nokia Nokia created a network of research laboratories in Russia at Universities and the Russian Academy of Sciences. Due to proximity to Finland, this network started to form in St. Petersburg. The Finnish company acknowledged Russian specialists’ expertise in certain areas where they are capable of solving assigned tasks with the same level of quality as their Western European peers. India and China are also considered as an option, however, for a more distant perspective (10 years and more). Despite the fact that the science develops rapidly in these countries, the required "historical basis" has not been acquired yet. Two related companies, Nokia and Nokia Siemens Networks, conduct research in the fields that partially overlap, though Nokia Siemens Networks division in St. Petersburg is more oriented to the field of telecommunication infrastructure.

Oracle Development Following the Sun Microsystems’ acquisition by Oracle in 2009, the Sun Microsystems’ center of high technologies in St. Petersburg has been functioning as Oracle Development LLC. This division's basic sphere of activity included Java technologies and development tools, in particular, applied aspects of Java, Jini, N1, J2ME, and compilers development. After the Sun Microsystems’ absorption, some experts suggested that specialization of its St. Petersburg center will not comply with the Oracle development strategy. However, the corporation continued to finance development in St. Petersburg. Today, the Center of High Technologies, in addition to Java, develops Fusion Middleware products, including, for example, application server and server virtualization solutions.


St. Petersburg’s experts are engaged in the full cycle of software development which is developed for the global market. The Oracle developers in St. Petersburg are engaged in solving complex problems that can be dealt with by very few experts in the world.

Siemens Communications Siemens Communications opened a joint center on the basis of two St. Petersburg’s software development divisions. Siemens opened its first Russian software development center in 1997. The center was engaged in fixed telephony segment. Then, in 2001, the second center, which developed solutions for mobile communication switching subsystems, was established. In 2005, taking into account the global technology convergence tendencies, the company’s management decided to consolidate developers under the same roof. Generally, the software development center receives orders directly from the Siemens AG head office. Other orders are received from the regional Siemens offices in Russia, Belarus, Ukraine, and other CIS countries. Main objectives of the center lie in development, testing and standardization of software products and applications; adaptation of Siemens technology considering the specific features of the regional market, as well as certified support and maintenance of the solutions in the Russian and CIS markets. The center’s area of competence also lies in intellectual network software adaptation to customers' needs (and consulting services on its application) as well as database development for advance payment services.

T-Systems T-Systems is the Deutsche Telekom's subsidiary enterprise and R&D center in St. Petersburg. It develops software on demand of its parent structure and other large European telecom operators. Besides, the center works for the Russian market. It develops customized software and implements complex information systems. T-Systems’ basic lines of activity in Russia include implementation and support of the SAP ERP enterprise management systems, software development, integration and support, and rendering of telecommunication services.


3.2.4.1. Universities

St. Petersburg National Research University of Information Technologies, Mechanics and Optics (SPNRU ITMO) The National Research University of Information Technologies, Mechanics and Optics is one of the oldest higher education institutions in Russia. The school has been training specialists in cutting-edge technologies directed to science and technical development for more than 100 years. Today, the University, which has 10 departments and offers 49 specializations, enrolls more than 9,000 full-time students. SPNRU ITMO is known not only in Russia but also internationally due its students' success at the ACM International Programming Collegiate Contests. The University’s top world’s rating reflects the results of participation in prestigious competitions within several years. SPNRU ITMO is the only university in the world that has become the winner of the ACM International Programming Collegiate Contest 4 times in different years.



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St. Petersburg State University (SPBU) Founded in 1724, St. Petersburg State University is the oldest institution of higher education in Russia. The University's Department of Mathematics and Mechanics together with its comprising scientific institutions is one of the largest mathematical centers in the world. The Department offers 23 specializations and also includes the Research Institute of Mathematics and Mechanics, a computer center and astronomy observatory. In addition to SPNRU ITMO, SPBU also successfully participates in the International Programming Collegiate Contests. Its students became absolute world champions twice and with several exceptions constantly become prize-winners. The SPBU team became the first Russian winner of the ACM International Programming Collegiate Contest in 2000-2001.

St. Petersburg State Polytechnic University (SPBSTU) St. Petersburg State Polytechnic University was founded in 1899. It has recently become the National Research University, thus recognized as a leading Russian and international center in the field of higher engineering and economics. The University attracts students form 96 countries of the world and provides education programs in the field of engineering, physics, economics, humanities and IT. Today, the University has 20 departments and institutes as well as 120 R&D labs and offers more than 150 specializations.

St. Petersburg State Electrotechnic University (ETU) St. Petersburg State Electrotechnic University is one of the world's largest education and research centers specializing in radio engineering, electrical engineering, electronics and computer science. The University has a staff of more than 1,000 highly-qualified specialists and scientists, including the Nobel Prize Winner in physics Zhores Alferov. Electrotechnic University is alma mater for over 70 thousand students and over 3 thousand international students.

St. Petersburg State University of Space Instrumentation (SUAI) Historically, the University (formerly known as Aircraft Instrumentation Institute) has been largely involved into projects related to development of software for embedded devices for aviation and space. Today, the University accommodates an important R&D center and implements joint training programs on embedded software development in cooperation with Nokia, Intel and other vendors.

IT specialists are also educated at the following St. Petersburg’s Universities:

Bonch-Bruevich St. Petersburg State University of Telecommunications (SPbSUT) Bonch-Bruevich St. Petersburg State University of Telecommunications is one of the oldest higher education engineering institutes in Russia. Founded in 1930, the University’s history is closely linked to the development of Russian and world science in communication area and great scientific and technical base. The University is a founding member of the Association of European Universities and Companies of Informatics and Computer Electronics (EUNICE).

Baltic State Technical University ("Voyenmekh") Founded in 1932, the University educated more than 60,000 thousand specialists in the areas of aircraft jet production, aerospace, physics and mechanics, arms and armament systems, information and control systems, mechatronics and control, applied mechanics and automation, international industrial management.

St. Petersburg State Transport University (PSTU) St. Petersburg State Transport University includes 10 faculties, 52 departments, scientific research institutes and centers, branches and offices in various Russian towns as well as a complex of specialized secondary educational institutions. According to the Russian Federation Ministry of Education, the University ranks 10-13 among 175 Russian technical higher schools. The University educates specialists in various areas, including railways power supply, automatics, telemechanics,


telecommunications, traffic management as well as information systems, standardization and certification, technological processes safety, management and marketing.

St. Petersburg State Engineering Institute ( LMZ-VTUZ) Founded in 1930, St. Petersburg State Engineering Institute focuses on educational, scientific and engineering activities in the areas of power engineering, technology and automatization, industrial processes, triboengineering, corporate IT systems and other.

3.2.4.2. Research Institutions

JSC “Computing Scientific Research Institute “Spektr” The company is engaged in development of software, hardware, microelectronics solutions for aviation equipment and production of onboard equipment.

Federal State Unitary Enterprise “Emergency Center of the Ministry of Atomic Energy of Russia” One of the areas of the Center’s activities lies in the development of automated systems for radiation monitoring.

Institute of High-Performance Computing and Databases of the Ministry of Science and Technology The Institute is engaged in development of modern information technologies, parallel computing, modeling in the field of fundamental sciences, databases and distributed information systems development, and visualization.

St. Petersburg Department of Steklov Institute of Mathematics, Russian Academy of Sciences (RAS) The Institute specializes in fundamental research on theoretical mathematics and mathematical models of theoretical physics, including mathematical logic and theory of algorithms, theory of numbers, geometry and topology, mathematical analysis, theory of probability, mathematical statistics and many other.

Central Research Institute of Robotics and Technical Cybernetics The Central Research Institute of Robotics and Technical Cybernetics of St. Petersburg State Polytechnical University is created as a special design office of technical cybernetics. Its major activities involve robotics and control systems, photon techniques, special instrument development, laser technologies, telenetics.

Vektor Scientific Research Institute The Institute is engaged in research, development and production of radio engineering and radio electronics equipment.

JSC “Concern “Central Scientific and Research Institute “Elektropribor” The Institute is engaged in high-precision navigation, gyroscopy, gravimetry, and marine radio communication.

St. Petersburg Institute for Informatics and Automation of the Russian Academy of Sciences (SPIIRAS) St. Petersburg Institute for Informatics and Automation is engaged in scientific IT research, including computer security, cryptology, information system security, applied problems of information security, distributed computing structures, object-oriented geoinformation systems, programming technologies and systems, information systems and problems of information security, data transmission system, integrated automation systems, intellectual systems, IT in system analysis and modeling, scientific research automation, applied information science, society informatization, theoretical and interdisciplinary problems of information science, IT in management and robotics, information and analytical technologies in economy, speech and multimodal interfaces, biomedical information science.



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JSC “Russian Scientific and Research Institute “Elektronstandart” “Elektronstandart” is the leading research institute of the radio electronic complex of Russia in the field of reliability, quality, certification, standardization of electronic component base and radio and electronic equipment.

Ioffe Physical Technical Institute The Ioffe Institute is engaged in nanoheterostructure physics, solid state electronics, solid state physics, dielectric and semiconductor physics, plasma physics, atomic physics and astrophysics.

JSC “Scientific Research Institute “Neptun” The Scientific Research Institute “Neptun” is engaged in development, production and repair of communication equipment, design and construction of coastal objects.


RUSSOFT RUSSOFT is a nationwide association of Russian software companies, which also includes a number of leading software companies from Belarus and Ukraine. The association was founded in 1999 and is headquartered in St. Petersburg. Today, RUSSOFT unites more than 70 companies which employ more than 20 thousand highly-qualified programmers and software engineers. The association was created to represent Russian software development companies at the global market, enhance marketing and PR activities of its members, and lobby their interests in the Russian government. RUSSOFT is a part of the Russian Information and Computer Industry Association (APKIT) where it plays a role of the Software Development and Export Committee.

SPb CIO Club St. Petersburg CIO Club is a professional community uniting IT directors of leading companies of the Northwestern region of the Russian Federation. The organization's major objectives lie in providing support and strengthening the development of professional community of IT directors. Established in 2004, the Club is at present the largest professional IT community in Russia.


3.3. Pharmaceutical cluster


The development of pharmaceutical cluster is one of the priorities of the Government of St. Petersburg. According to Pharmexpert Market Research Center, St. Petersburg is the most investment-attractive region of the Russian Federation as well as a launch pad for successful implementation of pharma and medical equipment projects.6


St. Petersburg Special Economic Zone (SEZ) and the territory of “Pushkinskaya” industrial zone represent the priority sites for location of new infrastructure and innovative industries. The set of measures aimed at supporting the cluster increases its attractiveness for new residents.

Due to active support of the city and investors, the launch of new production lines in the framework of the launched projects is scheduled for 2012-2013.

Priority sites for pharmaceutical manufacturing facilities and R&D centers are located within the “Pushkinskaya” industrial zone sections “Noidorf” (18.99 ha) and “Novo-Orlovskoe”(110.41 ha). The Government of St. Petersburg provides preferences and favorable environment for pursuing business within these locations.

Major pharmaceutical investment projects, 2010

Company Location Activity

Biokad “Noidorf” SEZ section oncology/hematology, gynecology/urology, neurology, viral infections, diabetes and cardiology

Pharm-Holding “Noidorf” SEZ section development, testing and introduction of new pharmaceuticals

Cytomed “Novo-Orlovskoe” SEZ section research and production of active pharmaceutical substances

Gem-Standard “Novo-Orlovskoe” SEZ section blood-derived products

Novartis “Novo-Orlovskoe” SEZ section innovative licensed and generic oral solid medications

Pharmasintez “Novo-Orlovskoe” SEZ section import-substituting medications for oncology and HIV

Vertex “Novo-Orlovskoe” SEZ section new generation of innovative medications and generics to be applied in cardiology, dermatology, gynecology and dentistry

Vital “Novo-Orlovskoe” SEZ section manufacturing equipment for diagnostic laboratories


Establishment of Life Sciences Park aimed at complex development of biotechnology infrastructure and pharmaceutical and medical industry is one of the key city’s initiatives. The idea of the project lies in creating a positive synergy by localizing research complexes, key companies’ labs and major services within one site.

Not-for-Profit Partnership «Medical and Pharmaceutical Projects: 21st Century» was created in 2011 with the aim of uniting and coordinating the efforts pursued by cluster participants in the field of research, development and circulation of pharmaceuticals and medical equipment. This is the first

6 Committee for Economic Development, Industrial Policy and Trade, 2012



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stage of development of the self-regulatory organization engaged in research, development and circulation of pharmaceuticals and medical equipment. Today, it comprises 15 national and foreign organizations representing all market segments – from idea to production.

Non-for-profit partnership “Cluster of Medical and Ecological Instrument Engineering and Biotechnologies” was established in 2010 and unites 85 small and medium enterprises engaged in medical instruments engineering and biotechnologies. The partnership represents the participant companies’ interests in interaction with the authorities and facilitates the promotion of products to the regional and international markets.

3.3.3. Companies

Key St. Petersburg pharmaceutical cluster companies and projects:

«Alkor Bio» Group «Alkor Bio» Group established in 1992 is the major biotechnological holding company in the Northwest Russia. Today, it incorporates 12 companies which represent the top national manufacturers of reagents for enzyme immunoassay. The group is focused on development, manufacturing and promotion of diagnostic kits for EIA & molecular genetic analysis; private laboratory studies; development of cellular technologies with further introduction to clinical practice; banking of hematopoietic stem cells from cord blood; investment in innovative biotechnological projects. 200,000 reagent sets of over 60 positions are manufactured annually, including test-systems for hormonal diagnostics, cancer diagnostics, allergies, dangerous infectious diseases diagnostics, sets and software for DS prenatal screening. All diagnostics sets are registered in Russia, most of them received CE mark. The company has 7 R&D labs and 11 patents, including cancer diagnostics, hepatitis C diagnostics, steam sells treatment methods against severe fractures, periodontitis, mental retardation.

AstraZeneca AstraZeneca is a global, innovation-driven biopharmaceutical business with a primary focus on discovery, development and commercialization of prescription medicines for gastrointestinal, cardiovascular, neuroscience, respiratory and inflammation, oncology and infectious disease. AstraZeneca operates in over 100 countries and its innovative medicines are used by millions of patients worldwide. On March 2011 AstraZeneca officially announced the launch of its St. Petersburg Predictive Science Centre (PSC) and became the first global pharmaceutical company to open its R&D facilities in Russia. The activity of AstraZeneca PSC will primarily focus on development and application of computational predictive modeling capabilities in all phases of drug discovery. Another area of interest will lie in development of data analysis methods as well as software and systems; modeling and optimization of pharmacological properties of potential drugs. The PSC will also focus on implementation of personalized medicine. Analysis of clinical and high-throughput (e.g. genomics) data will help develop and validate complex biomarkers identifying patients as well as take into account genetic makeup of Russian population in order to optimize treatment strategies.


Biocad CJSC «Biocad» is a Russian biotechnological company founded in 2001. It is a fully integrated biotech company which combines scientific research with manufacturing and marketing. The key company activities are focused on original and biosimilar/generic drugs development. The company was among the first four members of the “Noidorf” SEZ section and pharmaceutical cluster of St. Petersburg. At the moment a pharmaceutical complex Biocad 2.0, which will create 500 new jobs, is under construction. The first set of manufacturing facilities is scheduled to begin operations in 2013. The company is planning to develop and manufacture 32 widely used pharmaceutical products included into the VED (Vital and Essential Drugs) list. This will allow to substitute imported pharmaceuticals in a number of therapeutic areas of the Russian pharma market, including oncology/hematology, gynecology/urology, autoimmune diseases, viral infections.

Cytomed Cytomed medical and biological research and manufacturing complex is one of the first Russian pharma manufacturers which has been present at the market for over 20 years. Cytomed was among the first companies to support domestic biochemical and pharma R&D, manufacturing and promotion of original Russian products. The product range includes pharmaceuticals applied in dermatology, urology, pediatrics. Each pharmaceutical has its registered brand name: Timogen, Prostatilen, Epitalamin, Cytovir.Manufacturing facilities of the company include over 1200 sq m with units for creams, pills and ovules production. All products are manufactured from high-quality materials using modern equipment which meets GMP quality standards.

Diagnostic and Treatment Center of the International Institute of Biological Systems (DTC UUBS) Main activity of DTC IIBS lies in providing affordable and high-quality diagnostics and medical treatment services to patients. Established in 2003, the company is a Russian leader in magnetic resonance tomography and radiosurgery. Started from the first private MRI office in Russia, today DTC IIBS incorporates 58 MRI centers, multislice computer tomography and ultrasonic diagnostic cabinets, neurology and epileptology centers, sleep laboratory, multifunctional policlinic department, radiosurgery centers Gamma Knife and Cyber Knife, comprehensive Cancer center. In 2011 DTC IIBS centers examined over 900,000 patients and completed 748 radiosurgery procedures. The company aims to extend its MRI centers network to 70 by 2013 and establish 5 new centers for positron emission tomography within the next 2 – 3 years with total investment of over 70 million US dollars. Currently, a state-of-the-art Proton beam therapy center in St. Petersburg is being designed. This large-scale project will be completed within 4 years.



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GalenoPharm JSC «Pharmaceutical Factory of St. Petersburg» traces its history back to 1937. Currently, the company focuses on production of pharmaceuticals for asthma and COPD treatment. In 2009 the company established the first Russian manufacturing of aerosolized medicines without ODS. Today, the company produces «Beklospir®», which is the first Russian dosed aerosol inhaler with beclometasone dipropionate as an active ingredient. 7 more antiasthmatic pharmaceuticals are undergoing registration. This will satisfy the demand for these medicines at the Russian market.

Gem-Standart Gem-Standart Ltd was established in 2011 to supervise the investment project located on the territory of “Novo-Orlovskoe” section of St. Petersburg Special Economic Zone. The project envisages the construction of R&D and manufacturing facilities aimed at development and production of innovative pharmaceuticals from human blood plasma on the basis of nanotechnological solutions. The project focuses on development of a unique technology of deep and full processing of human blood plasma. The project, scheduled for completion in 2015, will create 150 new workplaces.

Geropharm Geropharm Ltd is one of the leading Russian pharmaceutical manufacturers. Currently, Geropharm is engaged in construction of a new high technology industrial complex in accordance with GMP standards in St. Petersburg with manufacturing facilities located in “Pushkinskaya” industrial area. New manufacturing facilities will allow to produce original Russian pharmaceuticals, innovative products as well as generics for treatment of important diseases. The volume of investment into the first project stage exceeds 500 million US dollars. The project is scheduled for completion in 2014.

MSD MSD is a tradename of Merck & Co., Inc. headquartered in Whitehouse Station, N.J., U.S.A. It is a global healthcare leader providing medicines, vaccines, biologic therapies, and consumer care and animal health products. The company works with customers and operates in more than 140 countries to deliver innovative health solutions. MSD demonstrates its commitment to increasing access to healthcare through far-reaching programs that donate and deliver its products to people in need. In Russia, MSD is committed to developing innovative, first-in-class products, improving health and saving lives of Russian citizens. MSD in Russia is dedicated to science and scientific excellence, focusing on clinical research activities in the country. MSD products have been available in Russia for many years. The company has been recently renamed into MSD Pharmaceuticals LLC in Russia.


Novartis Novartis has been active in Russia since the 19th century, and today the company is one of the key players at the Russian pharmaceutical market. Novartis currently employs over 2,400 associates in Russia across all business divisions. The company provides innovative healthcare solutions that address the evolving needs of patients and societies. Novartis offers a diversified portfolio of products, including innovative medicines, eye care, cost-saving generic pharmaceuticals, preventive vaccines and diagnostic tools, over-the-counter and animal health products. In December 2010 Novartis signed a Memorandum of understanding with the Government of St. Petersburg and announced a strategic investment program in Russia with the investment of over 500 million US dollars over a 5-year period. This comprehensive partnership addresses three core areas, including local manufacturing, R&D partnerships and public health development in Russia. In June 2011 Novartis held a groundbreaking ceremony for a new pharmaceutical manufacturing plant in St. Petersburg. Once completed and approved for commercial production, which is expected in 2014, the state of-the-art facility will use cutting-edge technologies to produce approximately 1.5 billion units per year. It will also be an attractive workplace for local talent, employing more than 350 highly qualified professionals who will have access to world-class training and development programs at Novartis. The new plant will meet GMP requirements (“Good Manufacturing Practice”).

Pharmasyntez RSI Syntez Ltd is a subsidiary of the Irkutsk pharmaceutical factory (Pharmasyntez, OJSC). The company was established to implement an investment project on building scientific and manufacturing facilities in “Novo-Orlovskoe” SEZ section. The project is aimed at developing and producing innovative antitumoral pharmaceuticals with planned annual turnover of at least 100 million US dollars. The product range includes antitumoral pharmaceuticals in different dosage forms (pills, capsules, solutions, gels, lyophilizates). The project with the volume of total investment of 700 million US dollars will create 200 new workplaces. The project is scheduled for completion in 2013- 2014

Pharm-Holding Pharm-Holding CJSC (a subsidiary of Geropharm Ltd) is an R&D company engaged in development of innovative pharmaceuticals. The company focuses on innovative peptide and genetically engineered medicines; modern diagnostics systems; improved generics. In December 2011 the company opened a unique Pharm-Holding R&D center in “Noidorf” SEZ section. The volume of investment into the project constituted 4 million US dollars. The project created 50 new workplaces.



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Polysan A scientific and technological pharmaceutical company «POLYSAN» Ltd was founded in 1992. The company manufactures four original pharmaceuticals, including Cycloferon, Cytoflavin, Reamberin and Remaxol. Currently, six more new original products scheduled for manufacturing within the next four-five years are being developed. The company has been awarded a number of awards, including the Russian Government Award for Science and Technology, the «Golden Mercury» Award for business achievements, and the St. Petersburg Government Award for top quality of products. The company’s pharmaceutical manufacturing facilities are located in St. Petersburg and are certified by the European Union's GMP. Today, the second stage of construction is in process. Primary sales markets and regions include Russia, CIS and South-East Asia.

Samson-Med Samson-Med Ltd is a pharmaceutical company which started its operations in 1937. The main activity of the company lies in producing pharmaceuticals and medicines by means of endocrine and enzymatic materials processing. The company has unique expertise starting from D&D and technical regulations development to industrial manufacturing of a wide range of pharmaceuticals (injectable preparations and infusion solutions) and biologically active substances. The company is currently implementing a project aimed at constructing a new full cycle of manufacturing facilities at the “Pushkinskaya” industrial area. The project scheduled for completion in 2013-2014 will create 400 new workplaces. The total volume of investment accounts for 500 million US dollars.

VAM Founded in 1995, «VAM» Group focuses on development and patenting of an original scientific and technological platform to develop a new generation of drugs based on current achievements in molecular biology. The platform has been granted an entry into the registry of «Medical equipment and pharmaceuticals» project group under the Presidential Commission for Modernization and Technological Development of the Russian Economy. Tuberculosis and viral hepatitis pharmaceuticals, Glutoxim® and Molixan®, were among the first breakthrough products recognized by the international scientific community and registered in Russia. New generation of pharmaceuticals developed by “VAM” Group provides pharmacological solutions affecting human innate defense mechanisms.

Vertex VERTEX OJSC is a Russian pharmaceutical company with 10-year history of success. The product range includes 108 positions, 65 are added to the VED (Vital and Essential Drugs) list and manufactured with the GMP standards. VERTEX is currently implementing an investment project to create R&D and manufacturing facilities for development and production of innovative drugs and generics. New manufacturing will be located at “Novo-Orlovskoe” Special Economic Zone section.


The project includes laboratories for new dosage forms development; supply of modern equipment; facilities for experimental works; innovative technologies involvement; highly experienced scientific and technical staff; professional training. The project scheduled for completion in the fourth quarter of 2014 will create 220 new workplaces. Volume of investment into manufacturing construction exceeds 500 million US dollars.

Vital Development Corporation «Vital Development Corporation» JSC is one of the leading Russian developers and manufacturers of reagents kits for clinical diagnostics of various diseases, including pancreas, kidneys, heart and other important systems diseases. The company also produces semi-automatic biochemical analyzers, water purifying stations for medical laboratories. Established in 2006, Vital Development Corporation has become a joint stock company with annual turnover of 6 million US dollars and 42 permanent employees by 2010. The current company’s priority lies in pursuing R&D in laboratory diagnostics. Thus, the company became a resident of the “Novo-Orlovskoe” SEZ section in St. Petersburg Special Economic Zone in 2009. By the end of 2012, the company intends to set up the R&D and manufacturing facilities “Vital”. The facilities with the total area of 9,000 sq. m will include two manufacturing buildings and one administrative building and will create over 100 new workplaces.



St. Petersburg State Chemical-Pharmaceutical Academy St. Petersburg State Chemical-Pharmaceutical Academy is a leading Russian center in educating high qualified process engineers occupied in industrial production of pharmaceuticals of various origin. The academy participates in the EU-Russian programs in the sphere of GMP experts’ training.

St. Petersburg State Institute of Technology St. Petersburg State Institute of Technology is an acknowledged world’s center of chemistry, chemical and biotechnologies, nanotechnologies, cybernetics and engineering. The Institute possesses a vast range of methods of active pharmaceutical ingredients synthesis as well as pilot production of substances in accordance with the GMP requirements. It is a major center dedicated to training of personnel for scientific centers and industrial enterprises.

St. Petersburg State Pavlov Medical University One of the leading medical schools in Russia carries out preclinical research, including study of new molecules and dosage forms, translational studies, clinical research, pharmacoepidemiological and pharmacoeconomic research as well as training of GLP, GCP, GSP and evidentiary medicine specialists.

St. Petersburg State Polytechnical University St. Petersburg State Polytechnical University conducts a world top-level bioanalytical research in accordance with the FDA and GLP requirements. The oldest pharmaceutical institution of higher education in Russia carries out high-tech research projects on the development and study of active pharmaceutical substances of natural and synthetic origin and educates highly qualified specialists in the sphere of molecular biology.



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Institute of Cytology of the Russian Academy of Sciences (RAS) Institute of Cytology is the leading institution of the Russian Academy of Sciences within the field of modern cell biology. The institute is tasked with studying the structural organization and expression of nuclear genome, structure and function of cell organelles, investigation of intracellular processes and intercellular contacts.

Institute of Toxicology The scientific center focuses on fundamental and applied research in the field of toxicology, pharmaceutical chemistry and pharmacology. The Institute specializes in the study of mechanisms of action of potential dangerous chemical and natural substances as well as development of novel antidotes and therapies.

Research Institute of Influenza Research Institute of Influenza is involved in solving fundamental and applied tasks in the field of virology, epidemiology and infectious pathology, thus serving a goal of protecting and augmenting human health, developing healthcare and medical science. The institute is engaged in epidemiologic and etiologic influenza/ARI surveillance improvement, molecular genetic and phylogenetic analysis of influenza viruses, genetic classification of existing and newly emerging viruses, studies on molecular mechanisms of viral pathogenesis, nanotechnology-based diagnostic reagents generation, exploration of new ways for next-generation vaccine production as well as other relevant research areas.

State Research Institute of Highly Pure Biopreparations The Institute is a biotechnological center specialized in novel therapeutics and diagnostics. The main scientific areas include elucidation of mechanisms of therapeutic activity of endogenous mediators for the development of new biopharmaceuticals, development of new drug delivery systems for targeted and sustained release of drugs as well as medicine manufacturing.

St. Petersburg State Mechnikov Medical Academy The oldest and one of the most prestigious institutions of higher medical education in Russia represents a scientific and research center which includes morphology, genetics, biochemistry, immunology, physiology, mathematical modeling and epidemiological analysis labs.

St. Petersburg Institute of Pharmacy St. Petersburg Institute of Pharmacy functions on the basis Adaptogen Interregional Center and St. Petersburg State Mechnikov Medical Academy. It is engaged in carrying out preclinical studies of new pharmaceuticals, specific food products, biologically active substances and beauty products.


Not-for-Profit Partnership ”Medical and Pharmaceutical Projects: 21st Century” “Medical and Pharmaceutical Projects: XXI Century” is a non-commercial partnership operating in the sphere of development, production and circulation of pharmaceuticals and medical devices. It was founded in 2011 by a group of companies (participants of the pharmaceutical cluster in St. Petersburg) as an effective tool for development of medical-pharma branch and establishment of a market of quality and modern medical services. The main tasks of the partnership lie in participation in the development of the branch regulatory and legal framework; working out uniform rules and standards for the pharmaceutical market, methods of transition to GMP standards; support of investment projects, promotion of the region’s investment attractiveness; legal backing (copyright, intellectual property, licensing); international representation, monitoring of international projects. Today, the partnership unites almost all companies engaged in production, research and educational projects in St. Petersburg. It is planned to create a self-


regulatory organization (SRO) in the sphere of pharmaceuticals and medical devices development, manufacturing and circulation on the basis of the partnership.

Cluster of Medical and Ecological Instrument Engineering and Biotechnologies The cluster was established in 2005 on the basis of small enterprises engaged in medical instrument engineering since the beginning of the 90s. The cluster member companies pursue the common interests in industrial cooperation, joint promotion of products at the Russian and foreign markets, implementation of project aimed at establishment of scientific and production complex in the sphere of medical instrument engineering and biotechnologies. The main product line of companies consists of R&D findings translated into serial production



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3.4. Shipbuilding cluster


Shipbuilding is one of the leading industrial sectors in St. Petersburg’s economy. For centuries the city served as the sea capital of Russia as well as a recognized center for shipbuilding, naval science and education. Today, shipbuilding industry is undergoing major reorganization. High concentration of industrial and scientific sectors as well as unique port infrastructure stipulates the development of shipbuilding industry and provides new opportunities for pursuing effective forms of cooperation within the city.

The development of a modern shipbuilding complex on the Island of Kotlin in St. Petersburg will benefit not only the shipbuilding industry but also a number of related sectors. It will facilitate the creation of a modern high-tech production in St. Petersburg as well as promote social and economic development of Kronshtadt.

Basic information on the shipbuilding complex on the Island of Kotlin, St. Petersburg

Main products tankers, LPG tankers, offshore ice-resistant fixed platforms, ice-breakers, floatable nuclear heat and power plants, first rate ships, aircraft carriers, diesel-electric submarine

Annual gross receipts 38 billion roubles

Volume of investment 35 billion roubles

Total number of employees 6,500 people

City tax revenue 3.5 billion roubles a year

Implementation period 8 years



St. Petersburg’s possesses unique potential for shipbuilding industry. 43 shipbuilding enterprises, including 23 industrial and 20 scientific enterprises, are located in the city. 42 thousand people are employed in shipbuilding industry, which accounts for 16% of the total number of employed in manufacturing industries.

The production volume of products manufactured at the city’s shipbuilding enterprises accounts for 4% of St. Petersburg’s GRP, while the share in the manufacturing industries represents 18%.

90% of all scientific and project potential of shipbuilding industry is concentrated in St. Petersburg. This fact facilitates introduction of innovation and development of new solutions not only at the production sites located in the city but also in Kaliningrad, the North, Far East and Volga regions. Shipbuilding products account for 50% of all military industrial sector products manufactured in St. Petersburg.

St. Petersburg shipbuilding enterprises provide more than 70% of all export of the Russian shipbuilding industry. The city’s enterprises account for up to 30% of all shipbuilding industry’s production volume in Russia.7

7 Concept of development of shipbuilding cluster in St. Petersburg, Committee for Economic Development,

Industrial Policy and Trade


3.4.3. Companies

United Shipbuilding Corporation United Shipbuilding Corporation is a government-owned company, which unites 37 shipbuilding, repair and maintenance subsidiaries located across Russia. Today, the corporation has 3 subsidiaries, including the Western Shipbuilding and Repair Center in St. Petersburg, the Northern Shipbuilding and Repair Center in Severodvinsk and the Far Eastern Shipbuilding and Repair Center in Vladivostok. The shipbuilding enterprises united under the corporation are engaged in both commercial and naval shipbuilding and account for 80% of all shipbuilding projects in Russia. The Western Shipbuilding and Repair Center includes among others Admiralty Shipyard, Maritime Construction Bureau Almaz, Baltiysky Zavod (Baltic Plant), Kronstadt Marine Plant, Severnaya Verf (Northern Shipyard), Sredne-Nevskiy Shipyard.

ALMAZ Marine Yard ALMAZ Marine Yard was founded in 1931 and specialized in building and repair of Russian Coast Guard and Navy high-speed crafts. In 1970 the production facilities of ALMAZ Marine Yard were modernized and reconstructed to start the production of high-speed crafts, including air-cushion landing crafts for the Russian Navy. Through the application of new technology the marine yard builds the world’s largest landing hovercraft of ZUBR class. Since 1974 the company has delivered one hydrofoil and 45 hovercrafts to the Russian Navy.

Avrora Avrora is a scientific and production association established in St. Petersburg in 1970. Today, the company is engaged in the development and manufacturing of control systems and devices for commercial and naval vessels, including automated control systems of technical facilities, automated combat information and control systems, complex control systems, training systems and simulators, development and manufacturing of control systems for industrial, technological and power generation objects, transportation and port facilities, automated control systems of technological processes of oil and gas extraction, processing and transportation as well as other industrial, medical and technical products.

Gidropribor Concern “Sea underwater weapon – Gidropribor” is a leading Russian enterprise engaged in development of marine underwater weapons and special-purpose underwater equipment. Over 100 years of history the enterprises of the Concern developed and manufactured dozens of multipurpose torpedoes and mines, mine sweeping gears, including devices to detect and destroy sea mines, means of surveillance of underwater environment, acoustic countermeasure systems and underwater vehicles for divers transportation for the Navy.



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Granit – Elektron Concern “Granit-Elektron” was established in 2006 though reorganization of the Central Scientific and Research Institute “Granit”. The concern is a large scientific and production enterprise specialized in development of electronic warfare systems for the Navy. Granit- Elektron has a status of the federal scientific and production center and is included in the list of strategic enterprises of Russia.

Krylov Shipbuilding Research Institute Krylov Shipbuilding Research Institute is the leading scientific institution of the national shipbuilding industry and has a status of the Russian Federation State Research Centre for naval commercial ships. This status comes due to both high qualifications of the staff researchers and experts who have established their own world-recognized schools of learning and a unique complement of experimental facilities combined with innovative in-house research methods and tools. The Institute is engaged in performing naval ship conceptual design studies, hydrodynamics, commercial ship and offshore engineering conceptual design studies, structural mechanics, marine power plants and power generation as well as other marine-related technologies.

Oceanpribor Concern “Oceanpribor” was established in 2006 in a form of an integrated organization which unites scientific and production capacity of Russia in the area of hydro-acoustics. The concern unites scientific and research institutes and plants which product hydroacoustic complexes and stations for shipbuilding industry as well as hydroacoustic equipment for various needs of economy.

Shipbuilding and Ship Repair Technology Center Shipbuilding & Ship Repair Technology Center is one of the major research institutions in St. Petersburg and a leading center of shipbuilding technologies in Russia. The Center carries out fundamental and exploratory research in the field of creation of modern technologies for shipbuilding and engineering sectors and participates in the development and implementation of large-scale investment projects. Today, the Center incorporates research laboratories, design and construction divisions engaged in the development and modernization of shipbuilding yards, water-development facilities and engineering enterprises, on-shore bases for marine objects, design and manufacturing of ship fittings, design of fishing and fish-processing vessels, special-purpose vessels, as well as production facilities for manufacturing of designed equipment.



Admiral Makarov State Maritime Academy The Academy is the first and only higher education institution in Russia which educates engineers for locally-built vessels with nuclear power plants. It is the only higher education institution engaged in carrying out targeted training of specialists serving the Northern Marine Route. Among these specialists are not only officers for nuclear powered ice-breakers, but also meteorologists,


oceanologists, hydrographers and radio engineers. The Academy is one of the largest centers of marine science with high scientific potential, including 75 doctors of sciences and professors, 175 candidates of sciences and assistant professors.

Baltic State Technical University ("Voyenmekh") Founded in 1932, the University educated more than 60,000 thousand specialists in the areas of aircraft jet production, aerospace, physics and mechanics, arms and armament systems, information and control systems, mechatronics and control, applied mechanics and automation, international industrial management.

St. Petersburg State Marine Technical University St. Petersburg State Marine Technical University is the only institute of higher education in Russia which educates world class marine engineers specialized in design, manufacture and maintenance of marine vessels, surface ships and submarines, technical equipment for exploration and extraction of oil, gas and other undersea mineral resources. Founded in 1902, today the University offers educational programs at 5 departments, including natural and social sciences and humanities, naval architecture and ocean engineering, marine engineering, marine electronics and control systems, business and management.

St. Petersburg State Polytechnical University St. Petersburg State Polytechnical University founded in 1899 is a National research University, a world’s recognized leader in the field of engineering and economic education. The University educates specialists in 36 bachelor and 188 master degree programs as well as 88 PhD and 88 doctorate programs. The University partners with more than 280 Universities, 131 scientific and research institutions and 172 companies from more than 55 countries. It has more than 20 international research centers which carry out joint research in cooperation with such companies as Motorola, Microsoft, AT&T, Siemens, LG Elelctronis, Apple and others.

St. Petersburg State University of Waterway Communications (SPSUWC) For 200 years St. Petersburg State University of Waterway Communications has been training engineers for waterway transport in Russia. Today, the University is a large transport education center which educates students from more than 30 countries. A number of transport laboratories function at the University, including Prof. Timonov Laboratory of Safety of Hydro technical Engineering Constructions, Prof. Butov Laboratory of Modelling of Transport Processes, Laboratory of Vessel’s Navigation Qualities (Towing Tank), Prof. Emets Planetarium Laboratory of Vessels Power Plant, different Training Centers for ashore personnel and seafarers of shipping companies. The University graduates succeed in marine and waterway transport industries and apply their skills in shipping companies, ports, cruise companies, shipbuilding and ship repair yards as well as water supply management and administration.


Elektropribor, Central Scientific and Research Institute Elektropribor is the leading Russian research institute located in St. Petersburg. The Institute carries out a full cycle of work, including fundamental research as well as product manufacturing. Main products include integrated satellite/inertial navigation systems, mobile airborne marine gravimeter, periscope complex. The institute supplies its products not only to the Russian Navy but also foreign companies from China, Finland, Germany, India, Japan, Norway and the Republic of Korea.

Central Scientific and Research Institute of Electric Engineering and Technology Central Scientific and Research Institute of Electric Engineering and Technology is a branch of the Krylov State Scientific Center. It is a multidisciplinary specialized scientific and production center engaged in scientific research, design and experimental as well as technology operations. The Institute carries out production, supplies and testing of knowledge intensive electrical equipment,



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autonomous electric systems, management and control systems, electrostatic protection means for oil-loading facilities.

Central Research Institute of Marine Engineering Central Research Institute of Marine Engineering was established in 1970 with the aim of organization of an R&D base for marine equipment and reduction of its development cycle. Today, it is one of the major Russian enterprises engaged in development and supply of ship machinery installed practically on all Russian merchant and naval vessels. The Institute possesses a powerful research and engineering potential as well as a developed high-tech experimental and production facilities.

Prometey, Central Scientific and Research Institute of Structural Materials Established in 1939, Central Research Institute of Structural Materials has become a multi-specialized state unitary enterprise which carries out orders of the federal ministries as well as Russian and foreign companies engaged in different industries. Prometey’s major fields of operation include hull metallic and nonmetallic materials used in shipbuilding, materials used in shipbuilding and machine engineering, materials for nuclear and heat power engineering, materials for oil and gas production facilities, transportation and refining.


4. Business solutions

St. Petersburg is an ideal location for the following business needs:

Headquarters Favorable economic and geographical position, highly educated, efficient and motived workforce as well as developed infrastructure make St. Petersburg an ideal location for Russian headquarters of any international business.

Research & Development center (R&D) St. Petersburg is an acknowledged scientific and educational center as well as a Russian leader in information technology, which possesses all necessary innovative infrastructure and extensive government support to accommodate your R&D activities.

Production center One of Russia’s most important production centers provides you with developed logistics, innovative and flexible business environment as well as highly efficient and motivated workforce to accommodate your production facilities in the city.

Distribution center St. Petersburg’s westernmost mainland location in Russia and well-developed transport infrastructure makes it an ideal location for your Russian and European distribution center.

Test market St. Petersburg is an ideal test market in the European part of Russia, which will allow you to assess the demand for your new products and improve your technology and business models.



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4.1. Headquarters St. Petersburg is the second largest city in the Russian Federation. It is a major European cultural center and an important Russian port on the Baltic Sea. A close proximity to Europe, developed infrastructure and favorable investment climate make St. Petersburg an attractive location for Russian headquarters of numerous international corporations, banks and other businesses.

Russian rating agency Expert ranked St. Petersburg among the most attractive regions of the Russian Federation for trade and investment (1A) characterized by high investment potential given minimum risks. St. Petersburg was also ranked as one of the most business-friendly cities in the Russian Federation (A+) characterized by favorable business climate and excellent conditions for pursuing business in the city.8

4.1.1. Advantages

Favorable economic and geographical position St. Petersburg is the world’s northernmost city with over one million population. It is the largest westernmost city of the Russian Federation conveniently located along the shores of the Neva Bay of the Gulf of Finland. A complex system of river ports is interconnected with the system of seaports, thus making St. Petersburg the major link between the Baltic Sea and the rest of Russia through the Volga-Baltic Waterway. St. Petersburg is a major trade gateway as well as a financial and industrial center of the Russian Federation specialized in power plant engineering, machine tool technology, shipbuilding and instrument engineering. The city boasts a highly developed iron steel and nonferrous metal industry, chemical industry as well as consumer goods, food and printing industries.

Highly educated, efficient and motived workforce Flexible and highly educated labor market provides excellent conditions for establishing your headquarters in St. Petersburg. St. Petersburg is the fourth most populated city in Europe with more than 40% of residents having higher education degrees. Destined by the European location and close proximity to the European markets, residents of the city possess foreign language skills which makes them an ideal workforce for any headquarter located in the city.

Developed infrastructure St. Petersburg has a well-developed infrastructure which connects European part of Russia with the Nordic and Baltic regions, thus conveniently suiting the business needs of your headquarter. Moreover, the ongoing development of a major strategic investment transportation project will determine further development of the city as a major world transport hub. The Western High-Speed Diameter (WHSD) envisages construction of a motorway which will link passenger and freight transport along the busiest traffic lines and St. Petersburg transport hub, including the Large Port, to the national road network. By 2013 the totally new Pulkovo Airport will provide fast and efficient connections to major destinations around the world.

8 Investment rating of Russian regions 2010-2011, Expert RA Rating Agency


4.1.2. Cases

The following national and international companies have already registered, located or announced their plans to relocate headquarters to St. Petersburg:

Gazprom Neft One of the largest oil producing and refining companies in Russia, which is an oil arm of Gazprom, has a fully operational head office in St. Petersburg since December 2011.

Rostelecom Russia’s national telecommunications operator with the largest domestic backbone network has its de jure headquarters in St. Petersburg.

Russian Standard One of the leading banking and alcohol beverage groups which holds the stock of Russian Standard Company, a producer and distributor of Russian Standard Vodka, as well as Russian Standard Bank, announced its plans to register to St. Petersburg in 2007.

Sovcomflot Russian state-owned maritime shipping company specialized in petroleum and LNG shipping relocated its headquarters to St. Petersburg in 2006.

Transaero The first private company and one of the largest airline companies in Russia operating since 1991 registered to St. Petersburg in 2006.

Transneft Russian state-owned company which transports about 93% of all oil produced in Russia and owns the largest oil pipeline system in the world, announced its plans to register to St. Petersburg in 2005.

VTB Bank VTB Bank is one of the largest banks in Russia, a backbone financial institution with over 85% of the lender’s securities held by the state. VTB Bank moved its headquartered to St. Petersburg in 2005.

X5 Retail Group The largest retail chain in Russia announced its plans to relocate to St. Petersburg in 2007.

http://en.wikipedia.org/wiki/Oil_refinery

http://en.wikipedia.org/wiki/Gazprom

http://en.wikipedia.org/wiki/Russian_Standard_Bank

http://en.wikipedia.org/wiki/Russia

http://en.wikipedia.org/wiki/Petroleum

http://en.wikipedia.org/wiki/LNG



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4.2. Research & Development Due to its unique scientific and educational base, St. Petersburg plays a major role in the development of nanotechnology industries in Russia, thus making it an ideal location for your R&D activities. The majority of Russian R&D centers and facilities of international companies are based in St. Petersburg. As a result of innovation activity in 2011 St. Petersburg was included in the list of the most innovative regions of the Russian Federation.9

4.2.1. Advantages

Largest scientific and educational center St. Petersburg is a leading scientific and educational center of the Russian Federation which possesses 10% of all intellectual potential of the country. The city is home to 252 scientific institutes and organizations with more than 170 thousand scientific workers employed. 8% of all Russian students and 15% of all Russian post graduate students pursue their studies in St. Petersburg. St. Petersburg is home to more than 100 higher education institutions, including St. Petersburg State Electrotechnical University (ETU) which along with the National Research Nuclear University functions as the coordinator of educational activities within the National Nanotechnology Network.

Extensive government support The Government of St. Petersburg applies systematic approach to the development of innovation and technology. The city adopted a complex program aimed at developing and supporting a modern competitive regional innovation system. The government views the development of the following industrial clusters as a priority in sustaining innovative climate in the city: automotive industry, pharma and biotechnology, shipbuilding, information and communication technologies, radiology and power plant engineering. In addition, every year the city hosts the St. Petersburg International Economic Forum (SPIEF), a flagship event which serves a major platform for economic talks between Russian and CIS leaders as well as the world’s business elite.

Innovative special economic zone A special economic zone of technical-implementation type has been functioning in St. Petersburg since 2010. The zone focuses on rendering tax, customs and other type of concessions to the companies engaged in the development of high-tech solutions. Simplified customs regime facilitates the development of export/import activities, thus creating favorable conditions for promoting foreign economic activities.

A leader in information technology 60% of all Russian IT companies are based in St. Petersburg, including 49 centers of leading international and Russian ICT companies. Availability of developed IT infrastructure, including a technopark, business incubator, modern research and scientific institutions, as well as highly qualified IT-personnel facilitate the development of St. Petersburg as a Russian leader in information technology.

9 Rating of innovation activity in the Russian Federation in 2011, St. Petersburg Policy Fund, Russian Presidential

Academy of National Economy and Public Administration, RBC daily


4.2.2. Cases

The following national and international companies have already located their R&D facilities in St. Petersburg:

Alcatel-Lucent Alcatel has been operating its R&D center in St. Petersburg since 2005. Its main objective lies in the development and integration of innovative telecommunications software systems and adaptation of existing Alcatel products to the specific requirements of the regional market. The center covers three fields of applications, including fixed, mobile and enterprise networks, and employs 150 specialists trained at the specialist Alcatel R&D centers in Europe and the US.

AstraZeneca AstraZeneca is planning to establish a Predictive Science Center in St. Petersburg within 2012. It is the company’s first Predictive Science Center in Russia which will focus on the development of bioinformatics, data analysis methods, software and systems to better predict the safety and efficacy of potential new medicines. The center will employ around 30 specialists who will work in close collaboration with local companies and organizations as part of a related agreement with the St. Petersburg government.

Corning Corning scientific center was founded in 1996 in St. Petersburg and is specializing on mathematic and computer modelling of materials, products and technological processes.

EMC Opened in 2007, EMC R&D center in St. Petersburg is an important part of the global EMC R&D investment program. The center focuses on rendering support and continuous development of a wide range of world’s leading software products. St. Petersburg’s center currently employs more than 170 program engineers specialized in data management and data storage systems.

Google Google opened its second R&D center in Russia in 2006. Today, Russia is only the second country outside the US in which Google has two R&D centers, including Moscow and St. Petersburg. St. Petersburg division focuses on the development of security software and its adaptation to the needs of Russian users. It employs around 10 software engineers engaged in the development of Chrome Developer Tools as well as improvement of V8 virtual machine.

HP Labs HP Labs Russia is the newest member of the international HP Labs community, and the third new research lab created by the company in the last five years. Opened in St. Petersburg in 2007, HP Labs Russia focus on information management and development of new technologies linked to the explosion of information access brought about by the World Wide



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Web. The only Russian HP research lab delivers breakthrough technologies and technology advancements that provide a competitive advantage for HP and create business opportunities that go beyond HP's current strategies.

Intel Opened in St. Petersburg in 2004, Intel R&D center currently employs more than 100 specialists. The center focuses on conducting research and development of innovative software solutions for Internet-related technologies, including Dynamic Runtime Layer (DRL), communication technologies that enhance wireless communication, grid computing to optimize programming environment. St. Petersburg center works in close collaboration with the city universities with the aim of creating a solid academic foundation for information.

LG MC Russia R&D Lab LG MC Russia R&D Lab (LGERP), opened in St. Petersburg in 1997, is a central LG division in CIS. The Lab plays a key role in the development of innovative high tech solutions for LG Electronics. LG MC Russia R&D Lab focuses on three major directions, including mobile communications, digital television and household appliances.

Microsoft In June 17, 2011 the Government of St. Petersburg and Microsoft signed the cooperation agreement stipulating the development of education and training system for IT specialists and introduction of modern technologies into the public management system. Microsoft has already been working and launching a number of educational programs in St. Petersburg. The new agreement involves the establishment of Microsoft Information Center within Ingria Technopark located in St. Petersburg as well as the company’s participation in the development of St. Petersburg IT cluster.

Sitronics Sitroninics opened its 5th international R&D center in St. Petersburg in June 2011. Investment into the R&D center operating in telecommunications sector constituted 177,000 dollars. The center which is to employ 120 specialists will specialize in the development and testing of convergent billing decisions, including highly-productive rating systems for tariffs in real-time mode. In the future the center plans to carry out research in the field of self-service systems, including web-portals, terminals, pad-computers and communicator applications, CRM-decisions.


4.3. Production сenter Today, St. Petersburg is Russia’s second most important production center, specializing in the production of complex machinery and equipment. Leading industries in this sector include shipbuilding, instrument manufacture as well as production of electrical generators and turbines, machine tools and machines for printing, textile, paper, food, automotive and leather industries.

During the recent years St. Petersburg turned into the Russia’s automobile manufacturing center, which already hosts the production facilities of the world’s largest automakers and automobile parts manufacturers, including Hyundai Motor Company, Toyota Motor Corporation, General Motors Company, Nissan Motor Company and Scania.

4.3.1. Advantages

Highly qualified and motivated workforce St. Petersburg is a major scientific and educational center of the Russian Federation, which possesses 10% of all intellectual potential of the country. The city is home to a number of leading technical universities, including St. Petersburg State Electrotechnical University (ETU) which along with the National Research Nuclear University functions as the coordinator of educational activities within the National Nanotechnology Network. St. Petersburg boasts a diverse pool of technical specialists given the city’s reputation as a Russian IT center.

Innovative and flexible business environment The city’s innovative business environment provides production companies with access to a diverse pool of talented specialists who can help you innovate and improve your production processes. The fact that 20% of all Russia’s advanced technologies are created in St. Petersburg indicates a high degree of production process development and automatization, which significantly enhances the value of your production processes as well as end product. Moreover, the flexibility of existing labor market provides an ideal environment for flexible production, which can be easily scaled up and down.

Acknowledged R&D center and test market St. Petersburg is one of the most innovative regions in Russia and an acknowledged R&D center and test market on the territory of the Russian Federation. Excellent framework conditions, open and fast-adopting market as well as high purchasing power of the population will help you assess the demand and improve your new products as well as research and development efforts, technology implementations and business models.

Developed logistics Due to the ideal geographical location and scarcity of Russian ports on the Baltic Sea, St. Petersburg is Russia’s foremost logistics hub. The city’s transport infrastructure with highly developed motor transport network, railway, air, river and sea transport, including Russia’s main port of foreign trade and sea gate to Europe, might serve as a key asset in your decision to locate your production center in the city. In addition, the city has a number of modern multifunctional logistics complexes and parks (Pulkovo, Kolpino, Yanino) suitably located to address storing, processing and customs clearance needs of your business.

http://en.wikipedia.org/wiki/Automobile

http://www.investindk.com/Business-Solutions/Research-and-development



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4.3.2. Cases

The following international and leading Russian companies have already located their production facilities in St. Petersburg:

Bakery

Fazer Group Fazer Group started operating on the food catering and services market in Russia in 2006, and has invested 204.78 million dollars in its operations in Russia during the last ten years.

Beverage production

Carlsberg Group Baltic Beverages Holding, a leader at the Russian beer market which manages Baltika, became part of the Carlsberg Group in 2008. Carlsberg currently owns 89.01% of Baltika stock. Today, Baltika Brewery, founded in 1990, is the largest brewery in Eastern Europe and the second-largest brewery in Europe after Heineken Brewery.

Coca-Cola Company Coca-Cola opened its plant in St. Petersburg in 1995. The facility produces Coca-Cola products for more than 13 million customers in St. Petersburg and Northwestern Russia. It employs more than 1,000 people, while creating up to 200 additional seasonal workplaces during the peak seasons.

Heineken Heineken has been operating in Russia since 2002 when it acquired the Bravo plant in St. Petersburg. St. Petersburg’s Heineken brewery also produces and distributes Budweiser beer, having signed a licensing agreement with Bud’s brand owner Anheuser-Busch.

Pepsi Bottling Group, Inc. (PBG) PepsiCo drinks are produced by Pepsi Bottling Group, Inc. (PBG) at its four plants in Russia. One of the top global FMCG companies in Russia opened its St. Petersburg’s plant in 1992. PBG produces and distributes all PepsiCo products, including carbonated soft drinks, water, snacks, juices, teas, and sports and energy drinks.

Russian Standard Company A leading Russian premium vodka producer opened its distillery in St. Petersburg in 2006. Total investments into the facility amounted to 60 million dollars. The distillery produces 3.6 million dekaliters of vodka annually. A 30,000 square meter facility handles the production of the company's entire vodka portfolio, including Russian Standard Original, Russian Standard Platinum and Imperia.


Candy

Chupa Chups S.A. The Spanish candy maker launched its St. Petersburg’s production facility in 1991. Neva Chupa Chups produces Chupa Chups caramel lollipop candies of various flavors and colors not only for the Russian market but also for export to CIS countries. St. Petersburg’s factory has the capacity of making up to 200 million 200-gram rolls per year.

Car assembly

General Motors General Motors opened its automobile factory in St. Petersburg in 2008. Global car making giant became the second foreign carmaker to open a factory in St. Petersburg. Investment in the project totalled 300 million dollars with up to 1,700 jobs created, followed by the opening of a second production line in 2010.

Hyundai Motor Company Hyundai officially launched its full-cycle manufacturing plant in St Petersburg in 2010. St. Petersburg’s plant is Hyundai’s sixth production facility outside its home market of South Korea. The facility is expected to roll out 105,000 vehicles in its first year of operation with the rise to 150,000 in 2012. Hyundai plans to create 5,300 jobs by 2012 in St. Petersburg together with eleven parts suppliers from Korea.

Nissan Nissan Manufacturing Rus was established in St. Petersburg in 2009. The plant currently represents approximately a 150 million euro investment with the total volume of 28,500 units since the start of production. The plant currently employs 2,000 employees.

Scania Scania opened its industrial facility for assembling and bodyworking trucks for the Russian market in St. Petersburg in 2010. This facility is Scania’s sixth delivery center. From this new delivery center, Scania supplies complete trucks that are adapted to the requirements and operating conditions that apply in Russia. St. Petersburg’s facility which employs about 70 employees has a technical assembly capacity of about 5,000 truck chassis and 1,500 superstructures per year.

Toyota Motor Corporation Toyota became the first Japanese carmaker to start production in Russia with its car assembly plant opened in St. Petersburg in 2007. The plant, with an annual output capacity of about 50,000 vehicles, initially built 20,000 Camry sedans per year while gradually expanding its production since then.

http://www.scania.com/



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Chewing gum

Wm. Wrigley Jr. Company The world’s largest maker of chewing gum has been operating a 70 million dollar plant in St. Petersburg since 1999. Wrigley is planning to expand its St. Petersburg plant with an investment of 100 million dollars. The company also announced that it might build a second factory in Russia and acquire local producers to tap its growth at the Russian market.

Components suppliers

Magna International A global automotive supplier currently operates five production sites in Russia, three of which are located in the St. Petersburg region since 2010. The Cosym stamping and assembly plant in Shushary has 170 employees and produces body, chassis and energy-management systems for OEM customers such as Hyundai, General Motors, Nissan and Volkswagen. The Cosym assembly and sequencing plant in Kamenka is a Hyundai-dedicated production site that employs 50 employees. Magna announced the opening of a Magna Exteriors and Interiors facility in Kolpino, which has approximately 25 employees producing exterior and interior components for OEM customers, including Ford and Nissan.

Electronics

HP – Foxconn Hewlett-Packard and component maker Foxconn opened a pilot assembly line to make computers in St. Petersburg in 2010. A pilot production line on a rented 10,000-square-meter facility in Shushary produces HP, HP Pro and Compaq models. It currently employs 100 workers, although the staff is expected to grow as production increases. A 32,000-square-meter main facility is expected to cost 50 million dollars and have an annual capacity of 500,000 personal computers.

Elevators

Otis Elevator Company The world's largest manufacturer of vertical transportation systems has three manufacturing plants in Russia, including the one operating in St. Petersburg since 1994. Otis St. Petersburg was established in 1991 to meet the elevator need for new construction as well as for the replacement market. With 470 employees, Otis St. Petersburg is the only company that manufactures European standard elevators in Russia. Since the opening of the production line, St. Petersburg’s plant has shipped more than 3,000 elevator units to CIS countries and other Russian regions.

FMCG

P&G P&G opened its Gillette razor manufacturing plant in St. Petersburg in 2000 with an investment of 40 million dollars and 500 people employed. It has soon become one of the major razor manufacturing plants in the world with a capacity of 860 million blades a year. In 2004 the facility was expanded with an investment of 502 million roubles and several Gillette factories’ productions moved to St. Petersburg.


Unilever Unilever has been operating in Russia since 1992 and has 7 manufacturing and production sites, including the one located in St. Petersburg. The plant was opened in 1994 and currently focuses on the production of home care, personal care and tea products. In 2009, the company acquired the sauces business of Baltimor Holding, a leading ketchup business in Russia. The acquisition included ketchup, mayonnaise and tomato paste business, accounting for annual turnover of around 70 million euros, as well as a production facility at Kolpino, near St. Petersburg.

Home Appliances

Bosch and Siemens The largest manufacturer of home appliances in Europe and one of the leading home appliances companies in the world opened its manufacturing plant in St. Petersburg in 2007. St. Petersburg’s plant manufactures Bosch and Siemens cooling appliances. In 2007 the company laid the foundations for a washing machine factory with the capacity of 300,000 machines per year, which is due to be built by 2012. In 2010 the company launched a new line of washing machines and a second line of refrigerators at its existing plant in Strelna. It has also announced about the expansion of its logistics center. The Strelna factory currently employs 420 people and is to create 100 additional workplaces with the expansion of the production line.

IT

NEC Corporation One of the world's leading providers of Internet, broadband network and enterprise business solutions established NEC Neva Communications System, a public switching system manufacturing facility, in 1997. It was the first high-tech alliance between a Japanese and Russian company. NEC delivers tailored solutions in the key fields of computer, networking and electron devices, by integrating its technical strengths in IT and networks, and by providing advanced semiconductor solutions through NEC Electronics Corporation.

LED manufacturing

OptoGan Group A vertically integrated European LED & luminaire manufacturer acquired the Russian subsidiary of Elcoteq together with its industrial facility and infrastructure in St. Petersburg in 2010. Elcoteq started the production of electronic devices and telecom equipment in St. Petersburg in 2006. OptoGaN has already invested over 9.5 million euros in new production lines. The first line with the capacity of 30 million LEDs per month was launched in fall 2010.



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Packaging

Amcor Tobacco Packaging Originally built by Alcan Packaging in the Krasnoselskaya industrial zone of St. Petersburg in 2005, a tobacco packaging plant started operating under Amcor Tobacco Packaging brand after Amcor acquired Alcan Packaging from Rio Tinto in 2010. With the original investment of 40 million euros, the plant’s current capacity constitutes 3 billion units per year.

Pharmaceuticals

Novartis In 2010 Novartis started a construction of a new greenfield pharmaceutical manufacturing plant in St. Petersburg, as part of 500 million dollar five-year investment into the Russian healthcare infrastructure. The facility will be constructed in the Novoorlovskaya Special Economic Zone (SEZ) located to the north of the St. Petersburg city center. Once completed and approved for commercial production, which is expected in 2014, the facility will produce approximately 1.5 billion units of both innovative pharmaceuticals and generics per year.

Pipe products

Severstal One of the Russia’s largest steel and mining industry companies opened its Izhora Pipe Mill at Kolpino outside St. Petersburg in 2006. The plant with the capacity of 600 thousand tons per year specializes in manufacture of large diameter pipes from strip made by Cherepovets Steel Mill. The plant produces unique products for Russian domestic pipe industry which allow to expedite the process of pipeline construction as well as lower the costs and enhance reliability.

Telecommunication

Alcatel-Lucent Alcatel has been operating its R&D center in St. Petersburg since 2005. Its main objective lies in the development and integration of innovative telecommunications software systems, and adaptation of existing Alcatel products to the specific requirements of the regional market. The center covers three fields of applications, including fixed, mobile and enterprise networks, and employs 150 specialists trained at the specialist Alcatel R&D centers in Europe and the US.

Tobacco

British American Tobacco (BAT) BAT’s plant in St. Petersburg operates 13 production lines producing five premium brands. It provides about 25% of BAT’s production volume in Russia. The company completed the construction of new production facilities at its plant in St. Petersburg in 2007 with the total investment of 110 million dollars, thus increasing St. Petersburg plant’s production capacity to 40 billion cigarettes a year.


Japan Tobacco International (JTI) JTI's cigarette making facility in St Petersburg is the company’s biggest worldwide plant with the total of 400 million dollars invested. The brand portfolio includes over 30 brand names, both international and local. It supplies the firm's Russian and Ukrainian plants with main tobacco components used for cigarette production.

Philip Morris International (PMI) Philip Morris Inc. officially opened its third Russian cigarette factory in St. Petersburg in 2000. The total investment of 335 million dollars made this project the company’s largest cigarette plant in Europe. The plant, which employs 750 workers and operates 15 conveyer belts, produces the Marlboro, Parliament, Virginia Slims, L&M, Chesterfield and Bond Street brands. In 2002 the company began construction of a new processing line and a warehouse with the total investment estimated at 240 million dollars.



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4.4. Distribution сenter St. Petersburg’s westernmost mainland location in Russia as well as well-developed infrastructure and logistics makes it an ideal location for your Russian and European distribution center. St. Petersburg is an administrative center of the fourth largest federal district in Russia. With a distribution center located in St. Petersburg your business will be able to directly cover 1.7 million square kilometers of the northern part of European Russia and reach more than 13 million consumers within short-term delivery.

4.4.1. Advantages

Existing transport infrastructure supported by extensive rail and road network, one of the busiest Russian airports, developed port infrastructure and efficient inland water transportation system make St. Petersburg an ideal location for your Russian and European distribution center.

By air St. Petersburg is served by the Pulkovo International Airport, which is the fourth busiest airport in Russia. The airport handled 9,610,767 passengers in 2011 which represents a 14% increase in comparison with 2010. Pulkovo Cargo Terminal is one of the five leading cargo terminals in Russia and the largest cargo terminal in the Northwest Russia. It has the annual cargo handling capacity of 30 thousand tons. Pulkovo has been undergoing a major 1 billion euro modernization since 2007. The first phase of reconstruction, which includes the construction of a new passenger terminal and other airport infrastructure improvements, is scheduled for completion in 2013.10

By land St. Petersburg has a well-developed rail and road network with major highways and national roads, connecting northwest Russia with the rest of Russia as well as Nordic and Baltic countries. St. Petersburg and the surrounding Leningrad region have the highest density of roads with a road network covering approximately 1,300 km. Railroad network which is one of the most efficient and dynamic forms of transport in the region is also connected to the Large Port of St. Petersburg and other port complexes in the region.

By river Inland water transportation is one of the largest and most unique logistical competitive advantages of St. Petersburg and northwest Russia. St. Petersburg and the Neva River serve a major terminal point for the Volga-Baltic Waterway, which is a part of the Unified Deep Water System (UDWS) of European Russia, providing inland water connection from the Baltic Sea to the Caspian Sea, the Black Sea and onwards to the world oceans.

By sea Sea transport is one of the most important transport modes in St. Petersburg. Today’s northwest Russian port infrastructure is concentrated on the eastern end of the Gulf of Finland, mainly in St. Petersburg. The Large Port of St. Petersburg connected to the Baltic Sea through a channel is Russia’s main port of foreign trade and the country’s main sea gate to Europe.

10

Pulkovo St. Petersburg Airport official website (www.pulkovoairport.ru).

http://www.pulkovoairport.ru/


4.4.2. Cases

The following international and leading Russian companies have already located their distribution centers in St. Petersburg:

LaserPLY American company’s product line includes flat dieboards, rotary dieboards and platforms. The company’s platforms are used in birch core/maple face and back flat dieboards, flat dieboards with a wood and polymer veneer combination, as well as core material for rotary dieboard production. Today, the company operates two international distribution centers, including the one strategically located in St. Petersburg.

Lenta One of the Russia’s largest hypermarket chains operating on the market since 1999 opened its 20 thousand square meters distribution center in St. Petersburg in 2007. Total investments into the project constituted 20 million dollars. Distribution warehouse utilizes the latest processing technologies, thus allowing to reduce costs in shelf storage, cross-docking as well as packaging arrangement and dispatching.

Onninen The Finnish company provides comprehensive materials’ services, including complex electrical, lighting, heating and plumbing as well as other engineering products and services for contractors, industry, public organizations and technical retailers in nine countries. Onninen officially opened its Russian headquarters and distribution center in St. Petersburg in 2007. The company’s distribution center serves all northwest Russia and has the capacity of 9,000 pallets, including 18,000 products from 200 suppliers.

Static Control Components The world's largest manufacturer and global distributor of parts and supplies supporting the laser toner remanufacturing industry is headquartered in Sanford, USA. Static Control operates 20 separate manufacturing plants and operates through the network of global distribution partners. The company’s distribution partner in Russia operates several distribution centers, including the one strategically located in St. Petersburg to ensure fast product delivery all across Russia.

http://www.laserply.com/flat-laserply-dieboards

http://en.wikipedia.org/wiki/Hypermarket

http://en.wikipedia.org/wiki/Distribution_center



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4.5. Test market St. Petersburg’s market is a perfect test market for new products and technologies. It is an ideal test market in the European part of Russia for high-tech companies longing to assess the demand and improve their new products as well as research and development (R&D) efforts, technology implementations and business models.

4.5.1. Advantages

Excellent framework conditions, open and fast adopting market as well as high purchasing power make St. Petersburg an ideal test market located in the European part of Russia. It will allow you to assess the demand for your new products and improve your technology and business models.

Excellent framework conditions St. Petersburg is conveniently located in the northern part of European Russia, which can be reached from the capital city of Moscow within an hour by plane. It is the second largest city in Russia as well a major European cultural center. Destined by its geopolitical location as well as historical development, St. Petersburg is often described as the most western city of the Russian Federation. It is characterized by homogeneous population, which is highly receptive to new ideas and products.

Open and fast-adopting market St. Petersburg has one of the most advanced information societies in Russia with the most innovative, motivated and critical consumers. Given St. Petersburg’s open, receptive and fast-adopting market, the decision to test your business models, technologies or products in St. Petersburg will allow you to effectively improve and adjust your solutions before entering all-Russian or European markets.

High purchasing power Given the existing variations in population’s income and buying power across different regions of the Russian Federation, the most well-to-do population is concentrated in Moscow, St. Petersburg and large regional centers. St. Petersburg’s population is characterized by high income and purchasing power, thus facilitating the growth of demand for high quality and innovative products, technologies and solutions.


4.5.2. Cases

The following international companies chose St. Petersburg as a test market for their products as well as technology and information sharing:

AstraZeneca AstraZeneca is planning to establish a Predictive Science Center in St. Petersburg within 2012. It is the company’s first Predictive Science Center in Russia, which will focus on the development of bioinformatics, data analysis methods, software and systems to better predict the safety and efficacy of potential new medicines. The center will employ around 30 specialists who will work in close collaboration with local companies and organizations as part of a related agreement with the St. Petersburg government.

Google Google opened its second R&D center in Russian in 2006. Today, Russia is only the second country outside the US in which Google has two R&D centers, including Moscow and St. Petersburg. St. Petersburg division focuses on the development of security software and its adaptation to the needs of Russian users. It employs around 10 software engineers engaged in the development of Chrome Developer Tools as well as improvement of V8 virtual machine.

Microsoft On June 17, 2011 the Government of St. Petersburg and Microsoft signed the cooperation agreement stipulating the development of education and training system for IT specialists and introduction of modern technologies into the public management system. Microsoft has already been working and launching a number of educational programs in St. Petersburg. The new agreement involves the establishment of Microsoft Information Center within Ingria Technopark located in St. Petersburg as well as the company’s participation in the development of St. Petersburg’s IT cluster.



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5. Doing business

5.1. Russian Judicial System

Information for the current chapter was developed and kindly provided by Baker & McKenzie

The Russian judicial system consists of federal courts (the Constitutional Court of the Russian Federation, courts of general jurisdiction, and state “arbitrazh” (commercial) courts) and the courts of the Russian Federation’s constituent entities (constitutional courts and magistrates).

The Constitutional Court of the Russian Federation generally resolves issues relating to compliance with the Constitution of federal and some regional laws and regulations if they are related to issues within the competence of federal authorities.

Constitutional courts of constituent entities resolve issues of compliance of the constituent entity's laws, regulations of its state and municipal authorities with the constitution of the constituent entity.

Disputes regarding business activities and those involving legal entities and self-employed entrepreneurs are heard before state arbitrazh (commercial) courts. Other disputes fall under the purview of courts of general jurisdiction and magistrates.

5.1.1. Courts of General Jurisdiction

Dispute resolution procedure in the courts of general jurisdiction is governed by the Russian Federation Code of Civil Procedure. Most claims subject to courts of general jurisdiction are heard at first instance by either a magistrate or a district court, the Code of Civil Procedure expressly provides for specific types of claims to be heard at first instance by federal general jurisdiction courts of constituent entities and the Supreme Court of the Russian Federation.

Courts of general jurisdiction have four levels:

Trial Court;

Court of appeal;

Court of cassation appeal (two-tier); and

Supervisory appeal court.

The particular court entitled to resolve disputes at every level depends on the category of the case, with the levels for review available to a party and their sequence being uniform. Each subsequent review is possible once the lower level of review has been passed.

Judgments of trial courts can be appealed within one month of their issuance. The court of appeal reviews a judgment on the grounds stated in the appeal. New evidence is accepted only when the party succeeds in proving it was unable to present such evidence to the trial court for reasons beyond its control and the court finds these reasons to be valid. The rulings of the court of appeal become effective immediately upon issuance.

The rulings of the court of appeal (and trial court's judgments) may be appealed to the cassation court within 6 months of becoming effective. As a rule, cassation review is possible only after appellate review. The judgments of a trial court that were not subject to appellate proceedings may be appealed in a cassation court only when the appeal was left unheard for failure to comply with the submission deadline and the deadline was not restored.


Cassation review is a two-tier process. Upon filing a cassation appeal is reviewed by the relevant judge of the cassation court who is entitled to establish whether there are grounds for carrying out the cassation review. If such grounds are established the cassation appeal is transferred for review at a cassation court session. Otherwise the judge issues a ruling refusing to transfer the cassation appeal for review.

The cassation court may set aside or modify court resolutions only when it finds material violations of substantive or procedural law rules that have affected the outcome of the case.

A cassation court's acts become effective immediately upon issuance and may be appealed with the cassation court one more time (to a higher cassation court division). Thus, strictly speaking there are two cassation reviews within the general jurisdiction court system. Lastly, certain court acts may be appealed (within three months of becoming effective) at a supervisory appeal court: the Presidium of the Supreme Court of the Russian Federation.

The supervisory court may set aside or modify a court ruling/judgment when it finds that it violates:

the rights and freedoms guaranteed by the RF Constitution, international law principles and international agreements of the Russian Federation;

the rights and lawful interests of an indefinite number of persons or other public interests;

the uniformity of the courts' interpretation and application of law.

5.1.2. State Arbitrazh Courts

The title “arbitrazh court” is not related to arbitration tribunals, but originates from an old Soviet tradition whereby disputes between state enterprises were heard before the so-called “State Arbitrazh.” In the USSR it was assumed that under a planned economy no disputes could arise between socialist enterprises (since all enterprises ultimately had the same owner), and any differences that did arise could be settled by an intermediary – the State Arbitrazh – which was a quasi-judicial government institution.

Since then, the arbitrazh court has evolved into an independent branch of the court system, mainly dealing with commercial disputes. It is headed by the Supreme Arbitrazh Court, which recently acquired de jure powers to establish precedents to unify and direct the practice of lower courts.11

The procedural rules applicable to Russian arbitrazh courts are based on the general principles of procedural law adopted in continental Europe.

Traditionally, Russian arbitrazh courts favor written documentary evidence rather than examination of witnesses, hearing experts, or use of audio or video recordings.

On 8 December 2011 a specialized court dealing with intellectual property disputes was introduced, to form part of the system of Russia's arbitrazh courts and consider both (1) cases involving disputes over the establishment and validity of IP rights and challenges to regulatory and non-regulatory acts in the intellectual property field (as the court of first instance), and (2) IP infringement cases (as the court of cassation instance). Under the new law, the Intellectual Property Court should start operations not later than 1 February 2013.

Arbitrazh courts have four levels:

Trial court;

Court of appeal;

Court of cassation appeal; and

The Supreme Arbitrazh Court of the Russian Federation.

11

Resolution of the Constitutional Court of the Russian Federation No. 1-P dated 21 January 2010



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5.1.2.1. Trial courts

The maximum state fee for filing a claim is limited to approx. EUR 5,000 (as of January 2012). The trial period in Russian arbitrazh courts is relatively short. Proceedings start with a statement of claim. Under current regulations, a court must consider cases within three months of receipt of a statement of claim. The judge may request an extension of up to six months due to the complexity of the case or considerable number of parties. In practice the period may be longer but regular cases are reviewed within these deadlines. A judgment is announced immediately after the final hearing.

A judgment of the first instance may be appealed within one month of being rendered; otherwise it comes into force at the end of the month. The basis for an appeal can be mistakes either in establishing the factual circumstances of a case or in application of the law. In fact an appeal is a limited retrial.

5.1.2.2. Court of appeal

In most cases an oral hearing takes place one month after filing an appeal with a court of appeal. Before the hearing all parties to a case are allowed to provide the court with written responses to the appeal. The resolution of a court of appeal comes into force immediately after its operative part is pronounced.

5.1.2.3. Court of cassation appeal

A judgment of the first instance after passing the appellate court’s review may also be appealed in a court of cassation appeal (third level court) within two months after such judgment or resolution comes into force. The cassation court does not retry the case or re-evaluate the evidence, but deals only with points of law. As a result of the cassation hearing the judgment may be upheld, reversed or amended, or the case may be sent back to the court that issued the judgment for a re-trial.

A cassation appeal must be filed within two months of the date of the relevant judgment, and is heard within one month of the date of filing. Generally, the submission of a cassation appeal does not suspend the enforcement of the appealed judgment, though the cassation court may order a stay of execution.

A party may also challenge a judgment of any court by filing a supervision appeal with the Supreme Arbitrazh Court, provided that the party has exhausted lower court appeals. The appeal may be filed within three months of the last judgment in the case.

5.1.2.4. The Supreme Arbitrazh Court

In contrast to the procedures in the lower courts, supervisory review is a two-tier process. Before the appeal is actually heard on its merits, a panel of three judges of the Supreme Arbitrazh Court reviews the party’s appeal and decides whether there are grounds for carrying out a supervisory review of the judgment that is appealed against. If the panel decides to refer the case for supervisory review the Presidium of the RF Supreme Arbitrazh Court proceeds to hear the appeal.

In practice less than two percent of applications for hearing an appeal are accepted by the Supreme Arbitrazh Court.

5.1.2.5. Procedural Issues

A legal entity involved in an arbitrazh court case in Russia may represent itself in court using the services of an in-house lawyer, or retain a foreign or local law firm.

Certain formalities must be followed in order for a person to appear as a legal representative in court. The Code of Arbitrazh Procedure provides that a legal entity may be represented by its general director or by another person acting pursuant to a power of attorney. The power of attorney must be signed by the general director of the company and bear the corporate seal. Where a power of attorney is issued outside the Russian Federation it must be notarized and legalized in Russian embassy or by affixing an


Apostille (option available in the countries which are parties to the Convention Abolishing the Requirement of Legalization for Foreign Public Documents).

Moreover, a representative acting under a power of attorney may perform certain procedural actions only if such actions are expressly stated in his/her power of attorney. These actions include the right to sign a statement of claim, statement of defense, appeals, applications to amend the subject-matter or cause of action, applications for provisional remedies, acceptance or withdrawal of claims, etc.

The procedure for serving notice has been simplified. From 1 November 2010 an arbitrazh court needs to send by post only the first ruling on acceptance of a claim and initiation of proceedings (or setting the first hearing date). Thereafter the court is entitled to notify the parties of subsequent hearings by telephone, telegram, fax or e-mail. The information is also placed on the official website of the Supreme Arbitrazh court.12

The filing of claims and submissions is traditionally performed on paper with blue ink signatures of the authorized representatives. Recently it was made possible to file claims electronically.

5.1.3. Personal Jurisdiction over Foreign Defendants

Russian arbitrazh courts have jurisdiction over foreign defendants if:

The defendant is located or resides or his/her assets are located in the Russian Federation;

The management body or a branch or representative office of the foreign party is located in the Russian Federation;

The dispute arose out of a contract, performance under which should have taken place, or actually took place, in the Russian Federation;

The claim arose out of damage caused to assets by an act or other event that occurred in the Russian Federation, or upon the onset of harm in the Russian Federation;

The dispute arose out of unjust enrichment that took place in the Russian Federation;

The claimant filing an action for the protection of its business reputation is located in the Russian Federation;

The dispute arose out of a relationship connected with circulation of securities that were issued in the Russian Federation;

The applicant in a case to establish a fact of legal relevance claims that such fact occurred in the Russian Federation;

The dispute arose out of a relationship connected with state registration of names and other assets and the provision of services via the Internet in the Russian Federation; or

In other cases where the disputed legal relationship is closely linked with the Russian Federation.

In addition, Russian arbitrazh courts also have jurisdiction over disputes involving foreign parties if such disputes fall within the exclusive jurisdiction of the Russian courts, i.e.:

Disputes relating to state property, including privatization disputes and takeovers of private property for public needs;

Disputes relating to title and other registered rights to real property located in the Russian Federation;

Disputes connected with the registration in the Russian Federation of patents, trademarks, designs or utility models, or registration of other rights in the results of intellectual pursuits;

Disputes involving the establishment, liquidation or registration of legal entities and self-employed entrepreneurs in the Russian Federation;

Corporate disputes with regard to a Russian legal entity; and

Disputes arising over administrative and other public law relationships with Russia or Russian state agencies.

12

http://rad.arbitr.ru, http://kad.arbitr.ru

http://rad.arbitr.ru/

http://kad.arbitr.ru/



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Russian arbitrazh courts also have jurisdiction over a foreign defendant where the parties have agreed in writing to submit their disputes to Russian courts, provided that the agreement does not violate the exclusive jurisdiction of a foreign court.

5.1.4. International Arbitration

As an alternative to the state arbitrazh courts, foreign investors may refer disputes to a private arbitration tribunal, including ad hoc and institutional arbitration tribunals located either in the Russian Federation or abroad. Arbitration proceedings may handle a wide range of issues, but not disputes arising from administrative relations (e.g., tax and customs) and disputes that fall within the exclusive jurisdiction of the Russian arbitrazh courts (e.g., disputes arising from bankruptcy proceedings, or other disputes specifically enumerated in Russian law).

The principal rules of international arbitration are governed by the Federal Law On International Commercial Arbitration, enacted on 7 July 1993 and based on the provisions of the Model UNCITRAL Law.

In addition, the international commercial arbitration provisions of various international treaties to which the Russian Federation is a party – in particular, the European Convention on International Commercial Arbitration of 1961 and the New York (United Nations) Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention) – also apply in Russia.

5.1.5. Enforcement of Judgments and Arbitral Awards

Judgments of Russian courts of general jurisdiction and of Russian arbitrazh courts are enforced through the state bailiff service.

A foreign court judgment may be enforced in Russia only if such judgment has been recognized by a Russian court. Such recognition is available if supported by a relevant international treaty, or on the basis of reciprocity. Russian courts also recognize and enforce foreign court judgments relying on the principle of reciprocity on a case by case basis.

Russia is a party to the Kiev Convention on the Procedure for Resolving Disputes Relating to Business Activities (the Kiev Convention). According to the Kiev Convention, judgments rendered by state courts of certain CIS nations are enforceable in the Russian Federation. The Russian Federation is also a party to a number of bilateral agreements concerning the recognition and enforcement of court judgments.

Arbitral awards rendered by arbitration tribunals located in the Russian Federation or abroad are also executed by the bailiff service after such awards are recognized and ordered to be enforced by Russian courts. As a rule, Russian courts may not review any foreign arbitral award on its merits. The grounds for refusal to recognize and enforce foreign arbitral awards are generally the same as those set forth in the New York Convention.

5.1.6. Alternative Dispute Resolution and Mediation

The Federal Law on an Alternative Procedure for Dispute Resolution with the Participation of an Intermediary of 27 July 2010 (the “Law on Mediation”) regulates dispute resolution procedures involving the assistance of a mediator on the basis of voluntary consent of the parties.

The mediation procedure may be applied to civil (including disputes arising out of economic relations), labor (except for collective employment disputes) and family law disputes. However, mediation is not possible in the above-named disputes if they affect public interests or the rights and legitimate interests of third parties that are not participating in the mediation procedure.

The mediation agreement concluded by the parties as a result of the mediation procedure cannot be enforced and is subject to voluntary performance by the parties.


When the parties have concluded a mediation agreement as the result of the mediation procedure after the dispute has been referred to a state court or arbitration, the court or arbitration tribunal may approve the mediation agreement as an amicable settlement.

Mediators, as well as other intermediaries assisting the parties in settling the dispute, may not be questioned as witnesses in state courts on matters that came to their knowledge in the course of performing their duties.



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5.2. Promoting Foreign Investment in Russia


5.2.1. Foreign Investment Law

5.2.1.1. General Provisions regarding Foreign Investments

The Constitution and the Civil Code of the Russian Federation, as well as laws on joint stock and limited liability companies and insolvency, provide the general legal framework for trade and investment in Russia.

Foreign investments are regulated by the Federal Law On Foreign Investments in the Russian Federation, dated 9 July 1999 (the “Law on Foreign Investments”). The Law on Foreign Investments guarantees foreign investors the right to invest and to receive revenues and profits from such investments, and sets forth the terms for foreign investors’ business activity in Russia.

The Law on Foreign Investments does not apply to the investment of foreign capital in banks, credit organizations, insurance companies or non-commercial organizations; foreign investments in such entities are regulated under different Russian legislation.

The objective of the Law on Foreign Investments is to attract foreign materials, financial resources, and technology and management skills to improve the Russian economy, while providing stability for foreign investors.

The Law on Foreign Investments emphasizes the role of both federal and regional legislation, and stipulates that foreign investors and investments must be treated no less favorably than domestic investments, with certain exceptions. Such exceptions may be introduced to protect the Russian constitutional system, the morality, health and rights of persons, or in order to ensure state security and defense.

The Law on Foreign Investments permits foreign investment in most sectors of the Russian economy: portfolios of government securities, stocks and bonds, direct investment in new businesses, the acquisition of existing Russian-owned enterprises, joint ventures, etc. Foreign investors are protected against nationalization or expropriation unless such action is mandated by a federal law. In such cases, foreign investors are entitled to receive compensation for any investment and other losses.

One of the most important features of the Law on Foreign Investments is the tax stabilization clause, also known as the “Grandfather Clause”, set forth in Article 9. This clause applies to (i) foreign investors that are implementing “priority investment projects”, (ii) Russian companies with more than 25% foreign equity ownership, and (iii) Russian companies with some foreign participation that are implementing “priority investment projects.”

Article 2 defines a priority investment project as a project with foreign investment of at least RUB 1 billion (about USD 33.3 million at the current exchange rate), or where a foreign investor has purchased an equity interest of at least RUB 100 million (about USD 3.3 million at the current exchange rate); in either case, the investment project must also be included in a list of projects approved by the Russian Government.

For companies and projects that qualify, the Grandfather Clause prohibits increasing the rates of certain import duties and federal taxes until initial investments have been recouped (up to a maximum of seven years, unless this period is extended by the Russian Government). Key exceptions to the Grandfather Clause are established for protective customs tariffs on commodities, excise tax, VAT on domestic goods, and Pension Fund payments. Article 9.4 provides a further and potentially broad


exception for laws protecting certain public or state interests. Article 9.5 contemplates the adoption of regulations to implement the Grandfather Clause. Despite all these exceptions and qualifications, it remains arguable whether the tax stabilization clause is of real benefit to foreign investors.

5.2.1.2. Restrictions on Strategic Companies

Certain restrictions on foreign investments are imposed by Russian Law No. 57-FZ of 29 April 2008 “On the Procedures for Foreign Investments in Companies of Strategic Significance for National Defense and Security” (the “Law on Strategic Companies”). The Law on Strategic Companies is designed to regulate the acquisition of control over Russian strategic companies by foreign investors or “groups of persons” that include a foreign investor. Acquisitions by such entities of control of strategic companies (including through acquisitions of shares) require the preliminary consent of the Russian Government and/or a post-transaction notification.

The Law on Strategic Companies provides a list of more than 40 activities that constitute strategic activities in Russia. Accordingly, any company engaged in such activities is viewed as a strategic company. Strategic activities include the following:

1. Works having an active impact on geophysical processes;

2. Works related to hydro-meteorological processes and events;

3. Activities related to the use of infectious agents;

4. Activities related to the nuclear industry and the storage of nuclear and radioactive materials;

5. Activities related to encryption and licensed encryption techniques, excluding distribution and maintenance of encryption techniques and related services performed by Russian banks that are not directly owned by the Russian Federation;

6. Activities related to the secret obtaining of information in premises and equipment (excluding activities performed for the purposes of the security of legal entities);

7. Activities related to the production, trade, repair and utilization of weapons and military equipment, and their spare parts and ammunition (excluding bladed weapons, civil and service weapons) and explosive materials for industrial purposes;

8. Activities related to aviation equipment and security;

9. Space activities;

10. Activities related to television or radio broadcasting on a territory, where half or more of the population of a constituent entity of Russia;

11. Services provided by a company included in the register of natural monopolies, (excluding natural monopolies in the public telephone and wireless communication and postal communications fields, and services for the supply of heat energy and electrical energy through the distribution grid);

12. Activities performed by a company included in the register of companies having more than a 35% market share in a particular market of goods and occupying a dominant position in the following fields:

The market of communication services on the territory of Russia (excluding providing access to the Internet);

The market of fixed telephonic communication on the territory of five or more constituent territories of Russia;

The market of fixed telephonic communication on the territories of Moscow and St. Petersburg.



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13. Activities related to geological research of subsoil and/or mineral exploration and extraction of federal subsoil;

14. Procurement of aquatic biological resources (fishing);

15. Performance of printing by a commercial entity, if such commercial entity is capable of printing no less than two hundred million pages a month; and

16. Performance of editorial office activities and/or activities of a periodical publisher, publishing publications with individual circulations of no less than one million.

Therefore, from the standpoint of foreign investment, it is important to verify all activities the target company is engaged in to assess whether it qualifies as strategic and is therefore subject to the restrictions outlined below.

5.2.1.3. Controlled Transactions

The following transactions involving the acquisition of control over strategic companies require the preliminary consent of the Russian Government:

(i) Transactions with shares (participatory interests) if as a result of such transactions a foreign investor or group of persons acquires:

The right to direct or indirect disposal of 25 or more percent of the total number of votes at

shareholder level for companies using federal subsoil plots;

The right to direct or indirect disposal of more than 50 percent of the total number of votes at

shareholder level for companies engaged in strategic activities other than the use of federal subsoil plots;.

The right to appoint (a) the chief executive officer, and/or (b) more than 50 percent of the members of a collective executive body of the strategic company;

The unconditional ability to elect more than 50 percent of the members of the board of directors (supervisory council) or another collective governing body of such company;

(ii) For companies using federal subsoil plots – transactions aimed at the acquisition by a foreign investor/group of persons of shares (participatory interests) if the foreign investor or group of persons already has (a) the right of direct or indirect disposal of twenty five or more percent of the total number of votes at shareholder level (that is, any increase in a shareholding in a strategic company), (b) the right to appoint the chief executive officer, and/or twenty five or more percent of the members of a collective executive body of such a company, and (c) the unconditional ability to elect twenty five or more percent of the members of the board of directors (supervisory council) or other collective governing body of such company;

(iii) Agreements resulting in the acquisition by a foreign investor or by a group of persons of rights to perform the functions of a management company;

(iv) Other transactions aimed at the acquisition by a foreign investor or group of persons of the right to determine the decisions of the governing bodies of such a company, including the rights to determine its business activities; and/or

(v) Transactions aimed at the acquisition by a foreign state, international organization or organization controlled by them, of the right to dispose directly or indirectly of more than

Five percent of the total number of votes at shareholder level - for companies using federal subsoil plots; or

More than 25 percent of the total number of votes at shareholder level - for companies engaged in strategic activities other than the use of federal subsoil plots.


Similar criteria are employed by the Law on Strategic Companies when defining the notion of “control”. “Control” denotes not only a certain minimum shareholding level, but also rights to appoint management bodies and otherwise determine the company’s business activity.

Acquisition of five percent or more of the shares (whether voting or not) in any strategic company requires providing a post transaction notification to the Federal Antimonopoly Service.

5.2.1.4. Special Restrictions for Foreign States, International Organizations and Organizations under Their Control

Investments of foreign states, international organizations and organizations under their control into Russian companies (strategic and non-strategic) are subject to additional clearance requirements under the Law on Foreign Investments. Any transaction which gives a foreign state, an international organization or an organization under their control the right to control (dispose of) directly or indirectly more than 25% of the total number of votes attached to voting shares in any Russian company, or otherwise block decisions of the governing bodies of a Russian company, requires preliminary clearance from the Russian Government and/or the Federal Antimonopoly Service.

Moreover, a foreign state, international organization or organization controlled by them are explicitly prohibited from acquiring control, as defined by the Law on Strategic Companies, over strategic companies. Namely, they are not allowed to acquire:

(i) 25 or more percent of the total number of votes at shareholder level - for companies using federal subsoil plots;

(ii) 50 or more percent of the total number of votes at shareholder level - for companies engaged in strategic activities other than the use of federal subsoil plots; or

(iii) Other rights mentioned in items (iii) and (iv) of the above section “Controlled Transactions”.

5.2.1.5. Consequences of Violation of the Law on Strategic Companies

Transactions executed in breach of the Law on Strategic Companies are deemed void. The parties to a void transaction may be ordered to return everything received under such transaction in a court action. If it is impossible to reverse a deal, a court may rule to deprive the foreign investor of voting rights at general shareholders meetings of a strategic company if the foreign investor has not complied with the requirements of the Law on Strategic Companies.



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5.3. Establishing a Legal Presence


In Russia, foreign investors may:

Establish a representative office or a branch of a foreign legal entity;

Establish a Russian legal entity as an enterprise with foreign investment, which is either (a) entirely foreign-owned, or (b) co-owned with a Russian partner(s); and

Act directly as a pure foreign investor.

5.3.1. Representative Office and Branch of a Foreign Legal Entity

5.3.1.1. Legal Status

A representative office or a branch of a foreign legal entity is not considered to be a Russian legal entity, but rather a body representing the interests of a foreign legal entity in Russia.

A representative office is entitled to carry out liaison and ancillary functions in order to promote the business of its foreign founder. Representative offices are not expected to engage in commercial activities in Russia. Consequently, most representative offices are not subject to profits tax, unless their activities give rise to a “permanent establishment” for tax purposes, i.e., when a foreign legal entity engages in regular commercial activity through its representative office (for example, the sale of goods or the provision of services).

A branch is a subdivision of a foreign legal entity, which may fulfill all or part of the functions of its foreign founder. These functions include contracting with Russian entities with payments in foreign currency and rubles, sales and marketing and other business activities.

The obligations imposed on a branch may include the same obligations as imposed on a representative office. However, a branch has less flexibility in selecting an accrediting authority in Russia than a representative office. This can sometimes affect the effectiveness of visa support and other areas.

5.3.1.2. Registration

There are several bodies authorized to grant accreditation to representative bodies, including those responsible for the accreditation of representative offices in a particular industry; representative offices of foreign banks, for example, are accredited by the Central Bank of the Russian Federation. The bodies most frequently charged with accreditation of foreign entities are the Chamber of Commerce and Industry of the Russian Federation (the “CCI”) and the State Registration Chamber at the Ministry of Justice of the Russian Federation (the “SRC”).

All documents from a foreign legal entity must be notarized and apostilled/legalized in the country of execution, and any document supplied in a language other than Russian must be accompanied by a translation which has a notarized certification. Accreditation is usually granted for a period of up to three years, with the right to extension.

Branch offices must be accredited by the SRC in accordance with the 1999 Federal Law On Foreign Investments.

Following accreditation, the representative office or branch office must carry out a number of post-accreditation procedures before it becomes fully operative, including registration with the State Statistics Committee, with the tax authorities, and with the Russian social benefits funds.


5.3.2. Forming a Russian Legal Entity

The Civil Code of the Russian Federation recognizes, among others, the following types of commercial legal entities:

General partnerships;

Commercial partnerships (starting from 1 July 2012);

Limited partnerships;

Limited liability companies;

Additional liability companies; and

Joint stock companies.

The establishment and operations of limited liability companies (“LLC”) and joint stock companies (“JSC”) are governed by Federal Law No. 14-FZ On Limited Liability Companies dated 8 February 1998 (as amended), (the “LLC Law”), and Federal Law No. 208-FZ On Joint Stock Companies dated 26 December 1995 (as amended), (the “JSC Law”), respectively.

The two most popular forms of corporate structuring are LLCs and JSCs.

5.3.2.1. Choosing between an LLC and a JSC

In choosing between an LLC and a JSC in establishing a wholly-owned subsidiary, LLCs are more popular because they are easier to establish and finance, since there is no legal requirement that an LLC must register its shares.

In an LLC a participant is entitled to leave the company in certain circumstances and receive his/her proportionate share of the value of the LLC’s assets. In addition, participants in an LLC who either individually or collectively hold at least a 10% interest in the company’s charter capital can apply to a court seeking expulsion of another participant. In order to actually exclude a participant from the LLC the other participant(s) must prove that the participant substantially hindered the company’s operations or materially breached its obligations.

In contrast to the JSC law, the LLC Law lists a large number of issues that require a unanimous vote of all the LLC participants.

5.3.3. Limited Liability Companies

5.3.3.1. Number of Participants

An LLC may be established by one or more persons or legal entities (“participants”). However, if the number of participants exceeds 50, the LLC must be reorganized into an open joint stock company or a production cooperative within a year. An LLC may not have as its sole participant another business entity consisting of a single person.

5.3.3.2. Rights of Participants

The participants in an LLC have the right to:

Participate in the management of the LLC in accordance with the procedures established by the LLC Law and the company’s charter;

Obtain information concerning the activities of the LLC and have access to its accounting and other documents in accordance with the procedures established by the LLC charter;

Participate in the distribution of profits;



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Sell or otherwise assign their participation interests in the LLC charter capital, or a part thereof, to one or more of the participants in the LLC, and to third parties, unless prohibited by the LLC’s charter, in accordance with the procedure established by the LLC Law and the LLC’s charter; and

Receive a portion of the assets left over after settlement with creditors in case of liquidation of the LLC.

The participants in an LLC also have other rights as provided by the LLC Law, and may have additional rights set forth in the LLC charter during the establishment of the LLC, or which are granted at a later date by a decision of the LLC’s general participants’ meeting. The following points should be noted with regard to granting additional rights to LLC participants:

Where additional rights are granted by decision of the LLC’s general participants’ meeting, this decision must be unanimous; and

Additional rights granted to a particular participant in the LLC are not transferred to any party acquiring all (or a part) of such participant’s ownership interest if it is transferred.

5.3.3.3. Obligations of Participants

The participants in an LLC are required to:

Make contributions to the charter capital as specified in the LLC Law and the LLC charter (or in the decision on the establishment of the LLC, if there is only one participant in the LLC) and within the time periods specified in the LLC Law; and

Not to disclose confidential information concerning the activities of the LLC.

Participants in an LLC also have other obligations as provided for by the LLC Law, and may have additional obligations set forth during the establishment of the LLC in the LLC charter, or which are imposed on them later by a decision of the LLC’s general participants’ meeting.

The following issues should be considered when imposing additional obligations on participants of an LLC:

When additional obligations are imposed by decision of the LLC’s general participants’ meeting on all LLC participants, this decision must be made unanimously;

If additional obligations are imposed by decision of the LLC general participants’ meeting on a particular LLC participant, such decision must be made by a two-thirds majority vote of the total number of votes held by the LLC participants, provided that the LLC participant on whom such additional obligations are imposed voted in favor of such decision or consented to such obligations in writing; and

Additional obligations imposed on a particular participant(s) in the LLC do not pass to any party acquiring all (or part) of such participant’s ownership interest in case it is transferred.

5.3.3.4. Charter Capital

The charter capital of an LLC consists of contributions made by its participants. The initial charter capital may not be less than RUB 10,000 (approx. USD 333 at the current exchange rate).

At least 50% of the charter capital amount must be paid up by the date of the LLC’s registration, and the balance must be paid in full within the first year of its operation. Contributions may be made in cash or in kind, and certain customs benefits may be available for in-kind contributions made by foreign investors. The charter capital may be increased only after the original charter capital has been paid up in full.

An LLC has to provide access to the information about its net assets to any interested party. The net assets of a company must exceed its charter capital amount. If the LLC has net assets less than its


charter capital amount for two years from its establishment and each subsequent year, it must reduce the charter capital to the amount of its net assets. Moreover, if a Russian company has net assets less than the minimum charter capital established by law for two years from the LLC’s establishment and each subsequent year, it must take a decision on voluntary liquidation. Failure to take such decision may result in a claim from the Russian tax authorities for the forced liquidation of such company. Also a Russian company with negative net assets may not declare and/or pay dividends to its shareholders.

It should be noted that the charter capital reduction procedure triggers the right of the LLC’s creditors to demand acceleration of the LLC’s obligations to such creditors.

5.3.3.5. Participation Interests

A participation interest (i.e., an ownership share) in an LLC is not considered a security under current Russian legislation. Therefore, in contrast to the shares of a joint stock company, LLC participation interests do not need to be registered.

Participation interests in an LLC may be sold to third parties if allowed by the LLC charter, but other participants must be given the right of first refusal to purchase the participation interests at the price offered to the third parties. Participants in an LLC, if allowed by the LLC charter, may have a unilateral right to withdraw from the LLC and to be compensated for their participation interests.

5.3.3.6. Management Structure

The general participants’ meeting is the highest governing body of an LLC. Participants in an LLC may choose to create a board of directors to govern the operations of the LLC.

The General Participants’ Meeting has the right to:

Amend the charter;

Define the basic goals and directions of the LLC;

Delegate to a commercial organization or to an individual entrepreneur the authority reserved for the LLC chief executive officer, and approve the agreements with such organizations or persons, if such decision does not fall within the competence of the Board of Directors in accordance with the LLC charter;

Assign supplemental rights and duties to the participants in the LLC;

Approve the annual financial report and the distribution of profits;

Alter the amount of the charter capital of the LLC;

Approve regulations governing the internal activities of the LLC; and

Reorganize or liquidate the LLC, appoint a liquidation commission, and approve the liquidation balance sheet of the LLC.

The daily management of the LLC is the responsibility of the executive body, which may be one person (the general director) or may consist of both the general director and the management council. The executive body is responsible for all matters that do not fall within the authority of either the board of directors or the general participants’ meeting. The general participants’ meeting or (if provided by the LLC charter) the board of directors may choose to delegate the powers of the executive body to an external commercial organization or to an individual manager on a contractual basis.


With effect from 1 July 2002, the Federal Law On State Registration of Legal Entities (the “Registration Law”) transferred the authority for registration of legal entities in Russia to the local bodies of the Federal Tax Service of the Russian Federation. As a result, the state registration of legal entities and their registration as taxpayers are now under the auspices of the local tax inspectorates.



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The following documents are required for registration purposes:

An application;

The protocol of the founders’ meeting or, if the LLC has only one founder, the resolution of the founder on the establishment of the LLC;

The charter of the LLC;

A copy of the passport of the proposed general director of the LLC;

Power(s) of attorney issued by the founder(s) for establishment of the LLC;

Power(s) of attorney issued by the founder(s) for filing the application for the state registration of the LLC;

Confirmation of the legal status of the founder(s) (e.g., extract from the trade register or certificate of good standing);

The charter (articles of association, by-laws) of foreign legal entities;

Confirmation of payment of the state registration fee;

Foreign tax registration certificate of the founders (to be provided to a bank);

Bank letter of good credit standing of a foreign legal entity; and

Confirmation of the foreign legal entity’s contribution to the charter capital of the LLC.

Any Russian founder participating in an LLC must also provide additional documentation. All documents from a foreign legal entity must be notarized and apostilled/legalized in the country of preparation. Any document supplied in a language other than Russian must be accompanied by a Russian translation which has a notarized certification.

5.3.4. Joint Stock Companies

5.3.4.1. Types of Joint Stock Companies

A significant number of commercial organizations have been established since the JSC Law came into force on 1 January 1996. While the adoption of the LLC Law in 1998 introduced another option for investors seeking to establish a corporate entity, the JSC Law represents one of the most significant pieces of civil legislation of the post-Soviet era; JSCs remain among the most common commercial corporate forms and structures for doing business in Russia.

A JSC is a legal entity which issues shares in order to raise capital for its activities. A shareholder of a JSC is not generally liable for the obligations of the JSC and bears the risk of any loss only in the amount paid by it for the shares.

Two types of joint stock companies exist in Russia:

Closed joint stock companies; and

Open joint stock companies.

An open JSC may have an unlimited number of shareholders. Shareholders in an open JSC are entitled to freely dispose of their shares. The number of shareholders in a closed JSC may not exceed 50, and the JSC must be transformed into an open JSC within one year should this number be exceeded. As with participants in an LLC, shareholders in a closed JSC have a right of first refusal to acquire shares sold by other shareholders to third parties, at the price offered to the third parties. Shareholders in both open and closed JSCs have a preemptive right to acquire newly issued shares that are to be privately placed, in proportion to their existing shareholdings.


Shareholders in an open JSC also have a preemptive right to acquire newly issued shares that are to be publicly placed, in proportion to their existing shareholdings, but do not have a right of first refusal to acquire shares sold by another shareholder to third parties.

All JSCs are required to maintain a shareholder register. The register includes information about each registered shareholder including the number, category, and classes of shares held. A JSC with more than 500 shareholders must delegate the keeping of the shareholder register to a licensed registrar.

5.3.4.2. Formation of a Joint Stock Company

Individuals and legal entities may be the founders of a JSC. A company’s foundation document, i.e., its charter, must include the following information:

The name, address, and type of the JSC (i.e., open or closed);

The size of the JSC charter capital;

The quantity, nominal value, and categories (common or preferred) of shares, as well as the classes of preferred shares issued and distributed by the JSC;

The rights of the holders of shares of each category;

The structure and competence of the governing bodies of the JSC, and their decision-making procedures;

The procedure for preparing for and holding general meetings of shareholders, including a list of issues requiring either unanimous consent or a resolution adopted by a qualified majority of votes;

Information on branches and representative offices;

Information on the existence of any special right of participation in the management of the company (a “golden share”) held by the Russian Federation, a constituent entity of the Russian Federation, or a municipality of the Russian Federation; and

Other provisions required by law.

The charter may include other provisions, so long as these comply with applicable Russian legislation.

5.3.4.3. Charter Capital

The charter capital of an open JSC may not be less than 1,000 times the Russian statutory monthly minimum wage (the monthly minimum wage used for the purposes of calculating the minimum charter capital of the JSC is currently RUB 100). Currently, using an exchange rate of approximately 30 RUB/USD, the minimum charter capital for an open JSC is approx. USD 3,333. A closed joint stock company must have a minimum charter capital equivalent to at least 100 times the minimum monthly wage (i.e. the minimum capital is currently approx. USD 333).

In contrast to LLC founders, the founders of a JSC must pay 50% of the JSC charter capital within three months following its state registration, with the balance payable in full within the first year.

5.3.4.4. Shares and Other Types of Securities

A JSC can issue securities in the form of shares, bonds, and issuer’s options. Such securities must be registered with the Federal Service for the Financial Markets of the Russian Federation (the “FSFM”), which replaced the former Federal Commission for the Securities Market (the “FCSM”) in March 2004. A JSC can issue common shares and/or several classes of preferred shares. The total value of a JSC’s preferred shares may not exceed 25% of its charter capital.

The concept of a “fractional share” was introduced on 1 January 2002. A fractional share is a share representing a portion of a whole share, which can come into existence when it is not possible to acquire the whole share during a consolidation of shares, when a shareholder exercises its preemptive



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right, or in the course of acquiring newly-issued shares. A fractional share grants its owner the same rights that are granted by the whole share of the corresponding category or class, on a pro rata basis.

5.3.4.5. Management Structure

Both open and closed JSCs must maintain two governing bodies: the general meeting of shareholders and the executive body. An open JSC with more than 50 shareholders must also have a board of directors (also called a supervisory board). An open JSC with less than 50 shareholders and all closed JSCs may appoint a board of directors, although this is not a requirement. The authority of the board of directors is defined by the charter of the JSC and, if a board is not provided for in the charter, the corresponding authority is held by the JSC’s general meeting of shareholders.

In addition to the foregoing governing bodies, a JSC must either establish an internal auditing commission or elect an internal auditor to oversee its financial and economic activities, members of which must be elected by the shareholders.

The general meeting of shareholders is the highest governing body overseeing the activities of a JSC. Its authority is outlined in the JSC Law and cannot be altered. Each common share carries one vote at the general meeting of shareholders (except for cases of cumulative voting where provided for in the JSC Law), and most decisions are made by a simple majority vote, although for certain key decisions a supermajority of 75% is required.

The daily management of a JSC is the responsibility of the executive body, which may be one person – the general director – or may consist of both the general director and the management council. The executive body is responsible for all matters that do not fall within the authority of either the board of directors or the general meeting of shareholders. The general meeting may (by a majority vote) choose to delegate the powers of the executive body to an external commercial organization or to an individual manager on a contractual basis; however this decision may be taken only pursuant to a proposal from the board of directors (if the company has a board of directors).


As of 1 July 2002, the procedure for state registration described in Section 5.3.3.7 above for LLCs is also applicable to JSCs; the only additional requirement with respect to JSCs is registration of the issuance of the JSC’s shares with the FSFM, which is obligatory upon establishment of the company and when increasing the charter capital of the JSC.


5.4. Competition Protection Law


Antitrust matters in Russia are regulated by the Federal Law on Protection of Competition (the “Competition Law”) effective as of 26 October 2006 (as last amended on 6 December 2011) and fall under the auspices of the Federal Antimonopoly Service (“FAS”).

The Competition Law has extra-territorial effect. This means that its provisions extend to relations (agreements, actions) that arise (are concluded, performed) among and by Russian and/or non-Russian persons in and/or outside of Russia, and that affect (or may affect) competition in the Russian Federation.

The Competition Law regulates competition in both the commodities market and financial services markets, and includes the following main areas of particular interest to foreign investors:

Abuse of a dominant position;

Agreements and concerted actions limiting competition;

State preferences;

Establishment of companies;

Mergers and acquisitions;

Unfair competition;

Requirements for tenders and quotation requests.

5.4.1. Abuse of a Dominant Position

Dominant entities are subject to certain restrictions on their activities. Determining whether a particular entity enjoys a dominant position involves a complex evaluation of various factors, the most important of which is the entity’s market share.

For entities with a market share of 50% or greater there is a presumption of market dominance.

Entities with a market share of between 35% and 50% are deemed dominant, provided their dominant position has been established by the FAS.

For entities with a market share of 35% or less there is a presumption of non-dominance, with a few exceptions provided by the Competition Law. Namely, an entity with a market share of less than 35% can be deemed to hold a dominant position if it has a decisive influence on the conditions of product circulation in the market.

The FAS deems a financial organization to be a dominant entity according to the criteria/thresholds set by the Russian Government (and with respect to credit organizations, together with the Russian Central Bank). A financial organization whose share in any single market in the Russian Federation does not exceed 10%, or whose share does not exceed 20% in a commodity market if the commodity also circulates in other commodity markets in the Russian Federation, may not be deemed dominant.

When determining market share, the FAS may take into account not merely one company in isolation but also the group of companies to which it belongs. The group will include all persons/legal entities related by a common controlling share ownership, contractual or other de facto management control.

In addition to the term “dominant position” the Competition Law has a concept of “collective dominant position”, i.e. the collective domination of the market by between three and five independent companies. According to the Competition Law, a participant in collective domination can hold as little as



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8% of the market for a certain commodity and be viewed as a violator if it, together with one or two other participants, has more than 50% of the given market, or, together with up to four other participants, holds more than 70% of the market, and such entities meet certain criteria specified in the Competition Law.

For those in a dominant position, the Competition Law prohibits any of the following activities:

Setting and/or maintaining monopolistically high or low prices;

Withdrawal of goods from circulation if the result of such a withdrawal is a rise of the price of the goods;

Creation of conditions that place one or more business entities in an unequal position as compared to other entities in their ability to access the market for particular goods (creation of discriminatory conditions);

Imposition of contractual terms that are disadvantageous to the other party or do not relate to the subject matter of the contract (and which are not economically or technologically justified);

Discontinuance or reduction of production of goods for which there is a consumer demand if it is possible to produce them on a profitable basis;

Unjustified refusal to enter into a contract with particular customers if it is possible to provide the relevant goods to such customers;

Setting different prices for the same goods where this is not economically or technologically justified;

Creation of barriers to market entry or exit for other business entities;

Violation of pricing rules established by legislation;

Price gouging in the wholesale and (or) retail electricity markets.

Some of the above activities may be allowed if the dominant entity can prove that the positive effects of a particular activity outweigh its negative consequences pursuant to the criteria set in the Competition Law.

5.4.2. Agreements, Concerted Actions and Actions of State Bodies Limiting Competition

5.4.2.1. Agreements Limiting Competition

The Competition Law prohibits cartels, i.e. agreements concluded between competitors acting on the same market, if such agreements lead or may lead to the following:

Control or fixing of prices, discounts, bonus payments, or surcharges;

Increase or reduction of prices or the manipulation of prices at tenders;

Division of the market by territory or according to the volume of sales/purchases, the range of marketable goods, or the range of sellers or buyers;

Refusal to deal with particular sellers or customers;

Discontinuance or reduction of production of goods.

The Competition Law prohibits vertical agreements (i.e. agreements between firms at different levels of the supply chain) if they (a) lead to resale price fixing, save for fixing of a maximum resale price, and/or (b) impose an obligation on the buyer not to permit the sale of a competitor’s products unless the sales


are arranged by the buyer under the trademark or other means of individualization of the respective manufacturer or supplier.

The Competition Law prohibits agreements between economic entities acting on wholesale and (or) retail electricity markets and commercial or technological infrastructure markets if such agreements lead to price gouging on the wholesale and (or) retail electricity markets.

The Competition Law further prohibits other agreements that lead or may lead to restriction of competition. Such agreements might impose unfavorable conditions on the counterparty, set different prices for the same goods without economic or technologic justification, create barriers for third parties entering into or exiting from a certain market, establish conditions for participating in professional or other communities.

In addition, the Competition Law prohibits the so-called “coordination of economic activities” by economic entities if such coordination may lead to restriction of competition. “Coordination of economic activities” is understood as coordination of the actions of economic entities by a third person who does not belong to the “group of persons” of such economic entities and does not act on the market where coordination is taking place. Pursuant to the Competition Law, any actions under and within a vertical agreement are not treated as the coordination of economic activities.

At the same time the Competition Law provides certain exemptions from the above restrictions, in particular:

Except for cartels, the Competition Law permits vertical agreements (i) that are concluded between economic entities each having a market share of less than 20% in any market; and/or (ii) that are commercial concession (franchise) agreements concluded in written form;

Save for cartels, an agreement may be recognized as permissible if it can be proved that such agreement does not lead to elimination of competition, does not impose excessive restrictions on the parties to it or third parties and the positive effects of the agreement, including socio-economic effects, outweigh its negative consequences pursuant to the criteria set in the Competition Law;

An agreement on joint activities, even if it leads to the consequences of a cartel arrangement, may be recognized as permissible if it can be proved that such agreement does not lead to elimination of competition, does not impose any restrictions on third parties and the positive effects of the agreement, including socio-economic effects, outweigh its negative consequences pursuant to the criteria set in the Competition Law;

Agreements entered into between companies of the same group of persons, if either party to the agreement controls, is controlled by or is under common control with the other party to the agreement are exempt from all the restrictions. Control for this purpose is understood as the ability of one person or entity to determine directly or indirectly the decisions taken by the other entity either through use of more than 50% of voting shares in, or by performing the functions of an executive body of, such entity;

Agreements on provision or disposal of the right to use the results of intellectual activity or means of individualization are exempt from all the restrictions.

In addition the Russian Government has introduced general exemptions in a number of economic areas providing certain rules and criteria for recognizing the agreements in such areas as permissible.

5.4.2.2. Concerted Actions Limiting Competition

The Competition Law prohibits concerted actions made by competitors acting on the same market, if such concerted actions lead to the following:

Control or fixing of prices, discounts, bonus payments, or surcharges;

Increase or reduction of prices or the manipulation of prices at tenders;



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Division of the market by territory or according to the volume of sales/purchases, the range of marketable goods, or the range of sellers or buyers;

Refusal to deal with particular sellers or customers unless such refusal is envisaged by federal legislation;

Discontinuance or reduction of production of goods.

Under the Competition Law “concerted actions” are understood as actions carried out by economic entities without agreement, if such actions meet the following criteria: (i) the outcome of such actions is in the interest of each of the participating economic entities, (ii) each economic entity is aware of such actions due to a public announcement made by one of the economic entities participating in the concerted actions, and (iii) the actions of each of the economic entities are based on the actions of other economic entities and do not result from circumstances equally affecting all economic entities in the market.

In addition, the Competition Law prohibits concerted actions made by economic entities acting on the wholesale and (or) retail electricity markets and commercial or technological infrastructure markets if such agreements lead to price gouging on the wholesale and (or) retail electricity markets.

The Competition Law further prohibits other concerted actions that lead to restriction of competition, including concerted actions that create unfavorable conditions for a counterparty, the setting of different prices for the same goods without economic or technologic justification, creating barriers for third parties trying to enter into or exit from a certain market.

In certain cases some concerted actions may be permitted if it can be proved that the positive effects of the actions, including socio-economic effects, outweigh their negative consequences pursuant to the criteria set in the Competition Law.

The above-mentioned prohibitions are not applied to the concerted actions made (i) by persons whose aggregate market share does not exceed 20% and the share of each of them does not exceed 8%, or (ii) among the same group of persons if one of the participants controls or is under common control with the other participant of concerted actions.

5.4.2.3. Acts and Actions of State Bodies Limiting Competition

The Competition Law also provides certain restrictions applicable to the acts, actions, omissions, agreements and concerted actions of federal executive state bodies, the Central Bank, non-budgetary funds, regional and municipal state bodies and organizations performing state functions or providing state services that may lead to the limiting, restricting or eliminating of competition.

In particular, actions that result in (i) introducing restrictions when establishing legal entities, (ii) establishing prohibitions on the movement of goods within Russia or other restrictions on the sale, purchase or exchange of goods, (iii) limiting the right to choose suppliers, (iv) granting state preferences in breach of prescribed procedure, (v) creation of discriminatory conditions and some others actions are prohibited by the Competition Law.

5.4.3. State Preferences

State and municipal preferences were introduced by the Competition Law in 2006.

In accordance with the Competition Law, state (or municipal) preferences consist of granting an economic entity certain privileges over other market participants, ensuring more favorable conditions for its activity in the relevant market by transferring property and (or) civil rights, preferences or state (or municipal) guarantees.

The Competition Law regulates the procedure for providing state (or municipal) preferences for the following purposes:


Ensuring vital services for the population in Arctic regions and equivalent areas;

Development of science and education;

Carrying out fundamental scientific research;

Environmental protection;

Cultural development and conservation of the cultural heritage;

Development of sports and physical culture;

Agricultural production;

State defense and security;

Rendering social services to the population;

Health and labor protection;

Rendering support to small or medium businesses, etc.

State (or municipal) preferences shall be granted with the preliminary written approval of the FAS, subject to a few exceptions specified in the Competition Law.

In order to provide state (or municipal) preferences, the authority intending to grant the preferences submits an application to the FAS for approval together with supporting documents (including a draft act providing for the granting of the state (or municipal) preferences with an indication of the goals and amounts of the preferences; a list of the beneficiary’s activities over the two years preceding the date of the FAS application; and other information required by the Competition Law).

The FAS takes a decision on the application within one month from the moment it is submitted together with all necessary documents. The FAS may extend the period for review of the application by up to two months if the FAS believes that granting such state (or municipal) preferences may lead to restriction of competition.

5.4.4. Establishment of Companies and Mergers & Acquisitions

The Competition Law stipulates that the following transactions and other actions are subject to state control if certain thresholds are met:

transactions with the assets of Russian financial organizations;

transactions with main production (fixed) assets and (or) intangible assets which are located in Russia;

transactions with voting shares, participatory interests or rights in Russian commercial and non-commercial legal entities;

transactions with voting shares, participatory interests or rights in foreign companies supplying goods to the Russian Federation worth more than RUB 1 billion (approx. USD 33.3 million) during the year preceding the transaction.

5.4.4.1. Establishment of Companies

The founders must obtain consent from FAS prior to the establishment of a new company (be it Russian or foreign) provided its charter capital is paid in-kind with the shares and/or property of a Russian legal entity and the new company acquires (as payment of its charter capital) more than 25%/50%/75% of such shares or more than 1/3/50%/2/3 of such participatory shares, or where the company acquires more 20% of the main production (fixed) assets and (or) intangible assets located in Russia (exclusive of most types of buildings and land plots) of another legal entity, and where the thresholds set in the Competition Law are met.



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According to specific conditions provided by the Competition Law, the establishment of a company whose charter capital is paid using the shares and/or property of a Russian financial organization may be subject to mandatory FAS notification prior to establishment. These conditions are similar to those described above for entities acting in the commodities market with certain differences that should be considered on a case-by-case basis.

5.4.4.2. Mergers and Acquisitions

5.4.4.2.1 Mergers

The consolidation or merger of legal entities (save for financial organizations) is subject to the prior approval of the FAS if the aggregate asset value of these entities and their group of persons exceeds RUB 7 billion (approx. USD 233.3 million) or the aggregate revenue earned by the entities and their “group of persons” from the sale of goods during the past calendar year exceeds RUB 10 billion (approx. USD 333.3 million) or if either of the entities is included in the FAS register of entities with a market share exceeding 35% in the relevant market. The procedures for obtaining such approval are similar to the procedures used for acquisitions.

As for the consolidations or mergers involving financial organizations, the respective thresholds are set depending on the type of financial organizations involved by the Russian Government.

Intra-group consolidations or mergers may be exempt from the requirement to obtain prior FAS approval, provided certain conditions are met.

5.4.4.2.2 Acquisition of an Interest, Assets and Rights in a Russian Company

5.4.4.2.2.1 Acquisition of Shares/Participatory Interest in a Russian Company

When an individual, legal entity or group of persons acquires more than 25%/50%/75% of voting shares or more than 1/3/50%/2/3 of participatory shares in a Russian entity, such persons, entities or group must receive prior approval from FAS if:

The aggregate book value of the assets of the acquirer and its “group of persons” plus the target and its “group of persons” exceeds RUB 7 billion (approx. USD 233.3 million) and the balance sheet value of the total assets of the target and its group exceeds RUB 250 million (approx. USD 8.3 million); or

The aggregate revenue earned by the acquirer and its “group of persons” plus the target and its “group of persons” from the sale of goods over the past calendar year exceeds RUB 10 billion (approx. USD 333.3 million) and the balance sheet value of the total assets of the target and its group exceeds RUB 250 million (approx. USD 8.3 million); or

Either the acquirer, or any of the entities belonging to its “group of persons”, or the target, or any of the entities belonging to its “group of persons”, is included in the FAS register of entities with a market share exceeding 35% in the relevant market.

5.4.4.2.2.2 Acquisition of Assets Located in Russia

When an individual, legal entity or group of persons acquires the right of ownership or the right to use the main production (fixed) assets located in Russia or intangible assets of a Russian or foreign entity (subject to certain exceptions provided in the Competition Law), if the acquired assets account for more than 20% of the aggregate book value of the main production (fixed) assets and intangible assets of the selling entity, such persons, entities or a group of entities involved in the acquisition must receive prior approval from FAS if:

The aggregate book value of the assets of the acquirer and its “group of persons” plus the target and its “group of persons” exceeds RUB 7 billion (approx. USD 233.3 million) and the balance sheet


value of the total assets of the target and its group exceeds RUB 250 million (approx. USD 8.3 million); or

The aggregate revenue earned by the acquirer and its “group of persons” plus the target and its “group of persons” from the sale of goods during the past calendar year exceeds RUB 10 billion (approx. USD 333.3 million) and the balance sheet value of the total assets of the target and its group exceeds RUB 250 million (approx. USD 8.3 million); or


The main production (fixed) assets or intangible assets of an entity to be transferred taken into account for the purposes of the above calculation do not include land plots and non-industrial buildings, constructions, premises and parts thereof or unfinished construction objects.

5.4.4.2.2.3 Acquisition of Rights in a Russian Company

When an individual, legal entity or group of persons acquires rights conferring the ability to determine the commercial behavior of the target company (including as a result of change of indirect control over a Russian target company) or the right to perform the functions of its executive bodies, such persons, entities or group must receive prior approval from FAS if:




5.4.4.2.2.4 Mergers and acquisitions outside of Russia which require Russian anti-trust approval

When an individual, legal entity or group of persons acquires more than 50% of the voting shares of, or any right of control over, a legal entity incorporated outside Russia, or the right to perform the functions of its executive bodies, the acquirer must receive prior approval from FAS if:

Such target foreign legal entity controls a Russian subsidiary, or such target foreign legal entity supplied goods to the Russian Federation worth more than RUB 1 billion (approx. USD 33.3 million) during the year preceding the transaction; and





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If any of the thresholds established for consolidations, mergers or acquisitions of voting shares, participatory interest, assets or rights described above is not met and due to this fact the prior approval of FAS is not required, FAS still must be notified within 45 days post-closing if:

the aggregate book value of the assets or the aggregate revenue earned by the consolidated or merged companies exceeds RUB 400 million (approx. USD 13.3 million); or

the aggregate book value of the assets or the aggregate revenue earned by the acquirer and its “group of persons” plus the target and its “group of persons” exceeds RUB 400 million (approx. USD 13.3 million) and the balance sheet value of the total assets of the target and its “group of persons” exceeds RUB 60 million (approx. USD 2 million).

The Russian Government establishes other thresholds for the notification requirement for financial organizations which are involved in such transactions.

In determining the threshold for asset and revenue values, FAS takes into consideration not only the acquirer and the target company, but also all persons (individuals or legal entities) in the acquirer’s and target’s “group of persons.” The broad term “group of persons” includes all individuals or legal entities related to the acquirer/target as a result of controlling share ownership or through certain management contracts, familial relations, and/or other de facto control mechanisms. This term, however, does not include the seller of the shares in question and its group of persons provided, as a result of the transaction, the seller/its group loses the controlling right.

Where a merger or acquisition takes place between entities in the same “group of persons” and preliminary approval by FAS would normally be required by law, the Competition Law permits post-transaction notification of FAS within 45 days after the transaction is completed instead of preliminary approval, provided that the transaction is made between a parent company and its direct subsidiary. In other cases the Competition Law permits post-transaction notification of FAS within 45 days after the transaction is completed, provided the group structure is submitted to FAS no later than one month prior to the transaction and the group structure does not change until after the transaction is completed.

The Competition Law contains separate articles for the acquisitions of an interest, assets and/or rights in financial organizations that are subject to pre-acquisition FAS notification, and the articles contain specific conditions and thresholds applicable to such acquisitions that should be considered on a case-by-case basis.

5.4.5. Procedures and Timing

If FAS determines that an establishment of a company or a merger, or acquisition may restrict competition or strengthen a dominant position it may request additional information and documentation. FAS may also require the parties to take measures to ensure competition.

After all documents have been submitted, FAS has 30 days to review the application or notification. If FAS believes that the transaction may lead to restriction of competition, the review period may be prolonged for an additional two months, during which FAS places information about the transaction on its official web-site and invites all interested parties to voice their opinions on the transaction.

5.4.6. Unfair Competition

Unfair competition, namely any actions by commercial entities aimed at acquiring a competitive advantage in commercial activity in contravention of the Competition Law, business customs, the


requirements of good-faith, reasonableness and fairness, which may or have caused losses to other competing legal entities, or damage their business reputation, is prohibited in Russia.

Types of activities that constitute unfair competition include:

Distribution of false, inaccurate or distorted information that may cause losses to a commercial entity or damage this entity’s business reputation;

Misleading consumers about the nature, methods and place of production, as well as consumer properties and quality, of goods;

Incorrect comparison by a commercial entity of goods produced or sold by this entity with the goods of other commercial entities;

Sale of goods with the illegal use of the results of intellectual activity (i.e., intellectual property) and of the means of individualization of a commercial entity, products, or services, such as trademarks, logotypes and other objects of intellectual property;

Receipt, use and disclosure of commercial, official or other secrets, without the consent of the commercial entity to which this information belongs, etc.

5.4.7. Requirements for Tenders and Price Quotations

The Competition Law provides a list of actions in conducting tenders and requesting price quotations (including governmental tenders) which are prohibited if they lead to a restriction of competition (for example, the creation of preferential conditions for participation in tenders, violation of the procedure for determining the winner, etc).

All federal and municipal bodies, bodies of the Russian Federation’s constituent entities and non-budgetary funds must select a financial organization by holding a public tender (in line with the procedures set by other federal laws) to render certain financial services, a full list of which is provided by the Competition Law, and which includes rendering services on the securities market, attracting monetary funds from legal entities, opening and maintaining bank accounts for legal entities, and making settlements with these accounts, etc.

The Competition Law provides a procedure for referring disputes relating to violations of tender procedures to FAS. This mechanism is additional and without prejudice to the possibility of challenging tender results in Russian courts.



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5.5. Corporate Compliance


5.5.1. Overview of the Key Provisions Anti-Bribery Laws of Russia

The year 2011 brought substantial changes to Russian anti-bribery laws to make them resemble generally recognized international standards in this area. These changes have largely been a result of Russia’s joining the Organization for Economic Cooperation and Development which required accession to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 21 November 1997. In addition, Russia is a party to the UN Convention against Corruption of 31 October 2003, and the Criminal Law Convention on Corruption adopted by the Council of Europe on 27 January 1999.

The Code of Administrative Offences was amended to hold legal entities liable for any illegal transfer, offer or promise of any valuables (cash, property, services, etc.) made in their interests to a state official, foreign official or official of a public international organization in exchange for actions (inaction) related to their official position. The Code of Administrative Offences follows contemporary US and European practice and covers remuneration paid, offered or promised by company employees or by third parties on behalf or in the interests of the company. The Criminal Code has also been changed to criminalize bribery of foreign public officials and officials of public international organizations.

5.5.2. Administrative Offenses

In Russia, there is no criminal liability for legal entities. When a legal entity is held responsible for unlawful conduct, such an entity is ordinarily subjected to administrative liability, such as administrative fines.

5.5.2.1. Active Public and Commercial Bribery on Behalf of a Legal Entity

Article 19.28 of the Code of Administrative Offenses provides for administrative liability of a legal entity for unlawful provision, offer or promise of anything of pecuniary value to a Russian or foreign public official, an official of a public international organization as well as officers in a commercial company for any actions or omissions to act in the interests of this legal entity.

Definitions of a Russian public official, a foreign public official, an official of a public international organization as well as a person performing managerial functions in a commercial or other organization are the same as for the corresponding criminal offenses (see sections on Active Public Bribery and Active and Passive Commercial Bribery below).

5.5.2.2. The Concept of Fault as a Qualified Defense

For legal entities and individuals in Russia, administrative liability is fault-based. Article 2.1 of the Code of Administrative Offenses defines fault of a legal entity as a failure to take all measures within its power to comply with the Code’s requirements. Therefore, a legal entity may raise as a defense the measures it has taken to prevent bribery on its behalf.

5.5.2.3. Sanctions

The sanctions under Article 19.28 of the Code of Administrative Offenses vary depending on the amount of the unlawful remuneration, i.e. the bribe. The minimum sanction for a bribe up to RUB 1 million (approx. USD 33,000) is a fine of up to 3 times of the amount of the bribe, but not less than RUB 1 million. The maximum sanction for a bribe over RUB 25 million (approx. USD 833,000) is a fine of up to


100 times of the amount of the bribe, but not less that RUB 100 million (approx. USD 3.3 million). In all cases, the bribe or its equivalent value may be confiscated.

A legal entity may be held liable under Article 19.28 of the Code of Administrative Offences irrespective of liability of a particular individual involved in the giving of a bribe.

5.5.2.4. Extraterritoriality

Pursuant to Article 1.8 of the Code of Administrative Offenses, unless an international treaty provides otherwise, Russian authorities have jurisdiction to prosecute all administrative offenses which are committed in Russia. Thus, if bribery is directed at a Russian public official, the offence is within jurisdiction of Russian authorities.

Russian authorities will also have jurisdiction over any legal entity located in Russia if a bribe is directed at a foreign official or an official of a public international organization.

5.5.2.5. Liability of Legal Successors

According to Article 2.10 of the Code of Administrative Offenses, legal entities succeeding to the rights of other legal entities as a result of various corporate reorganizations, mergers, etc. are liable for the administrative offenses committed by the legal predecessors regardless of whether the succeeding entities knew of such administrative offenses.

5.5.3. Criminal Offenses

Russian criminal law prohibits active and passive bribery in both public and private sectors.

5.5.3.1. Active Bribery of Public Officials

Article 291 of the Criminal Code prohibits provision of a bribe to Russian public officials, foreign public officials and officials of public international organizations. This Article also covers provision of a bribe through intermediaries.

A Russian public official is defined in Article 285 of the Criminal Code as persons who permanently, temporarily or pursuant to a specific authorization perform the function of a representative of state power as well as persons who perform organizational or administrative functions in the state and municipal bodies, state or municipal establishments, as well as in the Russian military and other armed forces.

A foreign public official is defined in Article 290 of the Criminal Code as any person who is appointed or elected to an office in the legislative, executive or judicial body of a foreign state, including a public administration or enterprise. An official of a public international organization is an international civil servant or any person authorized by such an organization to act on its behalf.

5.5.3.2. Sanctions

The sanctions under Article 291 of the Criminal Code vary depending on (a) whether the person giving a bribe has acted alone or in conspiracy with others, (b) whether the bribe is given for the commission of a lawful or an unlawful act (omission) and (c) the amount of the bribe. The minimum sanction – for a bribe not exceeding RUB 25,000 (approx. USD 833) – is a fine from 15 to 30 times the amount of the bribe, or forced labor for the period of up to 3 years or imprisonment for up to 2 years with a fine of 10 times the amount of the bribe. The maximum sanction – for a bribe exceeding RUB 1 million (approx. USD 33,000) – is a fine from 70 to 90 times the amount of the bribe or imprisonment for from 7 to 12 years and a fine 70 times the amount of the bribe.

A person who has given a bribe may be relieved of criminal liability if he actively aids detection and prosecution of the crime or reported himself after the commission of the crime to the criminal law enforcement authorities or was solicited by a particular public official to give a bribe.



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5.5.3.3. Confiscation

According to Article 104.1 of the Criminal Code, property obtained as a result of a criminal offense and any property into which such criminally obtained property has been subsequently transformed as well as any proceeds from the use of such property may be subject to confiscated. If criminally obtained property or proceeds from its use have been commingled with other property, confiscation will be proportional to the value of the criminally obtained property and the proceeds from its use. Criminally obtained property transferred to another person may be confiscated only if this person knew or should have known that such property was obtained as a result of a criminal act.

According to Article 104.2 of the Criminal Code, a court may decide to confiscate the value of the criminally obtained property if, by the time the court issues a judgment, confiscation of this property as such becomes impossible due to this property having been used, sold or for other reasons.

5.5.3.4. Active Commercial Bribery

Article 204 of the Criminal Code defines commercial bribery as unlawful provision of anything which has pecuniary value (including property rights, services, etc.) to a person who performs managerial functions in a commercial or other organization for an act or omission in connection with such person's official position in the interests of the provider.

We note that the requirement that a bribe must be given in the interests of its provider raises a question as to what extent such a bribe may subsequently be imputed to an organization for the purposes of administrative liability if this bribe was provided by an employee to obtain or retain business for this organization. In our view, the lack of immediate interest on the part of the employee will not necessarily exclude administrative liability of the organization.

Moreover, the same conduct may be prosecuted under Article 201 of the Criminal Code which prohibits abuse of authority, i.e. the use by a person who performs managerial functions in a commercial or other organization of his authority contrary to the lawful interests of this organization for the purpose of obtaining an advantage not only for himself but also for other persons as well as for the purpose of causing damage to other persons.

A person who performs managerial functions, according to Article 201 of the Criminal Code, can be an individual executive officer or a person who is a member of a collective executive body or the board of directors. In addition to the top management, relevant persons include those who perform organizational or administrative functions, i.e. engage in the management of at least some personnel or at least some property of the organization. As a practical matter, it should be noted that Article 204 of the Criminal Code also covers conspiracies to engage in commercial bribery which expands the reach of this Article beyond the persons with managerial functions.

5.5.3.5. Sanctions

The sanctions under Article 204 of the Criminal Code vary depending on whether the person giving a bribe has acted alone or in conspiracy with others as well as on whether the bribe is given for the commission of a lawful or an unlawful act (omission). The minimum sanctions are a fine from 10 to 50 times the amount of the bribe and prohibition from holding certain positions or engaging in certain professional activity for a period of up to 2 years, or a limitation of freedom for a period of up to 2 years, or forced labor for a period of up to 3 years, or imprisonment for a period of up to 3 years. The maximum sanctions are a fine from 40 to 70 times the amount of the bribe and prohibition from holding certain positions or engaging in certain professional activity for a period of up to 3 years, or forced labor for a period of up to 4 years, or an arrest for a period from 3 to 6 months, or imprisonment for a period of up to 6 years.

A person who has committed the offense provided by Article 204 of the Criminal Code, regardless of whether that person has provided or received a bribe, may be relieved of criminal liability if he actively


aided in detecting or prosecuting this offense, or he was subject to bribe solicitation, or he voluntarily reported the bribe to criminal law enforcement authorities.

5.5.3.6. Aiding and Abetting Public Bribery

Article 291.1 of the Criminal Code makes aiding and abetting public bribery a separate criminal offense. Aiding and abetting is defined as the physical giving of a bribe on the instructions of the person either giving or receiving a bribe as well as any other assistance to either of these persons in reaching or executing an agreement between them to give and take a bribe. This Article applies only to bribes with a value exceeding RUB 25,000 (approx. USD 833). This Article also applies to offers or promises of assistance in public bribery regardless of the value of the bribe. The sanctions are comparable to those for active public bribery.



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5.6. Taxation


Over the past 14 years Russia has been engaged in a significant reform of its tax system, which has been implemented in phases. This reform has improved procedural rules and made them more favorable to taxpayers, has reduced the overall number of taxes, and has reduced the overall tax burden in the country.

Part I of the Tax Code of the Russian Federation (the “Tax Code”) came into effect in 1999, dealing largely with administrative and procedural rules. More recent amendments to Part I clarified certain administrative and procedural issues raised by over 10 years of practice of the application of Part I of the Tax Code (in particular, regarding tax audit procedures, procedural guarantees for taxpayers, operations with taxpayer bank accounts and bank liability). Since 2009 taxpayers have been required to appeal adverse tax inspectorate decisions on a tax audit to a higher-tier tax authority as an administrative appeal before bringing a court claim.

The provisions of Part II of the Tax Code regarding excise taxes, VAT, individual income tax, and the unified social tax came into force in 2001, followed by the profits tax and mineral extraction tax provisions of the Tax Code in 2002. In 2003 further amendments introduced a simplified system of taxation, a single tax on imputed income, a new Chapter on transportation tax, and established a special tax regime for production sharing agreements in Russia. A Chapter on corporate property tax came into effect as of 1 January 2004. In 2005 the water tax, land tax, and state duty Chapters came into effect. Most of these Chapters of the Tax Code replaced and significantly updated or improved individual tax laws that initially were enacted as far back as 1991. The remaining Chapter of the Tax Code still under review covers the property tax on individuals, which is currently governed by the old 1991 legislation. In 2006 the inheritance and gift tax that had been in existence since 1991 were repealed. In addition, over the last several years, various amendments have been made to the Tax Code, including several recent key changes largely intended to address the economic downturn in Russia.

Recent major changes relate to complete revision of the transfer pricing rules and introduction of a tax consolidation regime. These rules may substantially change the way businesses operate in Russia. Other changes comprise the replacement of the unified social tax by social security contributions to the Russian social funds. The Chapter on the unified social tax was deleted from the Tax Code effective 1 January 2010; the new provisions were introduced in a separate Federal Law No. 212-FZ. Certain other changes are aimed at improving the taxation of dividends and capital gains on long-term investments received by Russian companies, financial instruments, repo and stock-lending transactions, tax incentives for R&D, introduction of accelerated VAT refund and VAT correction procedures. Thus, tax reform continues to be an ongoing process.

5.6.1. Types of Tax

The Tax Code sets forth three levels of taxation: federal, regional and local. Currently, federal taxes include VAT, excise taxes, profits tax, personal income tax, mineral extraction tax, state duty, special tax regimes, and several other taxes. Regions have the right to establish their own tax systems only within the limits and framework established at the federal level by the Tax Code. At the moment, regional taxes payable to the budget of St. Petersburg include corporate property tax, transportation tax, and gambling tax, while local taxes include land tax and individual property tax. Social security contributions are payable to the State Pension Fund, Social Security Fund, and Federal Medical Insurance Fund.


There are four types of special tax regimes that may be applicable to certain activities and/or categories of taxpayers: single agriculture tax, simplified system of taxation, single tax on imputed income from certain kinds of activity (on the territory of St. Petersburg, put into force by the Law No. 299-35, dated June 17, 2003) and taxation of production sharing agreements. These special tax regimes have the status of a federal tax. However, laws adopted by constituent entities of the Russian Federation may establish special tax rates or other exceptions depending on categories of taxpayers which apply special tax regimes. For instance, St. Petersburg Law No. 185-36, dated May 05, 2009, sets forth a lower tax rate of 10%13 to be applied to incomes reduced by the amount of expenses for organizations and individual entrepreneurs which apply a simplified system of taxation.

5.6.2. Tax Audits

The Russian tax authorities may conduct chamber and on-site tax audits of taxpayers. New amendments, most of which came into effect on 1 January 2007, clarified certain procedural aspects for both types of tax audits. The tax authorities may audit several different taxes simultaneously as part of an on-site tax audit. However, except in cases of a liquidation or reorganization, when a higher tax authority inspects the activities of a lower tax authority that conducted an on-site audit, or when a taxpayer files an amended tax return claiming a lower level of taxation, a tax for a given period may only be audited once. The taxpayer may also be repeatedly inspected for the same tax period upon a decision of the Head of the Federal Tax Service of Russia. In the event that during a repeated tax audit the tax authorities find an underpayment that was not found during a previous tax audit, a penalty for such underpayment would not be applied to the taxpayer, except for cases where the undetected violation resulted from a conspiracy between the taxpayer and the tax authorities.

In exceptional cases provided by the Tax Code, the Russian tax authorities may suspend an on-site tax audit. However the overall term of suspension in any case may not exceed nine months. The results of a tax audit relating to taxes reviewed may only be reconsidered by the supervising tax authorities. In any case, however, the tax authorities may only audit the three calendar years preceding the year of the tax audit. As a general rule, a three-year statute of limitations applies to the imposition of penalties for tax violations, although according to a position taken in Constitutional Court Ruling No. 9-P, dated 14 July 2005, this type of defense could be rejected by the court if the taxpayer impeded the tax audit by the tax authorities.

Also, the tax authorities may levy for outstanding taxes, late payment interest and penalties unilaterally without a court decision. If the taxpayer does not settle its tax liabilities within two months after receipt of a tax demand notice, the tax authorities are required to forward the file to the Russian Ministry of Internal Affairs for review. Starting from 1 January 2007, in certain circumstances the amount of outstanding taxes (that the taxpayer failed to pay within a three-month period) may be collected from the taxpayer’s affiliated companies. This may be possible if the taxpayer, instead of paying the outstanding tax amounts, made payments to the bank accounts of such affiliated companies.

Transfer pricing audits will be performed by a special department in the Federal Tax Service separately from the regular tax audit process. The audits will be performed in-house only and may not be performed as a part of on-site regular tax audits. A transfer pricing audit for 2012 may be initiated not later than 31 December 2013, and for 2013 – not later than 31 December 2015. For 2014 and future periods a transfer pricing audit may be initiated for the three calendar years preceding the year when it was initiated.

5.6.3. Corporate Profits Tax

Starting from 1 January 2009, the maximum tax rate for all companies was reduced from 24% to 20%, which is currently payable at a rate of 2% to the federal budget and 18% to regional budgets. The

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The Tax Code provides for a 15% tax rate



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regional authorities may, at their discretion, reduce their regional profits tax rate to as low as 13.5%. Thus, the overall tax rate can vary from 15.5% to 20%.

In the course of ongoing reforms significant changes were introduced to dividend taxation. Effective 1 January 2008, the tax rate on dividends received from foreign companies by Russian shareholders decreased from 15% to 9% to match the rate applicable between Russian entities. Also, to promote Russian holding companies, starting from 1 January 2008 dividends payable by foreign and Russian entities qualifying as “strategic investments” to Russian companies are exempt from profits tax. The exemption applies provided that on the day the corporate decision to pay the dividends is taken the following three tests are met:

1. The recipient of the dividends has held the shares continuously for not less than 365 days;

2. The recipient of the dividends owns not less than 50% of the shares in the company paying the dividends; and

3. The company paying dividends is not located in a jurisdiction included in a “black list” of off-shore jurisdictions adopted by Order No. 108n of the Russian Ministry of Finance, dated 13 November 2007 (the “black list” includes most of the off-shore low-tax jurisdictions and territories).

Starting from 1 January 2011, Russian holding companies are no longer required to meet the RUB 500 million (approx. USD 16.7 million) investment threshold to apply the dividend exemption, which will substantially increase the use of Russian holding companies.

After these amendments to Chapter 25 of the Tax Code, the following tax rates apply to dividends:

0% withholding tax on dividends payable by Russian and foreign companies qualifying as “strategic investments” (50% or more shareholder with 365 days or more holding period);

9% withholding tax on dividends payable by Russian and foreign companies to Russian shareholders in all other cases; and

15% withholding tax on dividends payable by Russian companies to foreign legal entities.

Chapter 25 also introduced special tax rates on income earned from Russian state securities.

Under the rules promoting the creation of an international financial center in Russia, Russian companies received a full tax exemption on income from the sale or redemption of shares in Russian companies (acquired starting from 1 January 2011) provided that:

they have continuously held those shares for more than 5 years (the “holding period”); and

the income has been derived from the sale or redemption of participation interests or shares in Russian companies, provided that (a) the interests or shares have not been publicly traded on a securities market throughout the holding period, or (b) the interests or shares are of Russian companies operating in the high-tech (innovative) sector of the economy throughout the holding period.

Taxable profit is defined as income less deductible expenses. Although, prior to 2002, deductions were subject to substantial restrictions, as of 1 January 2002, many of those expense limitations disappeared under the new profits tax provisions of the Tax Code. Under the current rules a taxpayer is generally permitted to deduct economically justified and documentarily confirmed business expenses. Deduction of certain types of expenses is subject to restrictions (e.g. certain advertising costs and representational, including business entertainment, and travel costs). As of 1 January 2009, some of these restrictions were repealed, in particular, taxpayers are now entitled to deduct per diems (previously only within the limits set by the Russian Government) and expenses on the education of employees in Russia and certain voluntary insurance expenses. Expenses on research and development


(including those that failed to yield a positive result) falling into the list approved by Resolution of the Russian Government No. 988, dated 24 December 2008, are deductible in the reporting period at a rate of 150% of their actual amount.

The tax consolidation rules came into force on 1 January 2012. The tax consolidation regime allows qualifying Russian groups the use of the losses of a member against the profits of other group members similar to branches of a Russian company. Moreover, transactions between the members of a consolidated group of taxpayers (the “Group”) will be exempt from transfer pricing control. Importantly, consolidation only applies for profits tax purposes and may not be used with respect to other tax obligations of the taxpayer (such as VAT).

Under the current rules a Russian holding company can consolidate its Russian subsidiaries for profits tax purposes if it directly or indirectly holds at least 90% of the shares in such subsidiaries. Cross-border consolidation as well as consolidation with companies in certain industries is not allowed (i.e., banks, insurance companies, non-state pension funds or professional traders on the securities market can consolidate only with alike companies). In order to form a Group the consolidating companies must jointly meet the following high requirements:

the total amount of federal taxes for the Group (except for taxes paid in connection with cross-border transfers) paid for the previous year is not less than RUB 10 billion (approx. USD 333.3 million),

the combined turnover for the previous year is not less than RUB 100 billion (approx. USD 3.3 billion), and

the combined net book value of assets on the first day of the year of consolidation is not less than RUB 300 billion (approx. USD 10 billion).

The consolidating companies form the Group by signing a Tax Consolidation Agreement outlining the group members, responsible participant and the consolidation period (minimum 2 years), etc. The Tax Consolidation Agreement must be registered with the tax inspectorate. The Group can be created from the beginning of a calendar year provided the necessary documents are submitted to the tax authorities before 30 October of the previous year.

The Group’s tax base is calculated by the responsible participant by summing up all income (excluding dividends and other income subject to tax withholding) and all expenses of the Group members. Effectively this allows the offsetting of losses incurred by one or several group members against the profits of other Group participants. Pre-consolidation losses cannot be used against the profits of the Group, but are kept for when the loss-making company leaves the Group.

Due to the high financial thresholds the tax consolidation rules will initially be available only for a very limited number of large Russian groups. At some point, it is expected that the thresholds for consolidation will be reduced.

5.6.3.1. Interest Deductibility and Thin Capitalization Rules

Generally, under the Tax Code, interest is deductible as long as it does not deviate by more than 20% from market interest rates paid on comparable loans in the same calendar quarter. Any excessive part of the interest will not be deductible. If no such comparable loans exist (or at the choice of a taxpayer) interest is deducted within certain limits. According to the amended provisions of the Tax Code, from 1 January 2011 to 31 December 2012 deductible interest for ruble loans may not exceed a factor of 1.8 (previously 1.1) of the Russian Central Bank refinancing rate, and for loans denominated in a foreign currency, the deduction is limited to a factor of 0.8 of the Russian Central Bank refinancing rate (previously 15%) per annum. Thus, the interest deductibility cap on ruble loans has effectively been increased while the cap on foreign currency denominated loans has been effectively reduced. In addition, there is a specific provision with respect to “thin capitalization.” The Tax Code introduces a 12.5/1 debt-to-equity ratio limit for banks and leasing companies, and a 3/1 ratio limit for all other



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companies. If the ratio of the Russian borrower company’s internal capital to its outstanding debt owed to a foreign shareholder holding more than a 20% interest in the Russian borrower company (including debt owed to a Russian affiliate of the foreign shareholder and debt guaranteed by the foreign shareholder or its Russian affiliate) exceeds these limits, the Tax Code restricts the deductibility of interest paid on the excess debt. Non-deductible interest is also considered to be a dividend payment to the foreign shareholder and hence is subject to a 15% withholding tax, unless the latter is reduced or eliminated by an applicable tax treaty. The limitation is recalculated at the end of each quarter.

5.6.3.2. Asset Depreciation and Carrying Forward Losses

Assets with a value exceeding RUB 40,000 (approx. USD 1,300; RUB 20,000 prior to 1 January 2011) and a useful life of more than 12 months are subject to depreciation. Chapter 25 allows taxpayers to split assets into ten groups, depending on the type of asset and its useful life, and to apply accelerated depreciation rates; for example, the useful life for buildings under the new rules is 30 years. Under Chapter 25, taxpayers are able to choose between a linear method (somewhat similar to the old method of asset depreciation) and a non-linear method. As of 1 January 2009, the non-linear method was substantially revised. Most importantly, the depreciation of assets under the non-linear method is performed by groups of assets (rather than on a stand-alone basis for each individual asset) and under a new formula and depreciation rates. Effectively, taxpayers can deduct approximately a half of the depreciation value of assets for 25% of their useful lifetime (certain limitations on the application of the non-linear method must be observed). Land, subsoil, and natural resource assets are not subject to depreciation and hence do not reduce the tax base for profits tax.

Starting from 1 January 2006, a lump-sum deduction in the amount of 10% of the initial book value of newly acquired fixed assets was allowed to be made for profits tax purposes in the period when the fixed assets were acquired. Effective from 1 January 2009, for capital assets with a useful life of from more than 3 to 20 years this special investment incentive is increased from 10% to 30%. A claw-back rule applies to recapture the investment incentives deduction if the taxpayer alienates any capital asset during the first five years of its use. This provision applies both to the 10% and 30% investment incentive deductions. Russian information technology companies (the “IT companies”) having proper accreditation are entitled to write off the full value of computer equipment at the time it is put into service. Losses may be carried forward for 10 years. There are separate tax baskets for certain expenses e.g. for expenses on acquisition of securities. Also, there is no requirement to spread the loss over the entire carry-forward term. Starting from 1 January 2007, there is no limit on the amount of taxable profit that can be reduced by a loss carry-forward in a particular year. In addition, capital losses may be offset against operating income; this deduction, however, must be evenly spread over the residual useful life of the capital asset for which the loss was incurred.

5.6.3.3. Investment Benefits

Russian companies enjoyed various regional and local tax concessions under the 1991 Corporate Profits Tax Law, and under the relevant regional and/or local laws of several territories (particularly Chukotka, Kalmykia, Mordovia, and Evenkia).

Chapter 25 of the Tax Code abolished all tax incentives, including the capital investment allowance. Some types of tax benefits (including investment benefits) were grandfathered, although they ceased to be effective as of 1 January 2004.

Presently, regional and local legislative bodies are no longer authorized to provide tax concessions, except for regional authorities, which may reduce their regional profits tax rate by 4.5% and thus reduce the overall tax rate to 15.5%. However, the effective tax rate could be even lower under the special tax regimes or under the special economic zone (the "SEZ") regime.

While article 56 of the Tax Code establishes the general framework for application of tax benefits, St. Petersburg Law, dated July 30, 1998, No. 185-36 "On State Support of Investment Activities on the


Territory of St. Petersburg" (the "City Investment Law") together with St. Petersburg Law No. 81-11 "On Tax Benefits", dated June 28, 1995, and the St. Petersburg Laws on particular regional taxes (hereinafter referred to collectively as the "City Tax Laws") comprise the set of legislative acts which, to a great extent, regulate the investment climate in the city.

Particularly, amendments to St. Petersburg Law No. 81-11 of July 14, 1995 “On Tax Benefits” (the "Law on tax benefits") first brought in by Law No. 620-88 of December 16, 2004 and entered into full force on January 1, 2006, were aimed at improving the city's investment climate.

The Law on tax benefits defines “investments” as the acquisition of fixed assets (subject that such assets have never been used or operated in St. Petersburg before), or their construction, reconstruction or modernization of the production assets, or receiving fixed assets as a charter capital contribution for the development of industrial production and for administrative purposes.

The amount of the actual investments has to be calculated as the difference between the value of the newly introduced fixed assets and the net book value of fixed assets disposed during the same period, i.e. the amount of fixed assets accrued during the year.

Currently the Law on tax benefits mandates a lower rate for the regional portion of the federal corporate profits tax, which is 13.5 % applied as follows:

for investments of not less than RUR 3 billion (approx. USD 96.7 million) made by investors performing their business activities in compliance with Section D "Manufacturing activities" of the All-Russian classifier of economic activities starting from January 01, 2007;

for investments of not less than RUR 800 million (approx. USD 15.8 million) made by investors performing their business activities in compliance with Section D "Manufacturing activities" and/or Section E "Producing and distribution of electricity, gas and water" and/or Section I "Transportation and Communication" of the All-Russian classifier of economic activities except for the particular economic activities provided for by the Law on tax benefits during 3 calendar years starting from January 01, 2010;

for investments of not less than RUR 50 million (approx. USD 1.6 million) made during 3 calendar years starting from January 01, 2010 by investors performing their business activities in high-tech industries and having 80% of proceeds coming from producing computers, computer programs, optical fiber cables, telecommunications, television and radio transmitting equipment, lasers, liquid crystal devices, and certain medical equipment;

for investments of not less than RUR 15 billion (approx. USD 438.8 million) made by investors during 5 calendar years starting from January 01, 2012.

Generally, companies are eligible for the reduced tax rate for a period of 5-years if they invested more than RUR 50 million during the year the tax benefits were applied, except for those companies which invested not less than RUR 15 billion: the latter companies are eligible for the tax benefit for a 7-year period unless otherwise foreseen by the Law on tax benefits.

This right will cease at the end of the year (i) when the total yearly amount of taxes and levies payable to the St. Petersburg budget were reduced compared to the year before the profits tax benefit went into effect or (ii) when the investor disposed fixed assets (transferred them to its branches and/or other permanent establishments) prior to expiration of the aforementioned 5 and 7-year periods.

Special attention is given to attracting investors to the SEZ acting on the grounds of the Federal Law No. 116-FZ, dated 22 July 2005, "On Special Economic Zones in the Russian Federation" (the "Law on SEZ"). Those companies, residing in the St. Petersburg SEZ, are entitled to use the rate of the regional portion of the 13.5% profits tax provided that they keep separate records of receipts and expenses, obtained (incurred) from activities on and outside the territory of the SEZ.



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It should be emphasized that along with tax benefits (portions of taxes) payable to the St. Petersburg budget and stipulated by the Law on tax benefits, the City Investment Law provides for the following major types of state support of investment activities:

Advantage for renting real estate under the condition of the subsequent investment in it, includes, but is not limited to, postponing rent payments or allowing for their payment by installments for a period of up to 5 years;

Sovereign guarantees of St. Petersburg securing the loans of investors;

Participation of St. Petersburg in city investment projects, and some other projects at various stages of their development, appraisal or realization; and

Support of investors at the expense of the St. Petersburg budget.

5.6.3.4. Technology Incubation Center

Under the Law on SEZ and in compliance with the Agreement "On establishment of SEZ" of January 18, 2006, St. Petersburg has been nominated to host one of Russia's Technology Incubation Centers (“TICs”). The St. Petersburg TIC specializes in IT and the development of analytical instruments in the fields of telecommunications, household appliances, medicine, military and civil avionic, automated control systems (i.e. the development of computer programs and databases, processing of information, R&D, complex equipment development, experimental series testing and implementation).

Russian legal entities interested in participating in a SEZ (TIC) (the benefits would apply only upon the creation of a Russian subsidiary) should obtain the status of a SEZ (TIC) resident by entering into an agreement on technology implementation activities with the SEZ (TIC) Administration. The application should be supported by a business plan. A Special SEZ Expert Council decides on whether an applicant qualifies as a SEZ (TIC) resident based on a score evaluation system, taking into account the prior experience and expertise of the applicant (or the founder of the applicant) in IT, a calculation of the investment recoupment period, an analysis of the markets for the developed products, analysis of other competition and other business risks, intellectual property rights issues, etc. The state, in its turn, would contribute to the development of the businesses in the SEZ by creating the necessary infrastructure.

Companies residing in a SEZ in the form of a TIC will be provided with the following major tax benefits, which provide exceptional opportunities in St. Petersburg for investments in new IT technologies and products:

1) a reduced regional portion of the 13.5% profits tax, resulting in a total profits tax rate of 15.5%, down from the usual 20%; also, provisions of the Tax Code now allow for the immediate write-off of expenditures of resident companies for scientific research and development works;

2) the reduced rates for contributions to be paid to social security funds during a transitional period from 2012 to 2017, namely: to the State Pension Fund at a rate of 8%; to the Social Security Fund - at a rate of 2%; to the Federal Medical Insurance Fund - at a rate of 4%;

3) exemption from property tax for the first ten years after a property is acquired and from land tax and transportation tax for the first five years following the year of acquisition (registration) of a land plot (a transport vehicle, except for aircraft and water transport vessels);

4) a special customs regime incorporating the ability to import goods and equipment for the resident company’s use with neither import customs duties nor VAT, and the possibility to acquire Russian goods under a 0% export rate of VAT.

5.6.3.5. Transfer Pricing Rules


Prior to 2012, the Tax Code contained several rules related to transfer pricing. Specifically, it set forth the presumption that the contractual price agreed to by the parties, including related parties, is the “market price”. At the same time, in any of the following four circumstances, the tax authorities could exercise control over the price:

A transaction between affiliated parties;

A barter transaction;

A foreign trade transaction; or

A transaction involving significant variations in prices (i.e. a fluctuation of more than 20%) for identical goods or services within a short period of time (in practice, this term is interpreted as 30 days immediately preceding the date in question).

If a transaction fell under one of the above four categories, the tax authorities could adjust the contract price based on the market value and impute additional taxes, penalties, and late payment interest accordingly.

Section V.1 of the Tax Code introduced new transfer pricing rules, which came into force on 1 January 2012. The new rules require taxpayers to notify the tax authorities of controlled transactions that are performed in a given calendar year. Controlled transactions include any transactions between related parties (domestic or cross-border). Among other criteria, parties are considered related if one directly or indirectly owns more than 25% of another or can control the formation of at least 50% of the board of directors or the executive body of such other party. The courts may also determine that parties are related if the relationship between the parties could affect the results of transactions between them or their economic activities even in the absence of the statutory criteria. In addition, the following transactions are subject to transfer pricing control:

Cross-border transactions with oil and oil products, ferrous and nonferrous metals, mineral fertilizers, precious metals and stones,

Cross-border transactions with foreign entities registered in certain low-tax jurisdictions according to a list established by the Russian Finance Ministry, provided that the total revenues under these transactions exceed RUB 60 million (approx. USD 2 million) in total in a given calendar year. The list of low-tax jurisdictions is the same as currently established by the Russian Finance Ministry for applying for the dividend participation exemption. The list still includes Cyprus, which is one of the most popular holding jurisdictions for Russia.

With certain exceptions, the following domestic transactions are not subject to transfer pricing control:

transactions between related parties not exceeding RUB 1 billion (approx. USD 33.3 million) in total in a given calendar year. For 2012 and 2013 this threshold will be RUB 3 billion (approx. USD 100 million) and RUB 2 billion (approx. USD 66.7 million), respectively;

transactions where both parties are registered and conduct all operations in the same region and do not have tax losses, including loss carry-forwards.

Russian taxpayers forming a consolidated taxpayer group are not subject to transfer pricing control for profits tax purposes.

The new rules provide for five transfer pricing methods (comparable uncontrolled price, resale, cost plus, comparable profits, and profit split). The comparable uncontrolled price method is the primary method to be applied. In all other cases, the best method rule generally applies.

The new rules provide detailed guidance on selecting and adjusting comparables. There is a broad list of permitted data sources on comparables. The rules prohibit the tax authorities from using any outside comparables if the taxpayer has comparable transactions with unrelated parties. Adjustments are permitted with respect to the following taxes: profits tax, VAT (if one of the parties does not pay VAT),



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mineral extraction tax (if paid on an ad valorem basis), and individual income tax. In certain cases taxpayers are permitted to make true-up adjustments for previous tax periods. Corresponding adjustments (i.e., in case a transfer pricing adjustment is made to another party of a controlled transaction) are allowed for Russian corporate taxpayers only. In a cross-border context such adjustments are not allowed.

There are also special transfer pricing rules for securities, which differ for those traded on the organized securities market and those which are not.

Taxpayers having controlled transactions (with certain exceptions) are required to maintain transfer pricing documentation and provide it to the tax authorities within 30 days of the relevant request. The transfer pricing documentation may be requested no earlier than 1 June of the year following the calendar year in which the relevant transactions took place. For 2012 and 2013 the transfer pricing documentation and notification requirements and transfer pricing audit rules will apply only if the total value of controlled transactions with a given party exceeds RUB 100 million (approx. USD 3.3 million) and RUB 80 million (approx. USD 2.7 million), respectively.

Taxpayers that are regarded as major taxpayers under the Tax Code are permitted to enter into unilateral or multilateral advance pricing agreements ("APAs") with the Russian Federal Tax Service of up to 3 years with a possibility to extend to 5 years. The new rules enable taxpayers to conclude APAs covering cross-border transactions with a party resident in a state having a double tax treaty with Russia under the competent authority procedures with the participation of the relevant foreign tax authority. In case of changes in the Russian rules covering APAs, the terms of the concluded APAs are grandfathered.

5.6.4. Taxation of Foreign Companies

Russian legislation taxes profits derived from a “permanent establishment” in Russia, as well as certain other types of income derived without a permanent establishment in Russia. Importantly, whether a permanent establishment exists under Russian tax law is unrelated to whether a foreign company’s office has been registered in Russia. A permanent establishment may exist even if the office is not registered, and the existence of a registered office may not necessarily give rise to a taxable permanent establishment. Profit derived by foreign legal entities from their permanent establishments in Russia is generally taxed at the same profits tax rates applicable to Russian taxpayers. As of 1 January 2012, a new rule was included in the Tax Code requiring that the income of a permanent establishment be determined taking into account the functions performed in Russia, the assets used and commercial risks assumed, which is generally in line with the OECD approach.

Chapter 25 sets forth a limited list of Russian source income not connected with a permanent establishment in Russia that is subject to Russian withholding tax. The list includes mainly passive types of income, such as royalties, interest, dividend income, and rentals. Other income received by non-Russian residents that is not specified in the list is not subject to any withholding tax.

Unless an applicable double taxation treaty provides for a lower rate, dividends payable by Russian companies to foreign shareholders are subject to a 15% withholding tax. Other listed income received by foreign legal entities from Russian sources is subject to either a 20% withholding tax (for most categories of income, including royalties and most types of interest) or a 10% withholding tax (for income from freight and lease of transportation vehicles), subject to any reduction available under an applicable double taxation treaty.

Russia is now a party to 77 double taxation treaties, which can provide for the reduction of the withholding tax rate on dividend income to as low as 5% and generally provide for a 0% withholding rate on other income (e.g. interest, royalties, and capital gains). For example, the 1998 Russia-Cyprus Double Taxation Treaty provides for a 0% withholding tax rate on interest, royalties, capital gains, and other income not related to a permanent establishment; a 5% withholding tax rate on dividends


payable to Cypriot shareholders who have contributed over USD 100,000 to the charter capital of a Russian subsidiary responsible for paying out these dividends; and a 10% withholding tax rate on dividends payable to all other Cypriot shareholders. Many other tax treaties provide for similar withholding tax rates, although some have higher rates.

Chapter 25 includes a provision that explicitly states that, in the event of a conflict, double taxation treaties override the Tax Code. Chapter 25 contains more beneficial rules than had existed under previous laws governing tax treaty relief for a foreign legal entity. Under Chapter 25 of the Tax Code taxpayers can obtain adverse tax treaty relief from tax withholding in Russia without any filings with the Russian tax authorities by presenting documents evidencing the tax residency status of the taxpayer to the tax withholding agent (usually the Russian payer). However, obtaining a tax refund where the tax was actually withheld would require the filing of the relevant forms with the Russian tax authorities.

The profits tax is payable and reported on a quarterly basis based on actual results for the first three months, the first six months, the first nine months and the year. The annual tax return and a report on a foreign legal entity’s activity in Russia must be submitted to the tax authorities by 28 March of the year following the close of the taxable year.

5.6.5. Double Taxation Treaties

Russia has entered into the following bilateral treaties for the avoidance of double taxation which are currently in force:

No Country Dividends Interest14

Royalties

Individual Companies

Qualifying Companies

1. Albania 10 10 10 10

2. Algeria 15 515

15 15

3. Armenia 10 516

0 0

4. Australia 15 517

10 10

5. Austria 15 518

0 0

6. Azerbaijan 10 10 10 10

7. Belarus 15 15 10 10

8. Belgium 10 10 10 10

14

Many treaties provide for an exemption for certain types of interest e.g. interest paid to local state authorities, central bank export credit institutions or in relation to sales on credit. Such exemptions are not considered in this column. 15

The rate applies if the recipient company (other than a partnership) directly owns at least 25% of the capital in the company paying the dividends. 16

The rate applies if the value of the holding is at least USD 40,000. 17

The rate applies if the recipient company (other than a partnership) directly owns at least 10% of the company paying the dividends, and if the value of the holding is at least AUD 700,000, and the dividends to be paid by the Russian company are exempted from Australian taxes. 18

The rate applies if the recipient company directly owns at least 10% of the capital in the Russian company and the value of the holding exceeds USD 100,000.



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Royalties



9. Botswana 10 519

10 10

10. Brazil 15 1020

15 15

11. Bulgaria 15 15 15 15

12. Canada 15 1021

10 0/1022

13. China 10 10 10 10

14. Croatia 10 523

10 10

15. Cuba 15 524

10 0/525

16. Cyprus 10 526

0 0

17. Czech Republic 10 10 0 10

18. Denmark 10 10 0 0

19. Egypt 10 10 15 15

20. Finland 12 527

0 0

21. France 15 5/1028

0 0

22. Germany 15 529

0 0

23. Greece 10 530

7 7

19

The rate applies if the recipient company owns at least 25% of the capital in the company paying the dividends. 20

The rate applies if the recipient company directly owns at least 20% of the capital in the company paying the dividends. 21

The rate applies if the recipient company owns at least 10% of the capital or voting power in the Russian company, as the case may be. 22

The lower rate applies to computer software, patents and know-how. 23

The rate applies if the recipient company owns at least 25% of the capital in the Russian company and the value of the holding is at least USD 100,000. 24

The rate applies if the recipient company (other than a partnership) owns at least 25% of the capital in the company paying the dividends. 25

The lower rate applies to copyright royalties. 26

The rate applies if the value of the holding is at least USD 100,000. On October 2010 Russia and Cyprus signed a protocol to the treaty that changed the above amount to EUR 100,000. The protocol was ratified by the Russian State Duma on 15 February 2012 and will apply starting from 1 January 2013. 27

The rate applies if the recipient company directly owns at least 30% of the capital in the Russian company and the value of the holding exceeds USD 100,000. 28

The 5% rate applies if the French company: (1) has directly invested at least EUR 76,225 in the Russian company; and (2) is subject to tax in France, but is exempt with respect to dividends (i.e. participation exemption). The 10% rate applies if only one of the requirements is fulfilled. 29

The rate applies if the German company owns at least 10% of the capital in the Russian company and the value of the holding is at least EUR 80,000.



Royalties



24. Hungary 10 10 0 0

25. Iceland 15 531

0 0

26. India 10 10 10 10

27. Indonesia 15 15 15 15

28. Iran 10 532

7.5 5

29. Ireland 10 10 0 0

30. Israel 10 10 10 10

31. Italy 10 533

10 0

32. Japan 15 15 10 0/1034

33. Kazakhstan 10 10 10 10

34. North Korea 10 10 0 0

35. Korea (Rep.) 10 535

0 5

36. Kuwait 5 5 0 10

37. Kyrgyzstan 10 10 10 10

38. Lebanon 10 10 5 5

39. Lithuanian Republic 10 536

10 5/1037

40. Luxembourg 15 10/538

0 0

30

The rate applies if the Greek company (other than a partnership) owns at least 25% of the capital in the company paying the dividends. 31

The rate applies if the recipient company directly owns at least 25% of the capital in the company paying dividends and the value of the holding exceeds USD 100,000. 32

The rate applies if the recipient company directly owns at least 25% of the capital in the Russian company. 33

The rate applies if the recipient company directly owns at least 10% of the capital in the Russian company and the value of the holding is at least USD 100,000. 34

The lower rate applies to copyright royalties. 35

The rate applies if the recipient company (other than a partnership) directly owns at least 30% of the capital in the company paying the dividends and the value of the holding is at least USD 100,000. 36

The rate applies if the recipient company (other than a partnership) directly owns at least 25% of the capital in the company paying the dividends and the value of the holding exceeds USD 100,000. 37

The lower rate applies to the royalties for the use of industrial, commercial, and scientific equipment. 38

The 10% rate applies if the Luxembourg recipient directly owns at least 30% of the capital in the Russian company and the value of the holding is at least EUR 75,000. Pursuant to the protocol amending the Tax Treaty the 5% rate should apply if the Luxembourg recipient directly owns at least 10% of the capital in the Russian company and the value of the holding is at least EUR 80,000 or its equivalent in national currency. The protocol will enter into force after both parties have completed ratification procedures under their domestic laws and will start to apply from the calendar year following its entry into force.



121


Royalties



41. Macedonia 10 10 10 10

42. Malaysia -/1539

-/1540

15 10/1541

43. Mali 15 1042

15 0

44. Mexico 10 10 10 10

45. Morocco 10 543

0/1044

10

46. Moldova 10 10 0 10

47. Mongolia 10 10 10 -45

48. Namibia 10 546

10 5

49. Netherlands 15 547

0 0

50. New Zealand 15 15 10 10

51. Norway 10 10 10 0

52. Philippines 15 15 15 15

53. Poland 10 10 10 10

54. Portugal 15 1048

10 10

55. Qatar 5 5 5 0

56. Romania 15 15 15 10

57. Saudi Arabia49

5 5 5 10

58. Serbia and 15 550

10 10

39

The 15% rate applies to profits of joint ventures. Otherwise, the domestic rate applies; there is no reduction under the treaty. 40

The 15% rate applies to profits of joint ventures. Otherwise, the domestic rate applies; there is no reduction under the treaty. 41

The lower rate applies to industrial royalties. 42

The rate applies if the value of the holding is at least FRF 1 million. 43

The 5% rate applies if the value of the holding exceeds USD 500,000. 44

The lower rate applies to interest on foreign currency deposits. 45

The domestic rate applies, there is no reduction under the treaty. 46


The rate apples if the Netherlands company directly owns at least 25% of the capital in the Russian company and has invested in it at least EUR 75,000 or its equivalent in national currency. 48

The rate applies if the Portuguese company has owned directly at least 25% of the capital in the Russian company for an uninterrupted period of at least 2 years prior to the payment. 49

The treaty generally applies as of 1 January 2011.



Royalties



Montenegro

59. Singapore 10 551

7.5 7.5

60. Slovakia 10 10 0 10

61. Slovenia 10 10 10 10

62. South Africa (Rep.) 15 1052

10 0

63. Spain 15 5/1053

0/554

5

64. Sri Lanka 15 1055

10 10

65. Sweden 15 556

0 0

66. Switzerland 15 557

5/10/058

0

67. Syria 15 15 10 4.5/13.5/1859

68. Tajikistan 10 560

10 0

69. Thailand 15 15 1061

15

70. Turkey 10 10 10 10

71. Turkmenistan 10 10 5 5

50


The rate applies if the recipient company owns at least 15% of the capital in the company paying the dividends and the value of the holding is at least USD 100,000. 52

The rate applies if the recipient company directly owns at least 30% of the capital in the Russian company and the value of the holding is at least USD 100,000. 53

The 5% rate applies if: (1) the Spanish company has invested at least EUR 100,000 in the Russian company; and (2) the dividends are exempt in Spain. The 10% rate applies if only one of the conditions is met. 54

The lower rate applies to long term loans (minimum 7 years) granted by credit institutions resident in a contracting state. 55

The rate applies if the company in Sri Lanka owns at least 25% of the capital in the Russian company. 56

The rate applies if the Swedish company owns 100% of the capital in the Russian company (or in the case of a joint venture, at least 30% of the capital in such a joint venture) and the foreign capital invested is at least USD 100,000. 57

The rate applies it the Swiss company owns at least 20% of the capital in the Russian company and the value of the holding exceeds CHF 200,000. 58

The lower rate applies to loans of any kind granted by a bank, interest will not be taxable under the protocol amending the Tax Treaty. The protocol will enter into force after both parties have completed ratification procedures under their domestic laws and will start to apply from the calendar year following its entry into force. 59

The 4.5% rate applies to cinema movies and TV and radio broadcasting programs, the 13.5% rate applies to literature, art, and science products, and the 18% rate applies to computer software, patents, trademarks, and know-how. 60


The 10% rate applies to loans granted by Russian banks.



123


Royalties



72. Ukraine 15 562

10 10

73. United Kingdom of Great Britain and Northern Ireland

10 10 0 0

74. United States of America

10 563

0 0

75. Uzbekistan 10 10 10 0

76. Venezuela 15 1064

5/1065

10/1566

77. Vietnam 15 1067

10 15

In addition to the above, Russia has entered into the following tax treaties for the avoidance of double taxation which do not yet apply (e.g., have not been ratified, the exchange of ratification instruments process is pending):

No. Country Dividends Interest68

Royalties



1. Argentina 15 1069

15 15

2. Chile 10 570

15 5/1071

3. Estonia 10 572

10 10

62

The rate applies if the value of the holding is at least USD 50,000. 63

The rate applies if the recipient company holds at least 10% of the capital or voting power in the Russian company as the case may be. 64

The rate applies if the recipient company (other than a partnership) directly owns at least 10% of the capital in the company paying the dividends and the value of the holding is at least USD 100,000. 65

The 5% rate applies to bank loans. 66

The lower rate applies to the fees for technical assistance. 67

The rate applies if the Vietnamese company has invested at least USD 10 million directly in the capital of the Russian company. 68

Many treaties provide for an exemption for certain types of interest e.g. interest paid to state local authorities, central bank export credit institutions or in relation to sales on credit. Such exemptions are not considered in this column. 69


The rate applies if the recipient company directly owns at least 25% of the capital in the company paying the dividends. 71

The lower rate applies to the royalties for the use of, or the right to use, any industrial, commercial, or scientific equipment. 72

The rate applies if the recipient company (other than a partnership) owns at least 25% of the capital in the company paying the dividends and the value of the holding is at least USD 75,000.


No. Country Dividends Interest68

Royalties



4. Ethiopia 5 5 5 15

5. Georgia 10 10 10 5

6. Laos 10 10 10 0

7. Malta 10/-73

574

0 0

8. Mauritius 10 575

0 0

9. Oman 10 576

0 5

5.6.6. Value Added Tax (“VAT”)

VAT is imposed on all goods imported into Russia and is also applied to the sale of goods, work and services. According to the recent amendments to the Tax Code the same VAT regime applies to goods and services that are sold in or imported into territories under Russian jurisdiction e.g., artificial islands and drilling platforms on the continental shelf. Under the new rules certain types of works (services) provided for the purposes of geological study, exploration and development of hydrocarbons on subsoil plots located on the continental shelf and (or) exclusive economic zone of the Russian Federation are subject to Russian VAT.

The tax period for VAT for all taxpayers and tax withholding agents is a calendar quarter (prior to 2008 for most taxpayers the tax period was a calendar month). Taxpayers must pay VAT by equal installments not later than the 20th day of each month following the reporting quarter (this procedure replaced a single-installment payment as of the third quarter of 2008). Current legislation imposes a VAT rate of 18% on the sale of most goods, work and services. A lower 10% rate is applied to limited types of goods, such as pharmaceuticals, medical equipment, and certain food products and periodicals. The export of goods is subject to 0% VAT. In addition, certain types of goods, work, and services are exempt from VAT (for example, land plots, dwelling houses and apartments, lease of office space to accredited representative offices and branches of foreign legal entities from jurisdictions which apply reciprocal benefits, certain medical goods and services, the sale of shares, derivatives and repo transactions, etc.).

As of 1 January 2008, the assignment of exclusive IP rights (e.g., patents, know-how), with the exception of trademarks, and rights to use the results of these IP rights (e.g., a software use license) based on licenses (including non-exclusive licenses) is no longer subject to Russian VAT. The import VAT exemption now applies to technological equipment that is not produced in Russia according to a list adopted by Resolution of the Russian Government No. 372, dated 30 April 2009 (previously the exemption covered importation of technological equipment contributed to the charter capital of a Russian corporation). Generally, VAT paid on the acquisition of goods, work and services may be offset against VAT collected from customers. Starting from 1 January 2009, Russian buyers are not required to postpone offsetting input VAT on advance payments until the goods, work and services are delivered

73

The rate shall not exceed the rate established for Maltese income tax purposes if the recipient company is a Russian resident. 74

The rate applies if the recipient company (Maltese resident) directly owns 20% in the capital of the Russian company and the foreign capital invested is at least USD 100,000. 75

The 5% rate applies if the value of the recipient company’s holding is at least USD 500,000. 76

The rate applies if the value of the recipient company’s holding is at least USD 500,000.



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and can take an offset on special advance VAT invoices. The new rules allow recognition of retroactive discounts in the current tax period through issuing corrective VAT invoices. For barter transactions, taxpayers are no longer required to transfer VAT to each other in cash and remit VAT under general rules. In order to claim a refund of input VAT paid in relation to goods that were subsequently exported and subject to 0% VAT, the taxpayer is required to file various supporting documents with the Russian tax authorities.

The VAT refund is granted only following a chamber tax audit of the respective VAT return and documents, which should be conducted within 3 months. Starting from 1 January 2009, instead of filing copies of numerous customs declarations the exporter is entitled to file registers of customs declarations stamped by the customs authorities. Effective from 1 October 2011, a taxpayer must restore input VAT previously recovered and pay it to the Russian budget on goods, works, and services, including fixed and intangible assets used for activities subject to 0% VAT (e.g., export of acquired goods or producing goods to be exported). This VAT may be offset in the future when the tax base has been determined e.g., a full set of documents confirming export operations is prepared. As of the first quarter of 2010, a taxpayer may refund VAT before the end of a tax audit if it meets one of the following requirements: (i) the taxpayer has existed for not less than three years, and the total amount of VAT (except import VAT), excise taxes, corporate profits tax and mineral extraction tax paid over the three preceding calendar years is not less than RUB 10 billion (approx. USD 333.3 million); or (ii) the taxpayer provided a bank guarantee of an authorized Russian bank covering the full amount of the reclaimed VAT. The list of the authorized banks is maintained by the Russian Ministry of Finance. In capital construction, the input VAT paid to suppliers of goods, work and services may be offset under a general procedure as the construction progresses (prior to 2006, such input VAT could be offset only when the constructed assets were recorded on the taxpayer’s balance sheet). Generally an enterprise ends up transferring to the state only the difference between input VAT paid and VAT collected. As a general rule, however, a taxpayer may not offset input VAT if such VAT is incurred on goods, works or services used by the taxpayer for the sale of goods or the provision of services that are exempt from VAT. In this case, the taxpayer will be required to maintain split accounting and include such input VAT into its production costs and will effectively lose this input VAT for future recovery. In those cases where only a portion of certain input costs was used for the production of goods or the provision of services subject to VAT, the corresponding input VAT may be offset only on a pro-rata basis. Therefore, for example, careful planning will be required to maintain full recovery if part of a newly constructed building is to be directly leased to representative offices or branches of foreign legal entities accredited in Russia for which a VAT exemption applies.

Starting from 2006, foreign legal entities having more than one representative office and/or branch registered in various locations in Russia may consolidate all VAT accruals and offsets on a company level (prior to 2006, each representative office and/or branch was regarded as a separate VAT payer). For that purpose a foreign legal entity must choose a particular representative office or branch to be responsible for VAT reporting on a company level and notify the local tax authorities responsible for each representative office and branch registered in Russia of its decision.

A Russian customer of a foreign company that is not registered with the tax authorities and is active (making sales or providing services) in Russia must withhold either 9.09% or 15.25% reverse charge VAT (depending on the applicable underlying VAT rate of 10% or 18%, respectively) from the amounts transferred to the foreign company and must itself remit such reverse charge VAT directly to the state budget.

5.6.7. Corporate Property Tax

On 1 January 2004, Chapter 30 of the Tax Code (covering corporate property tax) came into effect, replacing the Corporate Property Tax Law, established in 1991. Property tax is a regional tax, i.e. its imposition is regulated by the legislation of the relevant region. The St. Petersburg Law On Property


Tax of November 26, 2003 No. 684-96 (the “St. Petersburg Law on Property Tax”) effective from January 01, 2004 still remains in force and establishes a maximum tax rate of 2.2% provided by the Tax Code.

The tax base includes movable and/or immovable fixed assets owned by the taxpayer in Russia, and is calculated based on the depreciated book value of those assets determined according to accounting rules (and not tax accounting rules).

Taxable assets do not include inventory, any costs or intangible assets recorded on the taxpayer’s balance sheet, or land and water objects. Since 1 January 2011, managing companies of mutual funds investing in real estate have been subject to property tax on the property held in the fund. The corporate property tax is paid by the managing company from the property of the fund and effectively applies to property held for both corporate and individual investors.

Chapter 30 of the Tax Code further exempts certain categories of property from taxation, such as assets used by religious organizations for religious activities. Corporate property tax is payable on an annual basis, with advances due every quarter.

When imposing property tax, the regional governments of the Russian Federation may fix lower or differentiated rates for different categories of payers and/or types of taxable property. Moreover, regional governments may also exempt certain categories of payers, including both Russian and foreign organizations, from the obligation to assess and make such advance payments, and sometimes provide property tax exemptions or investment incentives.

For instance, prior to 2004 the St. Petersburg tax laws established tax deductions for investors based on the net book value of fixed assets that had been put into effect the previous year. However, St. Petersburg Law on Property Tax abolished this tax benefit, beginning from January 1, 2004.

Presently, the St. Petersburg Law on Tax Benefits allows exemption from the property tax for different types of legal entities, among them, those companies which made investments of not less than 3 billion (approx. USD 96.7 million)77 and companies which invested not less than RUR 800 million (approx.. USD 15.8 million) during three calendar years (after January 1, 2007), provided that they performed business activities in compliance with Section D "Manufacturing activities" and/or Section E "Producing and distribution of electricity, gas and water" and/or Section I "Transportation and Communication" of the All-Russian classifier of the economic activities' types.

This tax benefit is applicable for a five-year period. The same rules of the Law on Tax Benefits as with the profits tax should be followed to qualify the investments. At the same time there are no special provisions for investors running their businesses in high-tech industry in the current version of the Law on Tax Benefits.

Apart from the tax incentives mentioned in the Law on tax benefits, St. Petersburg Law No. 316-28 “On the Investment Tax Loan”, dated July 12, 2002, introduces another measure to support the investors and to encourage the construction and/or modernization of fixed assets on the territory of St. Petersburg.

The investment tax loans for property tax may be granted from a one-year period up to a ten-year period (while the Tax Code provides for a maximum five-year period) to investors on a competitive basis after analyzing the feasibility, size and timing of the investment project based on the business plan and other technical documentation under stipulation that the St. Petersburg budget disposes necessary monetary funds to grant investment tax loans. Currently the interest rate payable on the investment tax loans (to be set forth in an agreement on granting investment tax loans) can vary from 1/8 to the whole refinancing rate of the Russian Federation Central Bank78.

77

Kindly note that exemption from the property tax for this type of taxpayer will be excluded from the Law on Tax

Benefits starting January 1, 2013. 78

Currently is 8,25%



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It has to be noted that the Government of St. Petersburg with its Resolution No. 235 of March 15, 2012 approved the draft Law “On the Investment Tax Loan” (the "Tax Loan Draft Law").

Pursuant to the Tax Loan Draft Law, the investment tax loan can be granted for any regional tax and for the corporate profits tax in the sum payable to the St. Petersburg budget. The tax loan can be given under stipulation that a company invested not less than RUR 300 million in fixed assets (including their modernization) used for production purposes on the territory of St. Petersburg. The interest rate payable on the investment tax loans is 1/2 of the actual refinancing rate of the Russian Federation Central Bank as of the date when parties enter into the agreement on granting investment tax loan.

According to Resolution No. 235 of March 15, 2012 of the St. Petersburg Government, the Tax Loan Draft Law shall replace the effective Law No. 316-28 dated July 12, 2002 and shall enter into force on January 01, 2013. However, as of October 2012 the Tax Loan Draft Law had not yet been considered by the St. Petersburg Legislative Assembly.

5.6.8. Social Security Contributions

Effective as of 1 January 2010, the Unified Social Tax, which previously combined payments to the various Russian social funds, was replaced by separate contributions to the State Pension Fund, the Social Security Fund, the Federal Medical Insurance Fund and the Territorial Medical Insurance Funds (the latter were excluded from the list of recipients as of 1 January 2012).

The social security contributions apply at an aggregate rate of 30% (34% in 2011) of an employee’s annual salary of up to a certain threshold (“social contributions threshold”) and 10% of an employee’s annual salary in excess of such social contribution threshold. Starting from 1 January 2012, the social contribution threshold amounts to RUB 512,000 (approx. USD 17,000; RUB 463,000 in 2011) and it may be adjusted by the Russian Government. The social security contributions are payable as follows: (i) at a rate of 22% of the amount not exceeding the social contribution threshold and 10% of the amount exceeding the social contributions threshold to the State Pension Fund (26% up to the social contribution threshold and 0% of the amount exceeding such threshold in 2011), (ii) at a rate of 2.9% of the amount not exceeding the social contributions threshold and 0% of the excess to the Social Security Fund, (iii) at a rate of 5.1% of the amount not exceeding the social contributions threshold and 0% of the excess to the Federal Medical Insurance Fund (in 2011 - 3.1% to the Federal Medical Insurance Fund and 2% to the Territorial Medical Insurance Funds on the amount not exceeding the social contribution threshold and 0% on the amount exceeding such threshold).

The social security contributions apply to all payments to individuals (including individuals applying the simplified system of taxation) even if made from net income. The social security contributions period is a year, and the social security contributions are paid on a monthly basis.

During a transition period from 2011 to 2027 reduced rates of social security contributions will apply to certain categories of payers, e.g. companies engaged in the IT industry upon a special accreditation procedure79, agricultural goods producers, certain companies applying the simplified system of taxation, certain mass media companies, budgetary scientific institutions and other categories of social contributions payers listed in the law will pay social security contributions at various reduced rates from 0% to 30%80.

As of 1 January 2012, salaries or other payments to foreign citizens temporarily staying in Russia and working under employment contracts for not less than 6 months who were previously exempt from the

79

Resolution of the Russian Government No. 758 of November 6, 2007 80

For example, the following social security contribution rates apply depending on the category of employees: 0% - to remuneration of the employed crew members of vessels registered in the Russian International Register of Ships; 14% - 28% to remuneration of employees of IT companies depending on the year; 27% - 30% to remuneration of employees of media companies depending on the year; etc.


social security contributions are subject to social security contributions paid to the State Pension Fund (at a regular rate of 22% (or 16%) depending on their age, on amounts not exceeding the social contributions threshold and 10% on payments above the social contributions threshold). An exemption applies to compensation paid to so-called “highly-qualified foreign specialists”, i.e. as a general rule foreign employees earning at least RUB 2 million (USD 67,000) annual salary under their employment contracts in Russia.

5.6.9. Personal Income Tax

Individuals who are defined as “Russian tax residents,” i.e. those who have been in the country for 183 days or more during any 12 consecutive months, are subject to personal income tax on all their income, both that earned in Russia and that earned elsewhere. Individuals who do not meet this criterion are subject to tax on any income received from Russian sources. From 1 January 2001, Russia has enacted various income tax rates, including: a 13% flat rate applicable to most types of income; a 9% rate applicable to dividend income; a 35% rate applicable to income from gambling, lottery prizes, deemed income from low-interest or interest-free loans (except loans directed at new construction or acquisition of a residence) and excessive bank interest; and a 30% rate applicable to Russian-source income received by non-residents. As of 2011, foreign nationals who have not yet obtained Russian tax resident status but are recognized as highly qualified foreign specialists for the purposes of the Russian employment legislation (i.e., receiving a salary of at least RUB 2 million per year (approx. USD 67,000)) enjoy 13% Russian personal income tax on their Russian salary.

As part of the legislative initiatives for creating an international financial center in Russia, starting in 1 January 2010 new rules apply to individuals recording financial results on transactions with different categories of securities and derivatives for tax purposes. Also, individual investors were granted the right to carry forward losses on tradable securities and tradable derivatives for ten years. Detailed provisions regarding the determination of the tax base on repo transactions for individuals were included into the Tax Code effective from 1 January 2011. Similarly to companies, Russian individuals also received a full tax exemption on income from the sale or redemption of shares in Russian companies (acquired after 1 January 2011) satisfying the requirements discussed in Section 5.6.3 above.

By 30 April of the following year, a taxpayer who received income on which no income tax was withheld at the source of payment must file a tax return based on his/her actual income for the previous year, and settle tax obligations for that year by 15 July of the following year. Foreign individuals are required to file annual tax returns with the tax authorities by 30 April of the year following the reporting year only if they receive income from non-Russian sources, or income where no income tax was withheld at the source of payment. Those foreign individuals who leave the country during a calendar year should file a tax return for the relevant taxable period no later than one month prior to leaving Russia.

5.6.10. Regional and Local Taxes

Regional and local legislative bodies may, at their discretion, introduce various tax incentives and credits with regard to regional and local taxes. Although these taxes are set regionally and locally, the federal legislature has enacted limits on their overall rates.

Besides the corporate property tax, regional taxes currently include transportation tax and gambling tax.

5.6.10.1. Transportation Tax

Automobiles, motorcycles, motor scooters, buses and other self-powered pneumatic and caterpillar machines and mechanisms, as well as the aircraft, helicopters, motor ships, yachts, sailing vessels, launches, snowmobiles, motor sledges, motor boats, hydro cycles and other water and air transport vehicles, registered in the established order in conformity with the legislation of the Russian Federation are subject to the transportation tax.



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In introducing the tax, St. Petersburg Law of November 04, 2002 No. 487-53 "On transportation tax" (the Law On transportation tax) defines the tax rate within the limits set forth by the Tax Code, the procedure and the terms for tax payment. Respective rules of the Tax Code and regional legislation do not provide for any incentives for legal entities except for the exemption from the tax for residents of the SEZs, subject to conditions of the St. Petersburg Laws On transportation tax and On tax benefits.

The St. Petersburg Government, with its Resolution No. 879 of August 17, 2012, approved a draft Law "On amendments to the Law On transportation tax", which provided new rates of the transportation tax that will come into force on January 01, 2013. However, as of October 2012 this draft Law had not yet been adopted by the St. Petersburg Legislative Assembly.

5.6.10.2. Gambling Tax

Organizations which pursue entrepreneurial activities in the field of a gambling business are subject to paying gambling tax. According to the Tax Code, each taxable unit (i.e. a bookmaker office processing center, a betting shop processing center, a totalizer stake receiving point, etc.) is subject to registration with the tax authority at the place of installation of this taxable unit. Taxpayers that are not registered with tax authorities in the territory where the taxable unit (units) are to be installed (opened) must be registered with the tax authorities at the location of such taxable unit (units).

On June 27, 2012 the St. Petersburg Legislative Assembly adopted Law No. 395-66 of July 03, 2012 "On rates of the gambling tax" which came into force on September 01, 2012.

Local taxes currently include property tax on individuals and land tax.

5.6.10.3. Land Tax

Pursuant to the general rules of the Tax Code, taxpayers of the land tax shall be deemed organizations and natural persons that own land plots that have the right to use them on a permanent basis (on a termless basis) or the right of life heritable tenure thereof.

In St. Petersburg the land tax is established by the Tax Code and by the Law No. 611-86 of November 28, 2005 "On land tax in St. Petersburg and amendments to the St. Petersburg Law On tax benefits", that would cease to be effective in compliance with the Tax Code and the respective St. Petersburg law. The tax base shall be determined in respect of every land plot as the cadastral value thereof as of January 1 of the year in which the tax is paid. The Tax Code provides for the exemption from the land tax for residents of the SEZ.

The St. Petersburg Government, with its Resolution No. 625 of June 19, 2012, approved a draft Law “On land tax” which provides for new land tax rates to be effective from January 01, 2013. However, as of October 2012 the St. Petersburg Legislative Assembly had not yet adopted the draft Law.


5.7. Customs


Customs legislation in Russia is based on the unified rules of the Customs Union (i.e., Russia, Belarus and Kazakhstan, hereinafter – the “CU”) that started to operate as of 1 January 2010, and the main legislative framework of which gained shape on 1 July 2011. Therefore, currently all Russian foreign trade regulations are primarily based on rules established by agreements and decisions taken at the level of the Customs Union. Moreover, Russia is a member of the World Customs Organization and participates in the International Convention on Harmonized Commodity Description and Coding System, the Convention on Temporary Admission and the International Convention on the Simplification and Harmonization of Customs Procedures (hereinafter - the “Kyoto Convention”).

5.7.1. Accession to the WTO

On 16 December 2011 Russia was officially approved to join the WTO. Russia’s commitments and obligations are established in the Protocol of Accession of Russia to the WTO dated 16 December 2011 (hereinafter – the “WTO Accession Protocol”) and the Working Party Report on the Accession of Russia to the WTO dated 17 November 2011 are publicly available. In order to become a member state of the WTO, Russia should ratify the WTO Accession Protocol by the end of August 2012.

5.7.1.1. Market access for goods — tariff and quota commitments

On average the final legally binding tariff ceiling for the Russian Federation will be 7.8% compared with a 2011 average of 10% for all products:

The average tariff ceiling for agriculture products will be 10.8%, lower than the current average of 13.2%

The ceiling average for manufactured goods will be 7.3% vs. the 9.5% average today on manufactured imports.

Russia has agreed to lower its tariffs on a wide range of products. Average duties after full implementation of tariff reductions will be:

14.9% for dairy products (current tariff 19.8%);

10.0% for cereals (current tariff 15.1%);

7.1% for oilseeds, fats and oils (current tariff 9.0%);

5.2% for chemicals (current tariff 6.5%);

12.0% for automobiles (current tariff 15.5%);

6.2% for electrical machinery (current tariff 8.4%);

8.0% for wood and paper (current tariff 13.4%);

USD 223 per ton for sugar (current tariff USD 243 per ton).

Tariffs will be bound at zero for cotton and information technology (ITA) products (the current tariff on ITA products is 5.4%).

It should be noted, however, that 90% of the initial rates of import duties that should be applied from the date of accession to the WTO, as set out in the WTO Accession Protocol, are higher than the rates of the Common Tariff of the Customs Union that was applied before the date of accession. This means that Russia retains the right to increase import duty rates for certain types of goods, which is unlikely at the moment.

The final bound rate will be implemented on the date of accession for more than one third of the national tariff lines with another quarter of the tariff cuts to be put in place during a transition period of



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3-7 years provided for each particular good. The longest implementation period is eight years for poultry, followed by seven years for motor cars, helicopters and civil aircraft.

Tariff rate quotas (TRQs) will be applied to beef, pork, poultry and some whey products. Imports entering the market within the quota will face lower tariffs while higher duties will be applied to products imported outside the quota.

The in-quota and out-of-quota rates are listed below with the out-of-quota rates in parentheses:

For beef 15% (duty rate out of quota 55%);

For pork zero (duty rate out of quota 65%). The TRQ for pork will be replaced by a flat top rate of 25% as of 1 January 2020;

25% (duty rate out of quota 80%) for some selected poultry products;

10% (duty rate out of quota 15%) for some whey products;

Some of these quotas are also subject to member-specific allocations.

5.7.1.2. Export duties

Export duties will be binding for over 700 tariff lines, including certain fish and crustaceans, mineral fuels and oils, raw hides and skins, wood, pulp and paper, and base metal products.

5.7.1.3. Market access for services

Russia made market access commitments in 11 services sectors and 116 sub-sectors. No market access restrictions were provided for 30 sectors, including advertising, market research, consulting and management services. At the same time, Russia did not make any commitments for 39 sectors, including pipeline, railroad and internal water transport, medical services and scientific research activities, i.e., market access for foreign companies would still be restricted in these areas.

Russia maintained certain limitations on market access and national treatment with respect to various types of services that are provided in the Russia’s WTO Accession Protocol. For example, priority is provided for Russian entities acting as contractors, suppliers and carriers that participate in production sharing agreements for exploration, development and production of mineral raw materials.

Foreign insurance companies would be allowed to establish Russian branches 9 years after Russia joins the WTO, i.e., in 2012.

Foreign banks would be allowed to establish subsidiaries in Russia. There would be no cap on foreign equity in individual banking institutions, but the overall foreign capital participation in the banking system of the Russian Federation would be limited to 50% (not including foreign capital invested in potentially privatized banks).

On distribution services, Russia would allow 100% foreign-owned companies to engage in wholesale,

retail and franchise sectors upon accession to the WTO.

5.7.1.4. Other commitments

Russia made a commitment to gradually decrease domestic support for agricultural sector from USD 9 billion in 2012 to USD 4.4 billion by 2018.

Russia has maintained the right to impose strict limitations on market access and national treatment for foreign persons in such sectors as energy, telecommunications and education. On telecommunications, the foreign equity limitation (49%) would be eliminated during the four years following accession. The Russian Federation also agreed to apply the terms of the WTO’s Basic Telecommunications Agreement.


5.7.2. Customs Union

Since the formation of the CU the territories of Russia, Belarus and Kazakhstan comprise a unified customs territory. The CU has unified rules for foreign trade activity, including the importation and exportation of goods. Once goods are imported and released in any CU member state such goods may be freely moved within the CU. There is no customs clearance or customs control at the internal state border between Russia and Belarus and between Russia and Kazakhstan.

The supreme authority of the CU is the Intergovernmental Counsel of EurAsEC. The Commission of the CU is a supranational regulatory and executive body of the CU that is authorized to take implementing regulations and monitor execution of the regulations of the CU by its member states.

The CU is a stage in the formation of the Unified Economic Area, which is expected to imply free movement of services, workforce, and capital within the unified territory. The basic agreements on the formation of the Unified Economic Area have already been signed by Russia, Belarus and Kazakhstan (on unified macroeconomic policy, market access for various sectors, etc.) and are expected to take effect in 2012. It is expected that the Unified Economic Area will be established gradually by 2020 for most economic sectors, such as: free trade in services, including market access to natural monopolies (e.g., railways, energy, etc.); access to financial services, including free movement of capital; a unified social policy and free movement of workforce; unified competition laws; a concerted macroeconomic policy, etc.

5.7.2.1. Unified Tariff Regulation of the Customs Union

The classification of goods for customs purposes in Russia is carried out in accordance with the Unified Customs Tariff of the CU, which is based on the International Convention on the Harmonized Commodity Description and Coding System, dated 14 June 1983 (the Harmonized System), providing that all the goods crossing the customs territory of the CU are assigned customs classification codes (HS codes) determined in accordance with the general rules of interpretation of the Harmonized System. Customs authorities control the correctness of the classification of goods.

5.7.2.2. Preliminary Classification Decisions

At the discretion of importers of record, the Russian customs authorities may take preliminary decisions on classification of goods (hereinafter – “a preliminary classification decision”) which is equivalent to binding tariff information used in the USA and the EU.

Information and documents provided by applicants for the preliminary classification (such as technical descriptions, pictures, samples, etc.) should be exhaustive and should contain all the data required for proper determination of a HS classification code. Preliminary classification decisions are issued in the name of the applicants (i.e., importers of record) and may only be used by them (for more information please refer to the section “Importer of Record” below). The timing for issuance of a preliminary classification decision is 90 calendar days from the date of filing an application, which may be extended for a number of reasons provided by law. Preliminary classification decisions are valid for three years and are mandatory for all Russian customs authorities with respect to the classified goods.

5.7.2.3. Sanitary-Epidemiologic Measures

Unified sanitary measures of the CU are applied in order to confirm that goods imported and distributed in CU territory comply with all safety requirements and do not pose any threat to life and health. The unified sanitary rules are applied at the external border and within the whole territory of the CU and include three lists of goods:

(i) The list of goods that are subject to sanitary-epidemiologic control (includes almost all food products and consumer goods). Goods falling under this list must comply with the established sanitary and safety requirements;



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(ii) The list of goods that are subject to state registration, which is required in order to confirm compliance with sanitary-epidemiologic and hygiene requirements and applies to food products, cosmetic and household chemical products, certain clothing items, mineral water, alcoholic beverages, etc. The state registration must be carried out prior to the goods’ importation into the CU;

(iii) The list of exemptions from state registration (for example, when goods subject to state registration are imported for exhibition purposes).

5.7.2.4. Technical Regulation (Confirmation of Compliance)

Confirmation of compliance is designed to confirm that goods conform to the statutory quality and consumer characteristics requirements. Confirmation of compliance in Russia is based on the Russian national regulations and on the legislation of the CU and the EurAsEC. The technical rules of the CU establish a unified list of goods that are subject to mandatory confirmation of compliance in the form of (i) certification or (ii) declaration of compliance, as well as unified forms for the (i) certificate and (ii) declaration of compliance that are issued by the accredited agencies and laboratories of the CU member states and are valid throughout the CU. It should be noted that compliance confirmation of foreign goods imported into Russia may be performed with certification only.

The technical rules of the CU envisage adoption of a number of technical regulations with requirements for goods on the aforementioned unified list, including 47 priority CU technical regulations. As of December 2011, about 24 technical regulations were adopted (e.g., on the safety of perfumes and cosmetics; packaging; toys, grain, vehicles, machinery, foodstuff, juices, fat-and-oil products, etc.). It is expected that the majority of technical regulations will be adopted by 31 December 2012. Once the CU or EurAsEC technical regulations come into force they would be applied with direct effect and relevant Russian national requirements should no longer be applied. It is expected that by 31 December 2014 all national mandatory technical requirements would be replaced by the CU technical regulations or would no longer be applied. The EurAsEC technical regulations would duplicate CU technical regulations.

It should be noted that currently the technical rules of the CU are still being formed and currently national standards and national lists of products that are subject to mandatory confirmation of compliance also still exist separately in Russia, Belarus and Kazakhstan.

Therefore, currently the two different systems of compliance confirmation co-exist in the CU, i.e., the unified system of the CU and separately applied national (local) technical rules of Russia, Belarus and Kazakhstan. Prior to importation of goods into any of the CU member states it is important to ensure that the goods are in compliance with both systems of compliance confirmation.

In order to facilitate and improve the Russian system of technical regulation a Federal Service on Accreditation was established at the end of 2011, which should be a common body responsible for the accreditation of certification bodies and testing laboratories, maintenance of registers and state supervision.

5.7.2.5. Phytosanitary and Veterinary Control

Importation into Russia of certain types of products, such as living animals, animal foods, meat, meat products, seafood, plants, etc. are subject to special supervision (control) in accordance with the unified veterinary and phytosanitary rules of the CU. Thus, a consignment with controllable goods can be imported into Russia in accordance with the unified veterinary requirements of the CU and with special permission (a veterinary or phytosanitary certificate) issued in the established procedure by the Russian Federal Service on Veterinary and Phytosanitary Supervision (Rosselhoznadzor), which is responsible for monitoring controllable goods and maintaining the register of foreign companies authorized to export certain goods into Russia, as well as lists of certain products banned for importation into Russia from third countries.


5.7.2.6. Import and Export Licensing

Legal basis for the import licensing system is the CU legislation on non-tariff measures. The purpose of the licensing measures is to monitor and control imports and exports of goods which are classified as sensitive by the CU member states or by the international community. Import/export licenses are required: (i) in the event of temporary quantitative restrictions on imports of certain types of goods; (ii) to regulate the importation of certain goods for reasons of national security, health, safety or environmental protection; (iii) to grant an exclusive right to import certain goods; or (iv) to carry out international obligations. A unified list of goods to which import and export limitations and prohibitions are applied was established in the CU, based on which certain categories of goods (e.g., fertilizers; rare animals and plants; goods with a high level of cryptographic protection, hazardous waste, drugs, items of cultural value, precious stones and metals, etc.) require an import or export license for their movement across the CU border. In Russia licenses are issued by the Ministry of Industry and Trade in accordance with the unified licensing rules of the CU. Products containing any cryptographic devices or functions and not requiring an import license (such as electronics; phones; computers; laptops; modems; software, etc.) are subject to mandatory notification with the Russian Federal Security Service. A Russian licensee may import licensed goods into Russia only and has the right to transit such goods through the territory of the other CU member states.

Importation into Russia of certain categories of goods that are not subject to licensing at the CU level may still require a local Russian handling license (e.g., aerosols containing ozone-destroying elements, etc.).

It should be noted that in accordance with the WTO requirements on non-discrimination in foreign trade, the import licensing of medicinal preparations was abolished in the CU in 2011. The import licensing of alcohol products will also be abolished automatically in the CU when Russia becomes a member of the WTO.

5.7.3. The Russian Customs Authorities

The introduction of the CU has not affected the internal structure of the Russian customs service, which remains as follows:

The Federal Customs Service;

Regional customs administrations;

Customs-houses; and

Customs posts.

Importantly, together with the formation of the CU, a new concept of customs clearance of goods at the Russian external state border is currently being implemented, which should entail a significant reorganization of the Federal Customs Service and the whole local customs clearance infrastructure. Under this concept the customs clearance of goods transported by road and rail should be performed at the external border of Russia starting from 1 January 2012 and 1 January 2020, respectively. It is expected that when this reorganization is completed, physical shipment of goods into Russia will often coincide with their release for free circulation.

As a result of implementation of the concept it is expected that a large number of regional customs administrations and customs houses situated far from the customs border of Russia will be closed or considerably reduced in staff and functionality. The concept would require significant economic and infrastructural development of the Russian border regions in order to provide sufficient customs, logistic and warehousing resources to process clearance and control of almost all the traffic and goods crossing the Russian border. At the same time considerable governmental and private investment is still required for successful implementation of the concept by 2020.



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5.7.4. Declarant (Importer of Record)

The resident principle applies in the CU, i.e., only companies that are local residents of a CU member state and are parties to cross-border supply agreements may act as importers of record before the customs authorities.

As a general rule, foreign entities may not act as importers of record, except for a limited number of cases when goods may be imported by representative offices or branches of foreign legal entities accredited in Russia.

5.7.5. Registration of Importer of Record with Local Customs Authorities

Currently all importers of record in Russia are expressly required to undergo preliminary registration with the Russian customs authorities for customs clearance purposes. Since 2004, Russian customs regulations have not contained such a requirement. However, in practice, the Russian customs authorities still open files on all importers of record prior to the beginning of shipment operations and performance of customs clearance formalities. Without doing this it is impossible to perform customs clearance formalities in Russia. At some customs posts the registration of the importer of record usually coincides with the filing of the first customs declaration.

5.7.6. Customs Broker (Representatives/Agents)

A declarant may clear goods through a customs broker (in accordance with the Customs Code of the CU the term “customs agent” is used) - an intermediary legal entity fulfilling customs clearance formalities on behalf and in the name of, and as instructed by, the declarant or another person who is authorized to perform customs operations. The customs agent may pay customs duties and taxes on declared goods. Every customs agent should be included by the CU Commission in the official list of customs agents. A customs agent is jointly and severally liable together with the declarant for the observance of the customs legislation.

5.7.7. Authorized Economic Operator

Authorized economic operator (AEO) is a special status granted by the Russian customs authorities to Russian importers and exporters that is based on the Kyoto Convention and is similar to the already established concept in the European Union. AEO status ensures certain procedural simplifications, including but not limited to:

Temporary storage and release of imported goods at the premises of the AEO;

Release of imported goods for free circulation prior to their declaration to the Russian customs authorities;

Simplified customs transit procedure;

Other customs benefits that could be provided to AEO by the CU customs regulations.

5.7.8. Customs Clearance

Goods that are moved into Russia through Kazakhstan and Belarus are placed under the transit customs regime at the external border of the CU and are finally released for free circulation by the Russian customs authorities. In Russia imported goods are legally released for free circulation after the Russian customs authorities confirm this by a special stamp of the customs authorities placed on the customs declaration (“vypusk razreshyon” - release granted). Imported goods are normally cleared at customs either before their shipment to Russia or when the goods reach the designated customs house/post (and are placed in a special temporary customs warehouse if necessary).


Customs clearance is normally completed by the importer of record (or a customs agent acting on its behalf) filing the customs declaration (the main document) and the required set of documents. The list of documents required for customs clearance in each particular case depends on the type and characteristics of the goods and terms of their importation (e.g., the customs regime chosen).

The timing for the customs clearance procedure is one business day after the date when a customs declaration was registered by the Russian customs authorities, provided that all the required documentation was submitted. However, in practice the customs clearance process may take longer than the statutory term.

The legislation gives a customs inspector the right to extend that term by up to ten business days at the discretion of the chief of a customs terminal.

5.7.9. Electronic Declaration

As of 1 January 2010, the Russian customs authorities have started to carry out customs clearance operations with the use of electronic declarations (hereinafter – “e-declaration”), which should significantly speed up customs clearance formalities for declarants and customs agents. Currently almost all customs posts are equipped with the technical facilities for performing “electronic declaration”, which makes it possible to (i) inform the customs authorities in advance over the Internet, (ii) file a customs declaration and other supporting documents in electronic form and (iii) electronically release the goods. E-declaration also makes it possible for importers located far from clearing customs posts to perform customs clearance formalities and release goods at the Russian border remotely, i.e. without being physically present and without the need to provide documents in hard copies.

Currently almost all customs clearance in Russia is performed electronically. In practice some terminals (especially in the Central Region) still require the importers of record to provide documents as hard copies along with e-declaration due to work overloads, but this old-fashioned approach is expected to cease in the near future.

5.7.10. Customs Regimes

Goods may be placed under any of the applicable customs regimes (i.e., “customs procedures”) established by the Customs Code of the CU that are based on the International Convention on Harmonized Commodity Description and Coding System. Below is a brief description of the most commonly used customs regimes.

5.7.10.1. Internal (Home) Consumption

Importation of goods for internal (home) consumption (usually, the synonymous term “release for free circulation” is used in practice) on Russian territory is the main customs regime for importation with the ensuing free circulation of the goods in Russia without any further customs restrictions or post-clearance customs control, provided that all applicable customs duties and taxes have been paid.

5.7.10.2. Temporary Import

Temporary import is considered to be a special “economic” customs regime, pursuant to which foreign goods are used for a certain period of time (the term of the temporary import) on Russian customs territory with full or partial exemption from import customs duties and taxes (i.e., import VAT and excise taxes, where applicable). Temporarily imported goods must remain unchanged, except for changes due to natural wear and tear or natural loss given normal transportation, shipment, storage, and use conditions. Russian importers are allowed to perform operations with temporarily imported goods required for their preservation, maintenance of the consumer features of products, and keeping the products in the condition they were in before they were cleared at customs for temporary importation into Russia.



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Certain products (e.g., pallets and other types of returnable packaging for goods temporarily imported to further international trade, tourism, science, culture, cinema and sporting relations, etc.) may be temporarily imported with full exemption from import customs payments.

Where partial (rather than full) exemption from import customs payments is granted, the temporary import regime contemplates that 3% of the total amount of import customs payments (that would have been paid if the goods had been fully imported for free circulation) must be paid.

However, the generally permitted term for temporary import is only two years. There are some statutory requirements that should be met in order to be eligible for exemption from customs duties. In particular, temporarily imported goods may not be sold or otherwise transferred to any third party. The customs authorities could also request security for import customs payments (most likely a bank guarantee or cash deposit) from the importer of record before applying the temporary import regime.

5.7.10.3. Bonded Warehouse

Under the bonded warehouse customs regime, goods imported into the CU are stored at special places (bonded warehouses) under customs control without an obligation to pay import customs duties and taxes, and without regard to domestic quota restrictions or other economic measures. Storage at a bonded warehouse is subject to regular non-refundable storage fees as contractually agreed with the bonded warehouse’s owner. Goods so imported and put under this customs regime (pursuant to the permission of the customs authorities) have the status of foreign goods.

The maximum term for the storage of imported goods at a bonded warehouse is three years, with an option to extend this term with the permission of the customs. Goods with a shorter useful life and/or sale terms must be assigned to other customs regimes and shipped from such bonded warehouses at least 180 days prior to expiration of such term (except for products subject to accelerated deterioration with respect to which the term for storage at a bonded warehouse could be reduced).

The importer of record or other interested parties having placed imported goods in a bonded warehouse can sell or otherwise transfer them to third parties, with preservation of the same customs status, with the prior consent of the customs authorities, which is followed by a legal substitution of the importer of record by the third party that acquired these goods. Please, however, note that such a sale or transfer might be subject to local Russian taxation, since apart from the special customs regime a bonded warehouse is no different from any other warehouse located in Russian territory.

Goods placed in a bonded warehouse can be further exported, placed under another customs regime, including importation for internal (home) consumption. When sold to Russian customers for free circulation on the local market, such goods should be declared for the “internal consumption” customs regime with payment of the relevant import customs duties and taxes.

5.7.10.4. Transit

Under the customs transit regime goods cross the customs border of the CU and are under customs control during their movement across Russian customs territory without an obligation to pay import customs duties and taxes, and without regard to domestic quota restrictions or other economic measures. Only foreign goods can be subject to this customs regime, which is granted only based on the permission of the customs authorities. The regime is normally granted either to a carrier or an expediter if it is a Russian legal entity or an entity of the CU. The transit customs regime is terminated when the goods are actually shipped out of Russia. A special transit customs declaration is required for declaration of the transit customs regime.

5.7.10.5. Destruction

Products having the status of foreign goods can be declared for destruction before the customs authorities, which would imply that such destruction must be completed under customs control and the importer would not be subject to import customs duties and taxes with respect to such destroyed


products. However, the cost of destruction must be fully covered by the importer claiming the regime. Moreover, the waste generated as a result of such destruction would be subject to customs clearance requirements and import customs duties and taxes under general rules.

5.7.10.6. Abandonment to the State

Foreign goods imported into Russia may be abandoned to the Russian state, which is a special customs regime that can be selected by the importer of record. Under this regime the title to the imported goods is gratuitously transferred to the state without an obligation of the importer to pay any import customs duties and taxes, including the customs processing fee. Imported products may be cleared under this regime with a permit from the customs authorities. This regime may be a convenient way to avoid unreasonable customs clearance costs if they become applicable to goods for any reason (e.g., customs have classified the goods under a code entailing a substantially higher import duty than the importer is ready to pay, or the customs request a permit / license that the importer does not possess, and it is too costly / burdensome to ship the goods back from Russia).

5.7.10.7. Export

Export of goods is the main customs regime for definitive exportation of goods out of the customs territory of Russia. Export of certain types of goods is subject to export customs duties. Export of any goods is also subject to Russian VAT with a special 0% rate (see below).

5.7.10.8. Re-export

Re-export is the customs regime when goods initially delivered into Russian territory may be taken out of Russian territory with the return of customs duties and fees (if any were paid) and without application of any economic restrictions provided by Russian laws. Generally, the re-export regime applies only to “foreign goods”, i.e. goods that were delivered into Russian territory but have not undergone the entire customs clearance procedure and have not been released under a particular customs regime. Thus, generally, the re-export customs regime is not applicable to goods that were imported into Russia and released for free circulation in Russia. The re-export regime can be applied to goods released into free circulation in relation to which it has been established that when they crossed the Russian customs border they had defects or in some other way did not conform to the provisions of the foreign trade contract in terms of quality, quantity, description or packaging, and for this reason were returned to the supplier or another nominated person. Such goods may be placed under the customs regime of re-export, if they (i) were not used or modified, except if such use or modification was required for detection of the defect; (ii) may be identified by the Russian customs authorities (iii) were re-exported within six months from the date of release into Russia.

5.7.10.9. Re-import

Re-import is the opposite of the re-export customs regime and is designed to exempt goods that were initially exported from the customs territory of Russia without payment of the applicable import customs duties and taxes from the payment of import customs duties and taxes, without the application of any economic restrictions provided by Russian laws and laws of the CU.

5.7.11. Customs Valuation Rules

The customs value of goods imported into the CU, which is used as a basis for calculation of import custom duties and taxes, includes the cost of goods, insurance costs and costs on transportation of the goods to the customs border. Depending on the actual circumstances, including contractual arrangements, an importer of record may in addition have to include royalties (payable for the right to use trademarks and other IP rights in order to resell the goods) or other income (e.g., freight charges, insurance costs, etc.) into the customs value of those goods, provided that the importer must directly or indirectly (e.g., via third parties) pay those royalties, other license fees and/or other income as a direct consequence of importation of the goods being valued at customs.



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It should be noted that the Russian customs authorities often increase the customs value of imported goods and the importers of record have the right to challenge such adjustments in court. Court practice shows that in the majority of cases the courts supported the importers of record.

5.7.11.1. Import Customs Duties

Customs duties are imposed on top of the declared customs value confirmed and accepted by the Russian customs authorities. The rates of import customs duties in Russia normally range from 0% to 25% (for cars – up to 35%) based on the Unified Customs Tariff of the CU. The nominal rates of the Unified Customs Tariff of the CU apply to goods originating from approximately 130 countries with which Russia has established a “most-favored nation” (“MFN”) regime. Double rates of import customs duties apply to goods produced in non-MFN states. Lower rates (0.75% of the nominal value indicated in the Customs Tariff) apply to certain categories of goods produced in some developing countries, while no duties apply to products imported from the 48 least developed countries. Import customs duties may be deducted for corporate profits tax purposes.

Starting from 1 July 2010 the import customs duties are paid to the unified budget of the CU and are subsequently distributed among the members of the CU.

5.7.11.2. Export Customs Duties

Even after the formation of the CU, setting export customs duties will remain within the competence of the member states. Generally, Russian mineral resources and raw materials (such as oil, petrochemicals, gas, wood, metals etc.) are subject to export customs duties. There is no unified list of export customs duties and the Russian Government separately establishes the export customs duties for particular types of products. The Russian Government establishes the rates of export customs duties for oil and petrochemicals at 2 month intervals. Export customs duties may be deducted for corporate profits tax purposes. Oil supplied to Belarus starting 1 January 2011 is duty free and the export customs duties are levied when it leaves the external border of Belarus.

5.7.11.3. Import VAT

Starting from 1 July 2010 payments of import VAT and distribution of the VAT between member states are performed based on a special agreement signed by the member states. The customs VAT applies to the sum total of the customs value and the customs duty. Import of goods is generally subject to Russian customs VAT levied at the same rates as Russian sales VAT (i.e., 18% and 10%). VAT is imposed on all goods imported into Russia and also applies to the sale of goods, works and services in Russia. The general VAT rate is 18% and applies to most goods, works and services. The 10% VAT rate applies to limited categories of goods, e.g., pharmaceuticals, children’s products, some food products, while some other medical equipment and medical goods, art and cultural goods, etc. may be VAT exempt. Import VAT may generally be offset against output VAT collected from local customers.

Pursuant to a direct provision of the Russian Tax Code the importation of products that do not have analogues manufactured in Russia and are included in the list approved by the Russian Government is VAT exempt. This exemption came into effect from 1 July 2009.

5.7.11.4. Export 0% VAT

Exportation of goods from Russian customs territory is subject to 0% VAT. There is a special statutory procedure that Russian exporters of record must comply with in order to apply the 0% VAT rate to exports. Generally, they must provide the Russian tax authorities with the following documents:

(A) The contract for the exportation of goods; (B) A statement from the exporter’s bank confirming the receipt of payment for the exported goods; (C) A customs declaration bearing a stamp of the Russian customs authorities evidencing the actual

export of goods out of Russia; and


(D) Copies of shipping documentation (transfer and acceptance statements, waybills, invoices, etc., confirming the transport of the goods out of Russia).

Additional requirements are provided for the exportation of goods that were previously imported into CU countries.

The taxpayer must submit these documents together with a VAT refund application within 180 days after the export of the goods. If the taxpayer does not meet the requirements outlined above, the taxpayer loses the right to apply the 0% VAT rate on exports and the usual VAT rates (10% or 18%) apply depending on the type of goods.

5.7.11.5. Import Excise Taxes

Excise taxes apply to Russian imports of limited categories of products, like tobacco products, spirits and alcohol, beer, cars, petroleum products, diesel & motor oil.

5.7.12. In-Kind Contribution

Importation of goods as an in-kind contribution into the charter capital of a Russian legal entity is duty free. After importation of the goods, the importer of record is required to prove that the goods were recorded on its balance sheet and were not disposed of.

Goods imported with no import duty as in-kind contributions into charter capital are treated as conditionally released and if the goods are alienated by the importer in any manner, the importer will be required to pay the import customs duties and import VAT plus interest for the whole term during which the duty exemption applied to the goods.

5.7.13. Customs Inspection and Liability

Customs authorities are allowed to carry out customs inspections within 3 years after clearance of the respective goods. During a customs inspection the customs authorities verify the fact of release of imported goods and the accuracy of information stated in the customs declaration and other documents submitted to the customs authorities in the process of customs clearance. Please note that the customs authorities may check not only the declarant of the goods, the customs brokers, owners of temporary-storage and/or bonded warehouses, customs carriers, but also the legal entities authorized to dispose of the imported goods in the customs territory of Russia (e.g., the local downstream wholesalers and retailers of the imported goods).

A customs inspection may be either a documentary or on-site inspection. When the customs authorities reveal a customs legislation breach during a documentary inspection, a targeted on-site inspection may be carried out. An on-site inspection should be performed within two months. However, in certain cases it may be extended by one month. The customs authorities may use documents and information provided by Russian banks, as well as inventory and audit conclusions, and the conclusions made by other state authorities.

5.7.13.1. Arrest of Goods during Customs Inspection

The customs authorities are authorized to arrest goods during a special customs inspection, if they reveal that:

The goods were imported without any special marks, symbols, or other elements applied in accordance with Russian legislation certifying the legality of their import;

The customs declaration does not contain the “Release for free circulation” or other applicable stamp of the corresponding customs regime, or the customs authorities deem such stamps fictitious or the documents on which such entries are made are missing;

Conditionally released goods were utilized and/or disposed of for purposes other than those permitted by customs.



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Arrested goods should be returned to their owner on the final day of the customs inspection if a breach of the customs legislation was not confirmed.

5.7.13.2. Seizure of Goods during Customs Inspection

During customs inspections goods may be seized for a term that does not exceed one month if the import of such goods into the Russian market is directly prohibited or a simple restriction on moving the goods is not sufficient to detain the goods. Such seizure can only last for the period of the customs inspection. Generally seized goods are removed to a temporary storage warehouse. The goods should be released on the final day of the customs inspection if a breach of the customs legislation was not confirmed. Goods may be confiscated only based on a court ruling.

5.7.13.3. Administrative Sanctions

Based on the results of the customs inspection, the customs authorities may hold the inspected company administratively responsible for breach of the customs rules. Chapter 16 of the Russian Administrative Code provides such sanctions as administrative fines and/or confiscation of the imported goods. Note that in the case of confiscation, this sanction may be applied not only to the actual violator (the importer of goods) but also to the bona fide downstream owner of the goods if the goods were involved in a customs law violation. Depending on the type of violation committed, the sanction against the companies could amount to fines of up to 200% of the amount of the goods’ value or the amount of customs duties and import VAT that were not paid with respect to the cleared goods in question and include confiscation of those goods.

There is a 2-year limitation period established for customs violations. Normally it runs starting from the moment of commitment of the violation. However, in the case of lasting/repeated violations, this 2-year period runs from the date of discovery of the violation by the Russian customs authorities. Importantly, customs payments cannot be enforced after expiration of the statute of limitations term established for customs audits, i.e. more than 3 years after customs clearance of the respective goods.

Please note that the administrative sanctions (i.e., confiscation of goods, fines) may be imposed only on the basis of a court decision; the customs authorities may not confiscate the goods ex officio.

5.7.13.4. Criminal Sanctions

Russian law does not have the concept of corporate criminal liability. Only individuals (i.e., the managers of an importer of record or a customs broker) responsible for a particular crime can face criminal penalties in Russia. Importantly, Russian law does not limit the application of criminal liability for corporate crimes only to employees of the relevant corporate entity that committed the offence. Relevant crimes could constitute evasion of customs payments, tax evasion and bribery.

The maximum liability for evasion of customs payments is 12 years of imprisonment or a fine of up to RUB 1 million (approx. USD 33,000) or the amount of the salary or other income of the convicted person for a period of up to 5 years. The maximum statute of limitations for this crime is 15 years.

5.7.14. Safeguard Measures

The CU applies its own safeguard mechanisms, such as anti-dumping, countervailing and safeguard measures that are generally based on WTO regulations and may be applied for the neutralization of injury caused to domestic industries by dumping, subsidies or considerably increased importation of goods from third countries. Safeguard measures are imposed by the Commission of the CU based on the results of special investigations.


Since the CU is still being formed, a transition period has been in operation during which safeguard measures applied at the national level of the CU member states are reviewed and extended to the whole CU territory. New safeguard investigations are conducted by the Commission of the CU.



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5.8. Currency Regulations


The Civil Code states that the ruble is the national currency of the Russian Federation. Although agreements may refer to the ruble value equivalent of foreign currency, all transactions conducted inside the Russian Federation must, as a general rule, be settled in rubles. The Civil Code, however, permits the use of foreign currency in cases provided for by law. Federal Law No. 173-FZ On Currency Regulations and Currency Control, dated 10 December 2003, as amended; (the “Currency Law”) establishes the basic rules of currency regulation and control.

5.8.1. Currency Operations

The Currency Law regulates a broad range of currency operations including:

Payments made in a foreign currency;

Transfer of foreign securities;

Ruble transfers between a Russian resident and a non-resident or between two non-residents;

Transfer of domestic securities between a resident and a non-resident or between two non-residents;

The import and export of rubles and securities;

Transfer of funds and securities from the overseas account of a resident into a domestic account, and vice versa;

Transfer of rubles and securities between the domestic accounts of a non-resident;

Clearing settlements;

Settlements between commission agents and principals connected with clearing; and

Settlement under derivative transactions.

5.8.2. Resident vs. Non-resident Status

The Currency Law divides individuals and legal entities into two classes: residents and non-residents. Residents include: Russian citizens and other individuals whose permanent place of residence is the Russian Federation; legal entities established in accordance with Russian legislation; representative offices (branches) of Russian legal entities outside Russia; and the governments of the Russian Federation, constituent entities of the Russian Federation, and municipal units. Non-residents are defined as individuals whose permanent place of residence is located outside Russia; legal entities incorporated outside Russia; enterprises/organizations that are not legal entities, organized and located outside the Russian Federation; and representative offices (branches) of foreign legal entities in Russia.

5.8.3. Special Currency Control Rules

On 1 January 2007, the Russian currency control regime was significantly relaxed and a number of previously existing requirements were abolished. As of today, there are no substantive currency control requirements (in the form of “consents, authorizations or permits”, etc.) that apply to foreign transactions.

However, certain requirements still apply to Russian residents:

Russian companies must remit all foreign currency export proceeds to their Russian bank account(s) (“repatriation of currency proceeds”), subject to certain exceptions;


“Transaction passports” are required for certain transactions (external trade, loans) at Russian banks;

Most Russian residents are prohibited from performing foreign currency transactions (the Currency Law provides some exceptions);

The purchase and sale of foreign currency may only be performed at authorized Russian banks;

Cash exports are subject to restrictions;

When a Russian company or individual opens an overseas bank account in OECD/FATF member countries they must notify the tax authorities and present regular reports on the cash flow in such accounts; and

The operation of an overseas bank account by a Russian resident is subject to certain restrictions.

5.8.4. Repatriation of Currency Proceeds

In accordance with Article 19 of the Currency Law, Russian companies must collect the full amount of payments due under a foreign trade contract on their accounts with Russian banks in accordance with the terms of the relevant foreign trade contract (the so-called “repatriation rule”). Article 19 of the Currency Law does not expressly allow a Russian supplier to assign or set-off its claims against a foreign buyer under a foreign trade contract. The exceptions to this rule allow for offsetting claims only in limited instances, including for Russian transport and fishing companies as well as under reinsurance contracts.

5.8.5. Transaction Passport

A Russian counterparty (that is not a bank) must comply with certain procedural requirements in connection with payments to a foreign lender or other counterparty (export/import transactions), including:

1. To open a transaction passport with its Russian authorized bank; and 2. To file certain information, including a separate “certificate on currency transaction identification”.

The main requirements in relation to transaction passports are listed in the Currency Law and Instruction of the Central Bank of Russia No. 117-I dated 15 June 2004 (“Instruction No. 117-I”). In particular, Instruction No. 117-I stipulates a list of documents that must be submitted to an authorized Russian bank by a Russian company in order to open a transaction passport. The documents should be provided to the bank before the first currency operation under the relevant transaction. The banks generally require all documents to be translated into Russian. The documents to be filed typically include a certified copy of the agreement documenting the transaction. Furthermore, under Article 23 of the Currency Law, banks may request other supporting documents, such as acceptance certificates, bank statements, customs declarations, etc., although, in practice, only the basic documents are usually required. After receipt of the documents the bank reviews them and opens the transaction passport.

The identification certificate requirement is applicable to settlements between Russian residents and non-Russian residents under various types of financing transactions, including loans. For each payment under the relevant transaction, the resident company has to provide a separate “certificate on currency transaction identification” indicating the transaction passport details (if applicable) and the details of the currency operation, as envisaged by Instruction No. 117-I.

5.8.6. Liability for Violation

The currency control system is supervised by the CBR, the Government, and the Federal Service of Financial and Budgetary Oversight. Currency control is executed through agents of the currency control regime, including: authorized banks, professional participants of the securities market, and governmental agencies.



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Violation of Russian currency control requirements may entail civil, administrative, or criminal liability. Administrative penalties for violation of Russia’s currency control requirements include various fines, which may be imposed on individuals, legal entities, and company executives. The amount of a fine may be as high as the entire value of a transaction performed in violation of the currency control requirements. Other sanctions include the revocation of licenses (primarily applicable to banks), and imprisonment.

Violation of currency control requirements include, non-compliance with the terms for submission to a Russian authorized bank of reports on currency operations. Recent changes to the currency control legislation introduced differential fines ranging from RUB 5,000 (approx. USD 167) to RUB 50,000 (approx. USD 1,667) for legal entities depending on the term of the violation.

In addition, failure to comply with the repatriation requirements in respect of foreign currency proceeds may result in imposition of fines in the amount of 1/150 the CBR refinancing rate (currently 8% p.a.) of the amount of proceeds returned with a delay for each day of such delay. In case of non-return of foreign currency proceeds the fine may be up to 100% of the amount of non-returned proceeds. Failure to return foreign currency proceeds in the amount of more than RUB 30 million (approx. USD 1 million) may also lead to criminal liability of the company's senior management.


5.9. Employment


The principal legislation governing labor relationships in the Russian Federation is the Labor Code of the Russian Federation (the “Labor Code”), effective 1 February 2002, as amended through 2011. In addition to this core legislation, labor relationships are regulated by the 1996 Federal Law On Trade Unions, Their Rights and Guarantees of Activity, as amended (currently through 2011), as well as Russian legislation on minimum wages, labor safety and other related laws and numerous regulations.

Russian labor law applies equally to regular employees and top managers, including the CEOs of Russian companies and heads of representative offices and branch offices of foreign companies accredited in Russia. Russian labor law also applies to foreign nationals employed by Russian or foreign businesses in Russia. All employers should comply with special immigration law requirements for foreign employees.

A written employment agreement in Russian setting out the basic terms and conditions of the employment relationship must be entered into with each employee working in Russia. The Labor Code provides all employees with mandatory minimum guarantees and employment-related benefits and compensations, which cannot be superseded by the agreement between the employer and the employee. Accordingly, any provisions in an employment agreement that impair the employee’s position as compared to that set forth by such guarantees will be invalid. As a general rule employment agreements are entered into for an indefinite period of time. A definite term (fixed-term) employment agreement may also be concluded, but such an agreement cannot be enforced for longer than five years, and it may only be concluded when the nature or conditions of work make it impossible for the parties to enter into an indefinite term agreement, in particular in the circumstances specifically provided for by Article 59 of the Labor Code. Further, an employee cannot be prohibited from holding a second job in addition to his/her full-time employment, with certain limited exceptions and restrictions provided by the Labor Code and other federal laws.

Under Russian labor legislation the relevant employment duties and obligations must be expressly defined in the employment agreement. It is important that these duties and obligations are defined broadly enough since an employee cannot be required to perform tasks outside the scope of job duties expressly described in his/her employment agreement. The employer cannot expand or otherwise modify them unilaterally without the written consent of the employee. Similarly, the employer generally cannot make unilateral changes to the employee’s obligations. In general, employment terms and conditions that have been agreed upon by employer and employee can only be amended by a written agreement of both parties. In the limited cases where an employer is allowed to unilaterally amend the employment terms and conditions agreed upon by the parties the employer must have legal grounds for such changes, must notify the employee two months in advance of any changes, and follow other formalities prescribed by law.

5.9.1. Employment-related Orders

Employers in Russia are required to issue an internal order each time an employee is hired, transferred to a new job, granted vacation, disciplined or terminated, and in certain other cases. For example, Article 68 of the Labor Code expressly requires that the order on hiring must be issued and presented to the employee for countersigning no later than three days after the employee has commenced work. When an employment agreement is terminated for any reason an order on termination must be issued and presented to the employee for countersigning on the last day of employment (Article 84.1 of the Labor Code).



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5.9.2. Labor Books

The labor book is the principal document containing a formal record of a person’s employment history and certain other information. The employer must make a record of employment in its employees’ labor books in respect of any employment exceeding five days. The labor book is vital to each employee because it confirms his/her right to a state pension and other social benefits. Employers are responsible for keeping their employees’ labor books (if this work at this employer is the employee's primary employment) and making all records in them in a timely manner and in strict conformity with the required format. The employer must return the labor book, duly completed and stamped, to the employee on the last day of employment.

5.9.3. Mandatory Policies and Procedures

All employers in Russia are required to issue Internal Labor Regulations and other mandatory labor-related policies and procedures. All employees should familiarize themselves with these policies against their signature. This procedure is essential for the relevant policies, procedures and other mandatory requirements to become binding on the employees. The employer’s policies and procedures should be issued in the Russian language (or in a bilingual version) and be approved by an internal order of the CEO of the company or head of the representative office/branch office.

5.9.4. Probationary Period

The employer has the right to establish a three-month probationary period for a newly hired employee. The employer may also set a six-month probationary period for employees hired for certain top executive positions (e.g., head of an organization and chief accountant and their deputies, and head of a branch office, representative office, or other separate structural subdivision of an organization). The imposition of a probationary period must be specifically stated in both the employment agreement and the order on hiring. If during the probationary period the employer determines that the employee does not meet the criteria established for the role for which he/she was hired, the employee can be dismissed by the employer without payment of severance pay and with only three days’ written notice. Such notice to the employee must provide the reasons why the employee is deemed as having failed to pass the probation. The employee is also entitled to resign during the probationary period, without stating any reason, with three days’ written notice to the employer.

5.9.5. Minimum Wage

Wages for full-time work may not be lower than the minimum monthly wage established by the applicable Russian legislation. The amount of the minimum monthly wage is periodically indexed by the government. The federal statutory minimum monthly wage is currently RUB 4,611 per month (approx. USD 154).

Regional minimum wages are established by regional agreements. They apply to all employers in that region that do not opt out within 30 calendar days of the official publication of the respective regional agreement. Some of the constituent regions of the Russian Federation, including the City of Moscow, have already implemented regional agreements on a minimum wage. Regional minimum wages are always equal to or higher than the federal minimum wage and are tied to the regional minimum standard of living. For instance, the minimum monthly wage in Moscow as of 1 January 2012 is RUB 11,300 (approx. USD 377) and will be increased as of 1 July 2012 to RUB 11,700 (approx. USD 390).

5.9.6. Work Time

Employers are required to keep a record of all the time worked by each employee, including any overtime. The regular working week is 40 hours. Any time worked over 40 hours per week is classified as overtime and may only be demanded by employers in extraordinary circumstances, as specified in


Article 99 of the Labor Code, and in most cases only with an employee’s prior written consent. The Labor Code limits the total amount of overtime for an employee to 120 hours a year, and an employee cannot be required to work more than four hours of overtime over two consecutive days. Overtime must be paid at a rate of 150% of the regular hourly rate for the first two hours of overtime worked in any one day, and at a rate of 200% of the regular hourly rate thereafter. Upon the employee’s written request, the employer can compensate for overtime work by granting the employee additional time off in lieu of payment; the time off should be no less than the time worked as overtime.

It should be noted that certain limitations regarding overtime work apply to certain protected categories of employees, including employees under the age of 18, pregnant women, women with children under the age of three, disabled employees, and some other categories defined by federal laws.

Workers may also be hired on the terms of an open-ended working day. The primary advantage of this is that there is no need to obtain consent whenever the employer asks an employee to work overtime. Moreover, the extra hours worked by employees with an open-ended working day need not be paid as overtime: instead they are entitled to additional paid vacation of no less than three calendar days per year. Nevertheless, it is important to note that employees with an open-ended working day can be required to work overtime only occasionally and upon a specific order of the employer when there is a need for such overtime work. Further, job positions subject to the open-ended working day regime must be approved by the employer and listed in the company’s Internal Labor Regulations.

5.9.7. Holidays and Non-working Days

There are currently 12 public holidays in the Russian Federation.

Uninterrupted weekly time off must not be less than 42 hours. As a rule, employees may only be required to work on a non-working day or public holiday in extraordinary circumstances, as specified in the Labor Code, and only with the employees’ prior written consent. As a general rule, employees must receive payment at no less than twice the regular rate for any work performed on a non-working day or public holiday, or be given time off in lieu of payment.

Some limitations regarding working on public holidays and non-working days apply to certain protected categories of employees, including employees under the age of 18, pregnant women, women with children under the age of three, disabled employees, and other categories as defined by federal laws.

5.9.8. Vacations

Employees in Russia are entitled to annual paid vacation of at least 28 calendar days per year of employment. An employee is entitled to use his/her vacation time in full once he/she has worked for the employer for at least six months. The Labor Code requires that the dates of the annual vacation of each employee be indicated in the vacation schedule for the calendar year, which the employer must approve by mid-December of the preceding year. The Labor Code further requires that employers notify their employees in writing at least two weeks before the commencement of the vacation. Each employee’s vacation allowance should be paid at least three days before a vacation is due to start.

5.9.9. Sick Leave

Employees are required to submit a doctor’s note for any absence only after their recovery and return to work. Generally, employees cannot be terminated by the employer while absent on sick leave, and are entitled to receive statutory sick leave compensation. Sick leave compensation for the first three days of sick leave is covered by the employer, the rest of the term of sickness is covered by the Russian State Social Insurance Fund, which is funded by the employer’s mandatory social contributions paid on a year-to-date salary of up to RUB 512,000 (approx. USD 17,067) in 2012 for each employee per calendar year. Since 1 January 2007, sick leave compensation and maternity leave compensation have



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been regulated by Federal Law No. 255-FZ On Obligatory Social Insurance in the Event of Temporary Disability and in Connection with Maternity (as amended), dated 29 December 2006. Pursuant to this law, sick leave compensation must be paid to an employee in the event of his/her illness or injury (labor-related or other) and when an employee is caring for a sick family member, as well as in some other instances.

The duration of payment and amount of sick leave compensation varies according to the grounds for the sick leave. In cases of labor-related injury or occupational disease, the amount of sick leave compensation is 100% of the employee’s average earnings. In other cases sick leave compensation is determined on the basis of the employee’s average earnings and total term of employment.

Since 2011 the average earnings for the purpose of sick leave compensation are to be calculated with reference to the two calendar years preceding the year when an employee takes sick leave. In 2012 the statutory maximum average daily earnings for the purpose of sick leave compensation are RUB 1,202.74 per day (approx. USD 40), if the employee’s overall employment term exceeds or is equal to 8 years.

If the employee’s total term of employment is less than six months, the sick leave compensation cannot exceed the federal minimum monthly wage.

If the employee has more than one place of employment and has been employed with the same employers for the preceding two calendar years, he/she is entitled to sick leave and/or maternity leave compensation at each place of employment and to child care leave compensation at one place of employment at the employee’s choice. If the employee has more than one place of employment and has been employed with different employers for the preceding two calendar years, he/she is entitled to the above compensations only at one of his/her current places of employment at the employee’s choice. If the employee has more than one place of employment and has been employed both with the current and with other employers for the preceding two calendar years, he/she is entitled to the above compensations either at each place of employment or at one of his/her current places of employment at the employee’s choice.

5.9.10. Maternity Leave

Paid maternity leave consists of 70 calendar days prior to a birth, plus 70 calendar days after the birth. Further paid maternity leave is provided in the event of complications while giving birth or in cases of multiple births (86 and 110 calendar days after the birth respectively). Maternity leave is to be provided cumulatively; that is, if less than 70 days maternity leave are used before birth, the balance is added to the 70 days of paid maternity leave provided after birth.

Just like sick leave compensation, maternity leave compensation is paid out of the Russian State Social Insurance Fund, which is funded by the employer’s mandatory social contributions. The amount of the maternity leave compensation is determined on the basis of the employee’s average earnings and total term of employment.

Since 2011, average earnings are calculated with reference to two calendar years preceding the year when an employee takes maternity leave. In 2012 the statutory maximum average daily earnings for the calculation of maternity leave compensation are RUB 1,202.74 per day (approx. USD 40).

The maternity leave compensation is to be paid as a single payment. If the employee’s total term of employment is less than six months, the maternity leave compensation cannot exceed the federal minimum monthly wage.

In 2012 women have the right to request the employer to calculate their maternity leave allowance based on a specific formula, effective until January 1, 2011. In this case an employee’s average earnings for the purpose of maternity leave allowance should be calculated with reference to the last twelve months of work preceding the month when an employee takes maternity leave. The statutory


maximum average daily earnings for the calculation of maternity leave allowance in this case are RUB 1,136.99 per day (approx. USD 38).

A child’s care provider (the employee who has given birth or who is the father, grandmother, grandfather or other relative who is taking care of the child) may request partially paid childcare leave until the child is three years old. The employee retains the right to return to his/her job during the entire period of paid/unpaid leave, and the full leave period is included when calculating the employee’s length of service.

The procedure for calculation of sick leave, maternity leave and child care leave allowances is rather complicated in Russia; it is highly recommended to verify the procedures and documentary requirements on a case-by-case basis.

5.9.11. Dismissal

An employment relationship may be terminated by the employer only on the specific grounds provided in the Labor Code, including: a reduction in the workforce, the employee’s repeated failure to perform his/her employment duties without justifiable reasons (if the employee was lawfully disciplined within the preceding 12 months), the employee’s unjustified absence from the workplace for more than four consecutive hours during one working day, and other reasons. Arbitrary termination of an employment relationship by the employer is not allowed, except in the case of the company CEO, who can be terminated by unilateral decision of the owner provided he/she is paid adequate severance compensation, equal at least to three months’ average earnings.

Employers must strictly comply with specific procedures and documentary requirements provided by the Labor Code when terminating employment for any reason. The Labor Code gives additional protection to a number of categories of employees, including minors, female employees, employees with children, trade union members, and various other categories. Conversely, employees are entitled to terminate their employment at any time, without stating any reason, and, as a general rule, with only two weeks’ written notice to the employer.

5.9.12. Compensation

Salaries must be paid to employees at least once every fortnight. Employers are obliged to pay salary and other employment-related payments on the dates set by their internal labor regulations and by the individual employment agreement. The employer is required to pay compensation (i.e., interest) for any delay in payment of salary and other employment-related payments in accordance with Article 236 of the Labor Code. In addition, employees have the right, upon prior written notice to their employer, to stop working if their employer delays payment of their salary for more than 15 days. Employees must be compensated in the currency of the Russian Federation (rubles). As a general rule, employment-related payments in a foreign currency (both in cash and by bank transfer) are prohibited.

5.9.13. Employment of Foreigners in Russia

Generally, when hiring foreign national employees employers must obtain: (i) permission to hire foreign nationals, (ii) individual work permits and (iii) work visas, before foreign nationals are employed and/or actually commence work in Russia (except for citizens of Belarus and Kazakhstan). As a precondition for obtaining permission to hire and a work permit, a company must file an application for a quota for work permits. The application for a quota for the following year should be filed with the authorities before 1 May of the current year.

The above procedure equally applies to foreign nationals working in Russia under civil-law agreements for the performance of work or the provision of services (e.g., marketing consultants or sales representatives). Permission to hire, work permit and work visa requirements equally apply to representative offices and branch offices of foreign firms. Foreign nationals working at accredited Russian representative offices or branch offices of foreign firms also need to obtain a personal



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accreditation card from the accrediting body of the representative or branch office in order to apply for a work permit and work visa. Generally a work permit and work visa are issued for a one year period.

The procedure and required documents vary according to whether or not the foreign national requires a Russian visa. In practice, the process of obtaining permission to hire foreign nationals, individual work permits and work visas in Moscow may take from four to six months to complete. In other regions of the Russian Federation this period may differ. Also employers are required to provide financial, medical and social guarantees in respect of their foreign employees in Russia and comply with the general migration monitoring requirements, including filing notifications of foreign employees’ travel into and out of Russia, as well as within its territory.

Thus, employment of a foreign national in Russia requires advance planning to allow sufficient time for all procedures.

The Russian authorities may adopt a list of quota-exempt professions/positions for each year, which allows employers to hire foreign employees without observing the quota requirement.

There is also a special category of foreign employees – the highly qualified foreign specialist (a “Specialist”). A Specialist is subject to a simplified procedure for obtaining a work permit and a work visa. To obtain a work permit for a Specialist his/her employer is not required to obtain a quota to hire foreigners and permission to hire foreign employees. Representative offices of foreign firms cannot use this simplified procedure.

The main criterion for recognizing a foreign employee as a Specialist is the salary level paid in Russia. To satisfy this criterion, the salary received by the Specialist under a local employment /civil law agreement should be RUB 2 million (approx. USD 67,000) per year or more. A work permit and a work visa invitation letter are issued within 14 business days. The Specialist may receive a work permit and a work visa for up to 3 years.

Russian law provides for severe penalties for non-compliance with the above work permit and work visa requirements for foreign employees. During the past year the Russian government has made it a priority to increase control over the use of foreign employees in Russia. It has considerably extended regulation and tightened up enforcement of the above-mentioned migration law requirements.

Russian migration legislation is currently undergoing significant amendment, so the procedures involved could be modified at any time. It is highly recommended to verify the procedures and documentary requirements on a case-by-case basis in advance.

5.9.14. Trade Secrets (Know-how)

Trade secrets (know-how) can form an important element of an employment relationship. In particular, Federal Law No. 98-FZ On Trade Secrets, which was enacted on 29 July 2004, and Part Four of the Civil Code of the Russian Federation, effective from 1 January 2008, regulate trade secrets (know-how) in an employment relationship context. Under these laws, if an employer wishes to protect its trade secrets (know-how) from unauthorized disclosure by employees it should implement certain statutory procedures under a “commercial secrecy regime”.

In order to implement a commercial secrecy regime, an employer should determine a list of trade secrets (know-how), restrict access to them, keep track of the individuals who have access to trade secrets (know-how) and/or individuals to whom trade secrets (know-how) were transferred, include provisions in the employment agreements regulating trade secrets (know-how), and mark documents constituting trade secrets (know-how) in a special manner set out by the Federal Law On Trade Secrets. Also, the Federal Law On Trade Secrets expressly lists information that may not constitute trade secrets (know-how) and that therefore is not protected under the commercial secrecy regime.


Employees should be notified, against their signature, of the trade secrets (know-how) directly related to their job functions and of their liability for violation of the commercial secrecy regime. Also the employer is required to provide the conditions necessary for employees to observe the commercial secrecy regime.

The participating employees, for their part, must observe the commercial secrecy regime, must not disclose trade secrets (know-how), and must pay damages for a culpable disclosure of protected trade secrets (know-how), if all the statutory procedures were properly implemented by the employer. In accordance with Part Four of the Civil Code of the Russian Federation the protection of trade secrets (know-how) extends beyond the termination of the employment relationship, forbidding employees from disclosing trade secrets (know-how) for as long as the employer has effective exclusive rights to the trade secrets (know-how). However, we recommend concluding a separate civil-law contract on non-disclosure of trade secrets (know-how) with an employee after termination of employment in order to protect trade secrets (know-how).

5.9.15. Personal Data

Pursuant to Federal Law No. 152-FZ On Personal Data, enacted on 27 July 2006 and effective as of 26 January 2007, employers are required to obtain prior consent from employees and other individuals in order to process their personal data. If an employer transfers personal data to any third parties and/or abroad it must obtain formal written consent. These requirements are of importance to transnational companies with subsidiaries and representative offices or branch offices in Russia that generally process the personal data of their Russian employees and individual contractors at a central location abroad. They are also important for all employers who transfer the personal data of their employees to law firms, audit and accounting firms, and other providers of professional services. In the case of transfers of personal data to any third parties and/or abroad employers are also required to notify the authorized government agency of their intention to process personal data.

All employers in Russia must keep their information systems in which personal data are processed in compliance with the requirements set by the law On Personal Data to ensure due protection of personal data.



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5.10. Property Rights


Both the Constitution of the Russian Federation and the Civil Code of the Russian Federation uphold the right to own private property. The Land Code of October 2001 and other legislation adopted further to the Land Code implement this principle with respect to land.

The Land Code, together with Federal Law No. 101-FZ On the Circulation of Agricultural Land of 24 July 2002 as amended (the Agricultural Land Law), which entered into force in January 2003, put an end to the political debate as to whether land ownership in Russia is possible. Federal Law No. 172-FZ On Reclassification of Land and Land Plots from One Category to Another of 28 December 2004, as amended (the Land Reclassification Law), came into force on 5 January 2005. Being a follow-up to the Land Code, it detailed the procedures for the reclassification of land and land plots from one category to another. The Land Reclassification Law defines the powers of federal authorities, authorities of the constituent entities of the Russian Federation, and local authorities in the procedure for changing the category of land plots. A uniform mechanism instituted at the federal level for moving land plots from one category to another is a significant development in making the land market in Russia more transparent.

For historical reasons, such as the fact that transactions with real properties (other than land plots) became possible earlier than transactions with land plots, at present Russian law still treats land plots and buildings as separate objects of real estate. Despite this, however, there is a concept of a single object of real estate embodied through provisions that prohibit the disposal of a land plot and a building located on such land plot separately from each other when such properties are owned by one and the same owner. When a building is located on a land plot that is state or municipally owned, and unless there are other buildings or structures on the land plot owned by third parties, the owner of such building has an exclusive right to lease or buy such land plot.

Under Russian law, the most common types of rights to real estate available to investors are the right of ownership and the right of leasehold. However there are, for the moment, different regulations with regard to land plots and buildings.

5.10.1. Land

The Land Code distinguishes the following rights to land: the right of ownership (by the Russian Federation, constituent entities of the Russian Federation, municipalities, private individuals, and legal entities), the right of perpetual (indefinite) use, the right of free fixed-term use, leasehold, the right of lifelong inheritable possession, and easements (servitudes). Land plots are generally available to investors under the right of ownership and of lease. At present amendments are contemplated in Russian laws that may significantly change the entire legal framework for rights to land and other immovable assets.

5.10.2. Right of Ownership

The general principles of land ownership are set forth in the Constitution of the Russian Federation, adopted in December 1993. The Constitution establishes the principle of private ownership of land but does not regulate land relations in detail. The core legislative act governing land relations is the Land Code, which establishes fundamental terms and procedures for land use. The Land Code is further supplemented by other federal laws regulating land issues, often referred to in the Land Code. For instance, the Land Code has limited applicability to agricultural land, as it expressly provides that the circulation of such land is the subject of a separate law, the Agricultural Land Law. The Land Code is also supplemented by regional laws and other regulations, which the constituent entities of the Russian


Federation may issue in compliance with the Land Code. In case of conflict between such laws and the Land Code, the latter enjoys preferential status.

The possession, use and disposal of land plots classed as agricultural land are regulated by the Agricultural Land Law. Not all agricultural land, however, is subject to the Agricultural Land Law and restrictions envisaged in this law. It does not extend, for example, to those land plots that were provided to individuals for the construction of individual homes or garages, for smallholdings or dacha gardens, or land plots underlying buildings and other structures. The circulation of such land plots is governed by the provisions of the Land Code. Agricultural land plots may be held under the right of ownership, perpetual (indefinite) use, lifelong inheritable possession, or free fixed-term use, and such plots may also be leased.

Ownership of municipal or state land plots, where such land plots are free from any buildings or structures, may be granted (for purposes other than development and construction or for the use of an existing building or facility when special rules apply) to individuals and legal entities, as a rule, through bidding in a tender or auction. Such bidding may also be held for the grant of a lease of a land plot. The organization of such tenders or auctions is detailed in Article 38 of the Land Code and regulations providing for the implementation of Article 38 of the Land Code.

5.10.3. Foreign Ownership

Although there is no express provision permitting land ownership by foreigners (including stateless persons), the Land Code may clearly be interpreted as allowing such ownership, except in cases where it is specifically prohibited. In 2004 the Constitutional Court of the Russian Federation confirmed this liberal and pro-foreigner interpretation of the Land Code. Foreigners have the right to lease or acquire ownership of vacant land plots (for construction purposes) or land plots under existing buildings, subject to the following restrictions set out in the Land Code:

Foreigners are specifically prohibited from owning land plots (i) in border areas, a list of which was approved by the President on 9 January 2011 by Presidential Decree No. 26 (the Decree) for the first time since the adoption of the Land Code in October 2001; (ii) in other particular territories of the Russian Federation pursuant to other federal laws. Additionally, the President may establish a list of the types of buildings and other structures to which pre-emptive buy-out or lease rights to land plots may not apply for foreigners. In accordance with the Land Code Implementation Law, before the adoption of the Decree, the border restrictions applied to all border areas.

Foreigners are prohibited from owning agricultural land. The Agricultural Land Law further specifies that foreign nationals and foreign legal entities (and stateless persons) may only lease agricultural land plots. This restriction on foreign legal entities also extends to Russian legal entities in which the equity participation of foreign nationals, foreign legal entities, and/or stateless persons exceeds 50%.

Foreigners are prohibited from owning land plots located within the boundaries of sea ports.

Under the Decree border territories are defined to include municipal districts and cities (in their geographical entireties) adjacent to the border.

Among the border territories are the city of Sochi (and other near-shore municipalities in Krasnodarsky Krai), four districts in Leningrad Oblast (the Lomonosovsky, Kingiseppsky, Slantsevsky and Vyborgsky districts), the Kronshtadtsky District in St. Petersburg, a number of municipal districts in the Bryansk, Tyumen, Rostov, Voronezh and Belgorod Oblasts, most of the municipalities in Kaliningrad Oblast, a great many municipal districts in the Far East, and others.

Pursuant to the Land Code, the prohibition on land ownership in border territories applies to foreign legal entities (including entities acting in Russia through branches or representative offices), foreign individuals and stateless persons, but, unlike in the case of agricultural land, does not apply to Russian legal entities wholly or partially owned by foreign investors.



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The Decree provides neither for a transitional period, nor a clear indication as to what should be done with land plots within restricted border territories acquired by foreigners before the adoption of the Decree. These matters are similarly not addressed by the Land Code or the Land Code Implementation Law either. Arguably, the lack of transitional or implementation rules in the Decree reflects the intention of its authors to prompt foreign owners of lawfully acquired land in border territories to dispose of such land in accordance with general principles envisaged in the Civil Code. However, such principles fail to provide a timeframe within which a foreign owner should dispose of the respective land. More generally, the Civil Code provides a 1-year period for alienation of property by a person or entity which is not entitled to own this type of property.

In the context of other provisions of the Land Code dealing with the concept of unity of title to land and facilities (buildings) built thereon, in the absence of any exemptions in the Decree for foreign owners of developed land plots, a foreign person will also have to dispose of all the facilities and buildings developed on all such land plots that it owns.

5.10.4. Lease

Foreign legal entities and individuals may be granted leases to land plots. Such leases for state or municipally owned property are usually based on a standard local form. Although neither the Civil Code nor the Land Code stipulates a statutory maximum length for a land lease, the lease term in most cases does not exceed 49 years.

For instance in Moscow, Moscow City Law No. 48 On Land Use in the City of Moscow of 19 December 2007, which came into force on 5 January 2008, sets different periods for which leases of Moscow-owned land plots may be obtained. The lease terms for sites free of any buildings, structures or facilities may not exceed five years. Land plots on which such property is located are, however, available for lease for 25-49 years. This term can be reduced upon the parties’ agreement.

The level of rent payments for the majority of land leases granted by the state or municipalities is set by a general local decree. At the same time, rental payments charged by all public landlords should conform to the general principles envisaged in Decree of the RF Government No. 582 dated 16 July 2009. The general principles require public landlords to adhere either to the market rent rate or a cadastral value-determined rate (where rental payments are calculated as a percentage of the land’s cadastral value).

In Moscow a lessee must pay for the right to lease any land in excess of the footprint of the existing buildings on that land. In St. Petersburg the level of rent for land plots is determined by City Law No. 608-119 On the Method for Determination of Rental Payments for Land Plots Owned by St Petersburg of 5 December 2007 (the law came into effect on 1 April 2008). In both cities the lease rates vary depending on the location of the site, the type of activity of the lessee, etc.

The Land Code provides a lessee with certain basic rights. A lessee that properly fulfills its obligations under a lease has a pre-emptive right to renew the lease at the end of its term. The renewal rights of a lessee under a land lease are to be treated in conjunction with both the pre-emptive right to purchase the land granted to the lessee (where the leased land is state or municipally owned) and the exclusive right of the owners of the existing buildings and structures to purchase or lease the underlying land plot.

Significantly, the provisions of the Civil Code, in so far as they apply to land leases, are supplemented by the Land Code in a number of areas. In particular, the Land Code sets forth a series of modified rights for land lessees. Their applicability in part depends upon the precise drafting of a lease. For example, the presumption under Article 615 of the Civil Code that a lessee needs the lessor’s consent to sublease has been reversed for lessees of land. Of particular significance is the provision that a lessee of state or municipally owned land (other than state enterprises) under a lease with a term exceeding five years is free to assign its rights under the lease, to mortgage such rights, or grant the land plots for sublease to


third parties, subject only to giving notice to the lessor. This rule also applies to land leases with a term exceeding five years with private lessors (in contrast to the prior-consent requirement established under Article 615(2) of the Civil Code). The assignee of a land lease does not need to enter into a new land lease.

The lessor and the lessee may terminate the lease (i) by mutual agreement, (ii) unilaterally - in the circumstances stipulated in the lease, or (iii) by a court order - in the circumstances provided by the Civil Code, the Land Code or in the lease. The Land Code contains provisions that deal with termination of land leases in conjunction with a court order. For example, the following constitute grounds for termination of a land lease:

Misuse of the land plot (a more stringent test than under Article 619 of the Civil Code requiring either substantial or repeated violations);

Use of the land plot that results in a decline in the fertility of agricultural land or, importantly for industrial users, a material deterioration in the environmental situation;

Failure to correct a range of other intentional environmental violations of applicable land use regulations; and

Where the designated purpose of the land plot is agricultural production or development - failure to use the land plot for its designated purpose for more than three years.

5.10.5. Other Rights to Land

The right of perpetual (indefinite) use may be granted only to state and municipal institutions, federal treasury-owned enterprises, and state and local authorities. Legal entities that possessed land plots on the right of perpetual (indefinite) use before the introduction of the Land Code and which do not fall into the above categories had to convert and re-register their rights either as lease or ownership by 1 January 2004. This deadline has been extended several times and is currently established as 1 July 2012 as a general rule, and as 1 January 2015 with regard to land plots under transportation, communications and utilities lines. Failure to convert the rights by the established deadlines will trigger an administrative penalty of RUB 20,000-100,000 (approx. USD 660-3,300 as of the end of January 2012). However, the penalty is established with effect from 1 January 2013. As the civil circulation of land plots held on the right of perpetual (indefinite) use is restricted – e.g., such land plots cannot be sold, leased, mortgaged, or assigned – the disposal of such land plots by legal entities (that do not fall into the above categories) will always require the prior conversion of the right of perpetual (indefinite) use into another title (e.g., for commercial legal entities - into lease or ownership).

5.10.6. Acquisition of Rights to Land Plots for Construction Purposes (Other than Residential Construction)

The Land Code sets out detailed procedures for acquiring rights over state or municipally owned land plots for the purpose of new non-residential construction. The Land Code distinguishes two kinds of procedure: (1) without preliminary approval for the location of facilities, and (2) with such preliminary approval.

The granting of land plots without preliminary approval for the location of facilities is carried out through bidding by tender or auction (Article 38 of the Land Code).

A land plot which is granted for construction purposes without preliminary approval for the location of facilities must satisfy the following criteria: (i) its boundaries must have been defined for the plot to be eligible for sale or lease, (ii) a cadastral number (indicating the area, location, category, and other essential characteristics of the plot) must have been assigned, (iii) a designated use of the land plot must have been properly defined, and (iv) technical conditions for the connection of the land plot to utilities must have been determined.



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Land plots with preliminary approval for the location of facilities can be granted when a land plot meeting the requirements of a particular project does not exist or a new construction project requires a thorough investigation of ecological, sanitary, architectural and other issues, and upon a specific request for granting a land plot for construction from an investor. This may also involve gauging public opinion regarding the planned construction. In accordance with this procedure a land plot is initially granted to legal entities and individuals under a lease only. This, however, does not preclude the owner of the facilities (upon their construction and state registration) from acquiring ownership of the underlying land plot. For construction of facilities of a religious purpose, religious organizations are granted the right of free-of-charge fixed-term use for the period of such construction. In this case, land plots are granted without holding an auction.

Preliminary approval of the location of facilities is not required for land plots in urban areas if town-planning documentation and zoning plans have been approved for such land plots. Such land plots must be granted through an auction.

The regions of Russia may adopt their own rules related to provision of land plots to complement the Land Code rules. For instance, St. Petersburg Law "On the Procedure for Granting Real Estate Owned by St. Petersburg for the Purposes of Construction and Reconstruction" (the "St. Petersburg Law On Granting Real Estate ") sets certain principles for granting rights to state-owned real estate to private investors.

Pursuant to the St. Petersburg Law On Granting Real Estate, as a general rule land plots for construction are provided to investors either in ownership or on lease through a tender (auction). To participate in an auction, a person interested in acquiring a land plot should file the respective application and other requested documents with the auctioneer and pay a supporting deposit. The supporting deposit is usually equal to 10% of the initial price and is to be returned if the potential investor fails to win the auction. On the basis of the results of the auction, the Committee for City Property Management of St. Petersburg ("KUGI") concludes a sale-purchase agreement or a land lease agreement with its winner under investment conditions.

The so-called "specific allocation" of land plots in St. Petersburg, e.g., granting land lease rights without public sale, is allowed only in exceptional cases, that include granting land plots in accordance with agreements entered into by St. Petersburg with the Russian Federation, constituent entities of the Russian Federation, foreign governments, or with strategic investors. The legislation of St. Petersburg defines the term "Strategic Investor" as an investor participating in implementation of a strategic investment project of particular significance for the social, economic, cultural and other development of St. Petersburg. An investment project may be recognized as strategic, provided that it satisfies certain requirements specified by the law, inter alia, it should bring significant investment to the city of at least 3 billion rubles (approximately, USD 100 million). The list of strategic investors is approved by the St. Petersburg Government.

5.10.7. Exclusive Right

As it was mentioned above, the owners of buildings and structures that are located on land plots owned by the state or by a municipality have an exclusive right to acquire the underlying land plots or lease them (Article 36 of the Land Code). With regard to facilities erected on such land plots after the Land Code had become effective, this rule means that the owner of the facility, upon registration of title, may opt either for extension of the lease, extension of the lease and subsequent acquisition of the land plot, or immediate acquisition of the land plot. Possession of a valid lease contract does not preclude the owner of the facilities from acquiring the underlying land plot before the expiry of the lease. The Land Code does not establish a deadline by which the owners of the facilities should exercise their right. However, it should be noted that since 1 July 2012 they cannot enjoy the preferential minimum price for such land plots. With regard to facilities erected before the entry into effect of the Land Code, the rule is generally the same, although in circumstances where the underlying land plots had been granted on


the right of perpetual (indefinite) use, then in accordance with Federal Law No. 137-FZ On the Entry into Effect of the Land Code of the Russian Federation of 25 October 2001 (the Land Code Implementation Law) the owners of facilities located on such land plots must purchase or lease such land plots before 1 July 2012 (in the case of land plots under transportation, communications and utilities routes - before 1 January 2015).

5.10.8. Other Real Estate

5.10.8.1. Ownership

Russian legislation permits both Russian and foreign nationals and legal entities to own real estate (apart from land plots) such as buildings, premises (as parts of buildings), structures and other facilities. In general, the rules relating to the use, disposal, and sale of real estate are set forth in the Civil Code, which guarantees the freedom to sell, rent, and carry out other transactions with real estate. Title to real estate is usually acquired through a sale-purchase transaction or by means of new construction. For legal entities formed in the course of privatization of Soviet era enterprises it is usual that title to buildings and structures was obtained as a result of such privatization.

Until recently Russian courts have largely treated sale-purchase transactions with buildings and structures that were incomplete at the moment of execution of a sale and purchase agreement or were not registered in the name of the seller as invalid (on various grounds). In these circumstances parties wanting to buy or sell such “pending” real estate had to enter either into preliminary sale and purchase agreements (to be followed, upon completion of such buildings and structures and registration of seller’s title thereto, by main sale-purchase agreements) or investment agreements, both types of agreements being far from “safe havens” for both parties in terms of enforceability.

However, the Plenum of the Supreme Arbitrazh Court in Resolution No. 54 dated 11 July 2011 On Certain Matters of Resolving Disputes Arising from Agreements on Real Estate to be Developed or Acquired in the Future explicitly confirmed the validity of sale and purchase agreements with regard to such “future real estate”. At the same time, registration of title transfers from the seller to the buyer, i.e., acquisition of ownership rights by the buyer would be possible, only after the state commissioning of real estate and state registration of the seller’s title to it. Also the plenum maintained that investment contracts executed in the past, if they meet certain criteria, should also be construed as contracts for the sale and purchase of “future real estate”.

In accordance with the Civil Code, title (among other rights) to real estate arises after its state registration, which is governed by Federal Law No. 122-FZ On State Registration of Rights to Real Estate and Transactions Therewith of 21 July 1997, as amended (the Registration Law). At the request of a legitimate acquirer of title (or at the request of both parties under a sale-purchase agreement), the authority in charge of the state registration of rights to real estate must state register the title and issue an ownership certificate evidencing the registration of title.

For all owners of real estate, the ownership right has to be state registered in accordance with the procedure set forth in the Registration Law. The exceptions to this rule relate to rights to real estate that were acquired prior to the adoption of the Registration Law. The owner of such real estate is not obligated to state register its rights unless it wishes to enter into any transaction involving its real estate (e.g., lease, mortgage, sale).

Obtaining an ownership certificate is a fairly straightforward, albeit sometimes lengthy, process, as long as the private company seeking to obtain such certificate can clearly demonstrate that the real estate in question was purchased, constructed, or privatized in accordance with the established procedures. Before an ownership certificate is issued, cadastral documentation must be obtained for such real estate.

Title to real estate acquired through privatization sometimes cannot be registered as a result of deficiencies in the underlying privatization documentation. In the past, state-owned real properties



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were granted to state-owned enterprises for economic management or use. During the privatization process of the early 1990s such real properties were usually transferred into the ownership of those enterprises, which were formed on the basis of Soviet state-owned enterprises that operated and used such real properties on the basis of various “usage”-type rights. A newly privatized enterprise thus “inherited” such real properties from the state-owned enterprise, provided that the real properties as recorded on the balance sheet of the state-owned enterprise were easily identified in the privatization plan of the newly formed (privatized) enterprise. The problem of title registration is not unusual for legal entities that are the legal successors of such Soviet era state-owned enterprises. Such legal entities may, however, register title by virtue of having held and used property for 15 years (acquisitive prescription) on the basis of a court order.

5.10.8.2. Common Property

Until recently, the regime of common ownership (a situation where real estate properties belong to several owners) was applied only with regard to owners of premises in a multi-apartment building, while the situation for non-residential buildings remained unregulated. Considering disputes between owners of premises in non-residential buildings (i.e., office, warehouse, retail, administrative buildings, etc.) the courts (including the Presidium of the Supreme Arbitrazh Court) frequently refused to apply the law by analogy, and on this basis refused to recognize a claimant’s right of common ownership in non-residential buildings. The Plenum of the Supreme Arbitrazh Court took an entirely different position in Resolution No. 64 dated 23 July 2009 On Certain Matters Concerning Court Practice Regarding Disputes Between Premises’ Owners with Respect to Their Rights to Common Property in a Building (Resolution No. 64), expressly indicating that in the absence of direct regulation the owners of premises in a non-residential building must be guided by legal analogy, that is, by the rules governing common ownership in multi-apartment buildings. Thus, a line was drawn under the long-term lack of clarity.

Pursuant to Resolution No. 64, the owner of separate premises in a non-residential building always has a share in the right of common ownership to common property of the building - independently of whether or not such right is registered in the Register (please refer to Section 5.10.9 for the definition).

This resolution embraces the concept of common property in a non-residential building, including the following: premises designated for serving more than one unit of premises in the building, and also landings, stairs, halls, lifts, lift shafts and other shafts, corridors, technical floors, attics, basements housing engineering communications or other equipment serving more than one unit of premises in the building (technical basements), roofs, supporting and non-structural constructions of the building, mechanical, electrical, sanitary and other equipment located externally or inside the building and serving more than one unit of premises. This definition is an almost verbatim repetition of the description of common property in a multi-apartment building given in the Housing Code of the Russian Federation, with the exception that the Plenum of the Supreme Arbitrazh Court does not directly add the underlying plot of land to the common property of a non-residential building. Applying legal analogy to complex relations lends clarity to a fundamental question, but inevitably leads to the emergence of certain new ambiguities.

It is not clear whether underground car-parks housing engineering communications are deemed to be technical basements (which, in accordance with the definition, are common property).

5.10.8.3. Lease

Foreign legal entities and individuals may be granted leases to other real properties (apart from land plots). Like leases of state or municipality owned land plots, leases of other real properties in state or municipal ownership are usually based on a standard local form.

The Civil Code provides a lessee with certain basic rights. When a property is leased it must be in the condition stipulated by the lease. Thereafter, unless the lease specifies otherwise, the lessor is liable for the repair of defects of the premises. If the lessor fails to carry out the necessary repairs, the lessee can


opt either for a reduction of the rent or termination of the lease and compensation of the losses incurred. A lessee that properly fulfills its obligations under a lease has a pre-emptive right to renew the lease (i.e., enter into a new lease for the same premises, but not necessarily on the terms of the preceding lease) unless this right is expressly excluded by the lease contract.

The lease survives the change of ownership over the leased property except in the event of foreclosures that meet certain criteria. The lease of buildings and structures assumes the right to use (either in lease or under another right of usage) the land plot which underlies such buildings and structures and which is necessary for their operation and use. As with the lease of land plots, the lessor and the lessee may terminate the lease (i) by mutual agreement, (ii) unilaterally in circumstances stipulated in the lease, or (iii) by a court order in the circumstances provided by the Civil Code or in the lease.

Leases for one year or longer must be state-registered and are deemed concluded upon such state registration. Leases for less than a year (that is, less than any 365-day period) do not require state registration and become valid when signed. To avoid the obligation of state registration, which can be a time consuming process, leases are often concluded for less than a year and renewed on a regular basis. If the procedure is properly described in the lease, such renewal of the lease is regarded as conclusion of a new lease for a period of less than a year.

5.10.9. State Registration of Rights to Real Estate

The right of ownership of, and other proprietary interests in, real properties, their creation, encumbrance (e.g., mortgage, leasehold for a term of one year or more, easement, etc.), transfer and termination are subject to state registration. Rights to real estate (rights in rem) come into existence only upon their state registration. The Registration Law stipulates procedures for the identification and registration of rights to real estate. In many cases, registration of title is a prerequisite for the validity and enforceability of transactions involving real estate.

Certain transactions (in addition to rights or titles) with real estate are also subject to state registration, and become effective only upon such registration. The registration process is carried out by the registration authorities at the location of the real estate in question. Under the Registration Law, state registration of a right to real estate and/or registration of a transaction with real estate takes one month, although in practice this term may be significantly extended as a result of suspension or refusal of registration. In certain cases, however, state registration of rights and transactions takes less than one month. The grounds for suspension or refusal of registration of rights/transactions are specified in the Registration Law. Refusal of state registration can be contested in court.

The registration authorities maintain the Unified State Register of Rights to Real Estate and Transactions Therewith (the “Register”), which indicates the history and the current legal status of a real estate object. The Register also records various “registrable” encumbrances over real estate (including long-term leases and easements) and restrictions (such as freezing orders against, or court disputes relating to, the real state object and certain injunctions). The registration authority issues a certificate in a statutorily defined form that certifies by which right an object of real property is held by a legal entity or individual, and which encumbrances and/or restrictions, if any, are established with regard to such object. Information on state-registered transactions with immovable property is also included in the Register. Basic information on the right holder(s) and restrictions (encumbrances) of such rights is open to the public, and can be provided for a fee within five business days to any person submitting a written application to the registration authority.

Land plots must also undergo cadastral registration. The procedures and rules for the state cadastral registration of land are outlined in Federal Law No. 221-FZ On State Cadastral Registration of Immovable Property of 24 July 2007 (the Cadastral Law), upon the enactment of which on 1 March 2008 the Law on the State Cadastral Register of 2 January 2000 ceased to have effect. Under the Land Code, only land plots that have been subject to state cadastral registration can be the objects of sale-purchase transactions. Particularly in Moscow and St. Petersburg, this applies to all transactions with land plots.



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The State Cadastral Register is established pursuant to the Cadastral Law and contains detailed information on all real properties, including land plots, buildings, structures, premises and other facilities. Information contained in the State Cadastral Register is openly available to the public.

As a single source of information on real estate available in electronic format, the State Cadastral Register will become operational from 1 January 2013. The Cadastral Law provides for a unified system of state cadastral registration of all basic types of real estate, including land plots, buildings, premises, unfinished construction, complex immovable property objects, territorial and functional zones and zones with usage conditions.

With effect from 1 March 2009, the government agency that performs state registration of rights to real properties (formerly named the Federal Registration Service) has been renamed the Federal Service for State Registration, Cadastral Matters and Cartography and also became responsible for cadastral registration of real estate (including land plots).

The Cadastral Law does not apply to forests, perennial plantations, bodies of water, subsoil resources, marine vessels or aircraft.

5.10.10. Classification of Real Estate

There is no official legislative classification of real estate (properties) in Russian law. In practice, real properties are classified on the basis of their intended use (e.g., residential or non-residential for buildings, agricultural or industrial for land plots, etc). The designated use should be identified in the lease, the certificate of ownership, as well as in technical documentation issued by the state-owned entities engaged in technical assignment of real estate (that is the Bureaus of Technical Inventorying or the Bureaus for Design and Inventorying) and cadastral documents.

Buildings, structures and other facilities require various obligatory state permits and approvals. The Town Planning Code of 29 December 2004, as amended (the Town Planning Code), stipulates the documents to be obtained and procedures to be followed for carrying out construction. Construction activities are also governed by regional and municipal legislation, such as, for instance, the Town Planning Code of the City of Moscow, adopted by Moscow City Law No. 28 of 25 June 2008, which came into effect on 10 July 2008 or Leningrad Oblast Law No. 38-oz of 18 May 2012 "On the List of Cases When a Construction Permit Is not Required".

5.10.11. Payments for Real Properties

Historically, when a foreign investor acting through a non-Russian entity purchased or leased real estate from Russian residents, the payments effected under such transactions (in foreign currency) were classified as “capital transfer transactions”, requiring a specific license from the Central Bank of the Russian Federation.

This licensing requirement was abolished and under Federal Law No. 173-FZ On Currency Regulation and Currency Control dated 10 December 2003 (the greater part of which came into effect on 17 June 2004), foreign currency payments made by foreign investors to Russian residents in consideration for purchased or leased real estate came to be no longer regarded as “capital transfer transactions”. Payments between Russian residents can be carried out in rubles only. Where a seller or buyer, or both the seller and the buyer (or the lessor and the lessee) are foreign legal entities, settlements are possible in foreign currency. Settlements between foreign residents (including legal entities and individuals) can be carried out through foreign (non-Russian) bank accounts. However, transactions with real properties may trigger Russian tax consequences even if carried out outside Russia.


5.10.12. Residential Real Estate

Up until the early 1990s most apartments in the Russian Federation were state or municipally owned. However, many (if not most) apartments have since been privatized and many new residential developments have been constructed by investors and most of these apartments are in private ownership. Relations arising in connection with residential real estate are regulated by the Housing Code of 29 December 2004 (the Housing Code), which came into effect on 1 March 2005. The Housing Code defines categories of residential property, which include a residential house (cottage), an apartment in a multi-storey (multi-apartment) building or a room in such an apartment, as well as various forms of rights to residential real estate. The Housing Code restricts the use of residential property for purposes other than residence by individuals.

5.10.13. Mortgage of Real Properties

A mortgage arises either by virtue of law or a mortgage agreement. Mortgage rights must be state registered and are invalid without such registration.

Federal Law No. 102-FZ On Mortgage of Immovable Property of 16 July 1998 (the Mortgage Law) stipulates the following essential terms of a mortgage agreement: (i) description of the mortgaged property (described to the extent sufficient to identify it), its location, and valuation; (ii) nature, scope and maturity date of the obligation secured by mortgage; (iii) the right on which the mortgaged property is held by the mortgagor; and (iv) the name of the registration authority that registers the mortgage. When requested, and subject to the payment of state duty, local offices of the state registration authority (as of 1 March 2009 named the Federal Service for State Registration, Cadastral Matters and Cartography) can provide information on whether a specific real property is mortgaged. Such information is provided in the form of an extract from the Register.

According to the Mortgage Law, the following types of real properties can be subject to a mortgage:

Land plots (including agricultural land plots). However, land plots that have been withdrawn from or are limited in circulation, and (with a few exceptions provided by the Mortgage Law) the land plots held by the state or municipalities cannot be mortgaged;

Enterprises i.e., complexes of immovable and movable properties registered as a single real estate property;

Buildings, structures and other immovable property used for business activities;

Residential houses, apartments and parts thereof consisting of one or several separate rooms;

Cottages, garages, and other structures for personal use;

Aircraft, sea and river vessels; and

Lessee’s lease rights to real properties – “to the extent mortgage of lease rights does not contradict federal law and the nature of lease relations”.

Buildings and structures can only be mortgaged together with the land plots underlying these buildings and structures or together with the lease rights to such land plots.

The existing mortgage of a land plot is automatically extended to cover a building or structure erected on such land plot by the mortgagor, unless otherwise provided by the mortgage agreement. This provision of the Mortgage Law entitles a mortgagee to extend the mortgage over a land plot to all buildings and structures that may be developed on it, without the need for a subsequent addendum to the mortgage agreement.

The terms and conditions of a mortgage may restrict the owner or user’s capability to dispose of the property, including its contribution to charter capital and/or lease to third parties. The disposal of mortgaged property generally requires the mortgagee’s consent unless the mortgage agreement



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provides otherwise. Notwithstanding such consent, the mortgage survives the change of ownership over the mortgaged property, or the change of holder of such property, unless and until the primary obligation secured by the mortgage is performed. Following this, the property must be released from mortgage. The release of property from mortgage is performed through the procedure of cancellation of the mortgage entry in the Register.

The Mortgage Law provides that, unless otherwise provided in the mortgage agreement or by federal law, a building, structure or any other non-residential property and an underlying land plot, as well as a residential house or an apartment that was purchased or constructed with loans from banks or other lenders is deemed to have been mortgaged from the date of state registration of the ownership right of the relevant purchaser/investor to the respective non-residential or residential property (and the underlying land plot). With regard to residential property the Mortgage Law further provides that foreclosure by the mortgagee on a mortgaged residential house or apartment and disposal of such property constitutes grounds for termination of the occupancy rights of the mortgagor and the family members residing together in such residential house or apartment, provided that this residential house or apartment was mortgaged under a mortgage agreement to secure the return of a loan granted for the purchase or construction of such residential house or apartment, or a loan granted to refinance a previous construction / acquisition loan.

The implications of these provisions of the Mortgage Law are that a mortgagee can now demand that a mortgagor vacates the mortgaged property if the mortgagee intends to foreclose on it. However, this rule would apply only if the mortgaged property were mortgaged to secure the repayment of a loan taken out by a mortgagor to purchase or construct a property or to refinance a previous construction / acquisition loan. It is also important to note that those individuals who occupy mortgaged property pursuant to a lease or a “hiring” agreement (under Russian law, a specific type of a residential lease where the lessee is a private individual) cannot be evicted upon foreclosure on the mortgaged property. Such a lease or hiring agreement concluded prior to the mortgage agreement will remain in force and can be terminated only under specific circumstances provided for by the Civil Code or applicable housing legislation.

5.10.13.1. Foreclosure on mortgaged property

There are two types of foreclosure on mortgaged property: in court and out-of-court. With regard to out-of-court foreclosure, prior to the recent amendments to the Mortgage Law, the parties could enter into a contract for the transfer of the mortgaged property to the mortgagee to discharge the secured obligation only after an event of default under the secured obligation had occurred. In the absence of such a contract, a mortgagee could not automatically acquire rights to the mortgaged property if an event of default occurred, and in most cases the mortgaged property had to be sold at a public auction, with the proceeds then being used for repayment of the debt.

With effect from 7 March 2012, the transfer of the mortgaged property to the mortgagee after an event of default has occurred is possible if the parties stipulate so in the mortgage agreement. There are three methods for out-of-court foreclosure: (i) sale at a public tender; (ii) sale at an open auction (subject to some exceptions where sale at a closed auction is also possible) and (iii) appropriation of the mortgaged property by a mortgagee.

Out-of-court foreclosure on mortgaged property is prohibited with regard to certain classes of immovable property (such as immovable properties owned by the state and municipalities and residential properties owned by individuals).

5.10.13.2. Mortgage certificates

A mortgage certificate can be issued to the mortgagee at any time after the state registration of the mortgage and until termination of the secured obligation. Mortgage certificates can be transferred to a depositary for registration and custody, which is evidenced by a respective note on the document. Such


a note should also disclose if the custody is temporary (in which case the certificate’s holder can at any time require that registration and custody of its certificate is canceled) or obligatory. The type of custody can be chosen by the issuer or by the subsequent holder of the mortgage certificate.

5.10.13.3. Mortgage agreement vs. mortgage certificate

The Mortgage Law protects the position of mortgage certificate holders by providing, inter alia, that in case of discrepancies between the provisions of a mortgage agreement / main agreement containing the secured obligation and the provisions of the respective mortgage certificate, the provisions of the mortgage certificate have priority unless at the time of acquisition of such certificate its acquirer was aware or should have been aware of such discrepancies.

5.10.14. Draft Amendments to the Russian Civil Code

Currently the procedure for amending the Civil Code has been started. The bill introducing the amendments was opened to public and then passed through the first hearing in the Russian Parliament. If Russian lawmakers adopt this bill, this will result in significant changes of many fundamental provisions of Russian real property law and, in particular, would affect the existing provisions of the Russian Civil Code on real estate leases and ownership title to buildings and land. It would also introduce new types of title allowing holders to develop and use immovable property.

Currently the inter-hearing process for collecting amendments and alterations to the bill has been completed, but the second hearing of the bill has not been scheduled yet. It is unclear as of the time of this guide (October 2012) when this draft bill will become law, what changes will be made to it prior to introduction, and how exactly it will affect the position of would-be tenants/owners of newly developed properties.



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5.11. Privatization


5.11.1. History of Privatization

In general, the privatization process in Russia can be roughly summarized as occurring in three progressive stages. The first stage of “voucher-assisted privatization” lasted from 1992 to 1994 and included the privatization of state property on a massive scale. This first privatization scheme allocated vouchers to state employees, with these vouchers later transformed into shares in the capital structures of newly established (privatized) joint stock companies.

Although at this early stage the country lacked experience in all privatization matters, and the first Privatization Law of 3 July 1991 was perhaps inevitably undeveloped, the Government’s rush to privatize companies through the allocation of vouchers resulted in a very large percentage of state-owned entities being transferred into private hands.

The second stage of the privatization process lasted from 1995 to 1996, and was focused on obtaining large payments for significant enterprise stakes. The principal objectives of this scheme were to replenish the state budget and to attract domestic and foreign investment into Russia. Unfortunately, these objectives were never achieved because:

Most of the financially viable and attractive businesses had already been privatized during the first stage of development;

Domestically, large-scale investors did not yet exist; and

Foreign investors were still wary of large-scale capital injections into Russian entities (particularly due to the volatile political environment in the Russian Federation at the time).

As a result of the difficulty in attracting investment during this second stage, the “loans for shares” scheme was introduced. The outcome of these auctions was that a limited number of Russian businessmen were able to acquire state property at artificially low prices.

The next Privatization Law of 21 July 1997 established a special right (“golden share”) of the relevant state authorities to participate in the management of those open joint stock companies where such a right was provided during privatization. This right was realized by nominating representatives of the relevant state authorities to the board of directors and audit committee of such open joint stock companies, participation in general meetings of shareholders and veto rights on certain agenda issues of the general meetings of shareholders.

Since that time there have been very few major developments within the sphere of privatization.

The Privatization Law provided for a single fundamental sanction for the failure to abide by the privatization rules, i.e. that the corresponding transaction could be declared void and the property unlawfully acquired be returned to the state. Furthermore, the privatized entities and the procedures relating to their privatization could be challenged and declared invalid for a period of up to ten years. Later, in July 2005, the statute of limitations to challenge a void transaction (including past privatization deals which it was still possible to challenge in July 2005 on the grounds of the deals’ alleged invalidity) was reduced from ten to three years.

5.11.2. Current Status

The current Privatization Law entered into force on 26 April 2002. In contrast to previous legislation and consistent with Government policy with respect to the sale of land, the new Privatization Law allows


the privatization of land plots associated with real estate objects. In addition to the usual methods of privatization such as sale of state-owned property and shares in open joint-stock companies at tenders and auctions, it allows reorganization of unitary enterprises into open joint-stock companies and contribution of state-owned property to the share capital of open joint-stock companies.

The Privatization Law also established a number of new privatization methods including, for example, the sale of shares in open joint-stock companies on stock exchanges, and the sale of such shares outside the Russian Federation. At the same time, some of the previously well-known and widely used methods of privatization (such as the sale of shares in open joint-stock companies to their employees, or the buyout of leased state property by the lessees) are now excluded from the new Privatization Law. In doing this the Russian Government is trying to eliminate the use of “cheap” methods of privatization, which appears to be a reasonable and long-expected change based on the inadequacies of previous privatization attempts.

5.11.3. Recent developments

In 2010, a number of amendments were made to the Privatization Law, which were mainly connected with the following issues:

Obligation of the Russian Government to approve a plan with a list of federal property intended for privatization for a period of from one to three years (earlier for one year only);

Information about the privatization process, such as the plan, decisions, conditions and results of privatization, to be made available in the mass media and the Internet;

Determination of the starting price of the property to be privatized;

Conduct of privatization procedures in electronic form.

Obviously the amendments of 2010 were aimed at making the privatization process more transparent and open to interested parties.

Over 2011 the Privatization Law was further amended. The main goal of the 2011 amendments was to facilitate privatization of State Unitary Enterprises (SUE), which are now to be reorganized into Limited Liability Companies (LLC) or Open Joint-Stock Companies (OJSC) depending on the amount of charter capital, average number of employees and the amount of profits. Therefore all the provisions of the law that previously dealt only with OJSC’s have been amended accordingly to affect LLC’s as well.

One of the most important amendments is that a privatized SUE cannot buy its own shares or participatory interests nor is it entitled to have in its charter provisions concerning the preemptive rights of a privatized SUE. This provision was designed to attract outside investors. Nevertheless, it is still possible for managers and personnel of a privatized SUE to buy such shares or interests in the SUE.

New requirements for the prospective buyers of SUE’s were added to the Privatization Law in 2011. These requirements are to ensure the credibility of a prospective buyer and its real intent to conduct business. For instance, one of the new requirements is that a person or entity cannot participate in a public sale unless a deposit of 10 percent of the starting price is made.

The current legislation on privatization clearly demonstrates some decrease in state control over the privatization process in certain spheres of the Russian economy. At present the privatization of federal property, as stated by the Russian Government in the plan for 2011-2013, is one of the instruments by which Russia intends to switch to an innovative and socially oriented economy.



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5.12. Language Policy


Under Article 68 of the Constitution of the Russian Federation, the state language throughout the territory of the Russian Federation is Russian. All official election materials, legislation, and other legal acts, must be published in the official state language.

In addition, the Constitution upholds the rights of each of the individual republics within the Russian Federation to establish its own state language. Thus, regional state bodies and local institutions of self-government within Russia’s 21 republics may conduct official state business in two languages: Russian and the republic’s national language.

There are a few other principle legislative acts dealing with language policy in Russia, in addition to Russia’s Constitution. These are: the Federal Law On the State Language of the Russian Federation, the Federal Law On the Languages of the Nations of the Russian Federation, the Federal Law On Protection of Consumer Rights, and the Civil Code of the Russian Federation (Article 1473). According to the abovementioned laws:

(i) All Russian state and municipal bodies, and all companies operating in Russia, including those owned by foreign investors, are required to use Russian in their activities, for example in book-keeping, tax reporting and office paperwork. Official paperwork in the national republics within Russia may also be conducted in those republics’ national language. Paperwork in the sphere of commerce may be also conducted in a foreign language as provided in respective agreements between commercial partners.

(ii) The names of companies operating in Russia must be either in Russian or expressed in Russian transliteration. It is normally permitted to also have a company name in a foreign language and/or the state language of a national republic within the Russian Federation in addition to the mandatory Russian name. The company name of a legal entity in Russian and in the languages of nations of the Russian Federation may comprise borrowed foreign words in a Russian transcription or in a transcription of the languages of nations of the Russian Federation, except for the terms and abbreviations reflecting the legal entity’s legal form. A company whose name is inconsistent with the requirements of the law may be refused registration.

Use of the word “Rossiya” (Russia) or “Rossiyskaya Federatsia” (Russian Federation) in Cyrillic, or a derived name, for example “Rossiyskiy” (Russian) in Cyrillic in the name of a company requires a special permit from the Ministry of Justice of the Russian Federation, and exposes such company to certain tax consequences. Only those companies that have branch and/or representative offices in more than half the constituent entities of the Russian Federation, companies which are qualified among the largest taxpayers, companies dominant in a market with a more than a 35% market share, or companies in which more than 25% of the shares or of the charter capital is held by the Russian Federation, can apply for such a permit. However, use of words denoting ethnicity rather than the official country name, such as “Russkiy” or “Russkaya” in Cyrillic (translated into English also as “Russian”) does not require a permit, as was clarified by the Russian Supreme and Supreme Arbitrazh Courts.

(iii) All advertising in the Russian Federation must be either in Russian or in the particular state language of the individual republic in which the advertising appears.

(iv) Under the consumer protection regulations a consumer should be informed in a clear and accessible manner in the Russian language about the manufacturer (seller), the operating mode of its work and the goods (works, services) it produces or sells.


(v) Foreign languages or state languages of individual republics within the Russian Federation may be used in addition to the Russian language, in which case the communications in Russian and in the other language must be identical in their content, sound and form of presentation. When using Russian as the state language of the country, it is prohibited to use words or expressions that are not consistent with the norms of the Russian literary language, except foreign words that do not have commonly used Russian equivalents.

There are a few exceptions to the requirement of mandatory usage of the Russian language outlined above. For example, trademarks and service marks expressed in the original (non-Russian) language of the trademark and registered in Russia may be used without being accompanied by a Russian equivalent.

In cases provided for in specific acts of Russian federal laws, a person who does not understand Russian is entitled to an interpreter. For example, it is guaranteed for those foreigners who are subject to criminal proceedings in Russia to have a Russian interpreter free-of-charge.

There is no single state authority responsible for enforcement of the Russian language policy in the territory of the Russian Federation. Some of the aspects of the language policy, in particular violation of Russian language norms in advertising, are overseen by the Russian Antimonopoly Service. The Russian Antimonopoly Service may penalize a company in violation of the applicable language rules with a fine and/or issue it an order requiring it to cease and desist from violating the law.



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5.13. Civil Legislation


The adoption of the Civil Code of the Russian Federation in 1994 was one of the landmarks in Russia’s transition to a market economy and a fundamental work which followed the example of the civil codes of the Netherlands, Italy and Switzerland. However, unlike many other continental European jurisdictions where civil codes are equal in their legal status with any other civil laws, the Russian Civil Code prevails over other laws (including other federal laws) in the case of inconsistencies.

The Civil Code regulates virtually all elements of private law, with the notable exceptions of family law, housing law and transportation law, and consists of four parts.

Part I of the Civil Code came into effect on 1 January 1995 and Part II on 1 March 1996. Together these two parts serve as the legal basis for virtually every transaction in the Russian Federation.

Part I of the Civil Code provides the basics of Russian civil law and for such rights as the rights to own and inherit property; to engage in entrepreneurial activity; to establish independent legal entities, and provides for the protection of non-material attributes, in particular, defense of honor, dignity and business reputation. Part I also defines basic concepts of civil law such as a legal entity, securities, transaction, obligation, power of attorney and contract. Part I of the code provides that parties are free to enter into a contract, whether or not such type of contract is expressly recognized by law. Parties are free to conclude contracts containing elements of different types of contracts. Parties are free to agree on the terms of the contract they enter into unless the contractual terms are prescribed by Russian law. Part I further provides the rules for entering into contracts, such as an offer to make a contract and acceptance of the offer, conditional acceptance, late acceptance, conclusion of contracts at an auction.

Part I also provides for various instruments to secure the proper performance of a contract, such as pledge, surety, bank guaranty, earnest money, withholding of property, penalty (fine). The parties to a contract may agree to any of the above to secure the performance of the contract, as well as other security not specifically listed in the Civil Code. Part I of the code also provides for the general grounds for alteration and termination of contracts. A contract may be altered or terminated by mutual agreement. If there is no agreement, a contract may be altered or terminated if there is either a material breach of the contract or if there is a substantial change in those circumstances that were the bases for the parties to enter into that contract.

Part II of the Civil Code further expands on the law of obligations. It contains provisions governing certain types of contracts: sale and purchase; barter; donation; annuity; rent; contractor’s agreement; provision of services; transportation; forwarding; loan; bank deposit; bank account; settlement; storage; insurance; agency; trust management; franchising and simple partnership contracts. In addition, Part II of the Civil Code provides for non-contractual obligations such as agency without authority, torts (including product liability), unjust enrichment, public contest, and public promise of a reward.

Many provisions of the Civil Code required the adoption of additional legislation. Such legislation includes the Federal Law On Joint Stock Companies, the Federal Law On Limited Liability Companies, the Federal Law On State Registration of Legal Entities and many other laws. Significant amendments to the Civil Code, and respective federal laws related to limited liability companies, pledge and mortgage, came into force in 2009. Instances remain, however, where appropriate lower level legislation has not been adopted - the absence of a direct multimodal transport law being one such example.

Part III of the Civil Code entered into force on 1 March 2002, covering the law of succession and conflict-of-law rules. Part III, Chapter V of the Civil Code (the Inheritance Law) details the rights of citizens to


dispose of their property by devise, establishes priority categories of heirs-at-law (i.e. those who inherit absent a devise), and provides for other forms of inheritance. Legal entities and the state may act as heirs. In addition to regular wills (which should be executed in writing and notarized), Chapter V provides for confidential wills and wills made in a simple written form.

Part III, Chapter VI (International Private Law) regulates transactions “complicated by a foreign element” i.e. transactions with a foreign citizen or with a foreign legal entity, or otherwise involving a “foreign element”. Generally, the parties to a transaction that is complicated by a foreign element are free to choose any law (either Russian or foreign) as the law governing their transaction; however, the law so chosen will not apply if it contravenes the public order of the Russian Federation or so called ‘super-mandatory rules’ of Russian law.

Part III, Chapter VI of the code recognizes that foreign law may be applicable in Russia regardless of whether or not the choice of Russian law as applicable is honored in the respective foreign country. If the application of foreign law depends upon reciprocity, it shall be presumed that reciprocity exists. If the parties did not choose the law applicable to their transaction, the applicable law will be determined on the basis of the default rules of the Civil Code (Part III, Chapter VI). Generally, these conflict-of-law rules are based on the idea that a transaction should be regulated by the law of the country that has the closest connection to the transaction. The code contains conflict-of-law rules relating to both contractual and non-contractual (e.g. tort) obligations. Special provisions in the code determine the law applicable to international consumer transactions; assignment of rights; obligations arising from unilateral transactions; interest accrued on monetary liabilities; product and service liability; liability for unfair competition; unjust enrichment.

Part IV of the Civil Code, covering various intellectual property issues, came into force on 1 January 2008. These issues are discussed in more detail in a separate chapter of this brochure on IP.

It is expected that major amendments to the Civil Code may be made during 2012. Some of the proposed amendments stem from the necessity to make the Civil Code more flexible, effective and up-to-date to facilitate attracting foreign investment into Russia. Among other changes, basic provisions regarding forms of legal entities, property rights (rights in rem) and civil law obligations may be materially revised.



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5.14. Intellectual Property


5.14.1. Regulatory Environment

Russian IP legislation consists for the most part of the Civil Code of the Russian Federation, specifically its Part IV put into force by Federal Law No. 230-FZ dated 18 December 2006. Part IV of the Civil Code along with Federal Law No. 231-FZ dated 18 December 2006 “On Enacting Part IV of the Civil Code of the Russian Federation” have replaced or amended accordingly as of 1 January 2008 all preceding individual IP laws. Part IV of the Civil Code is a codification of pre-existing IP laws, which have been compiled as chapters in Part IV of the Civil Code with some significant amendments. Parts I-III of the Russian Civil Code also set out certain general provisions pertaining to legal protection of IP rights. Any foreign legal entity or individual may seek protection for its/his/her intellectual property rights in Russia, provided that the requirements of the law are satisfied. Russia is a signatory to major international treaties on intellectual property rights, including the Universal Copyright Convention, the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty, the Madrid Agreement on the International Registration of Trademarks, the Protocol to the Madrid Agreement, the Singapore Treaty on the Law of Trademarks, the WIPO Performances and Phonograms Treaty, and the WIPO Copyright Treaty.

5.14.2. Patents

An invention is a technical solution in any field related to a product (inter alia, to a device, substance, microbial strain, or cell culture of plants and animals) or a process. Patent protection is given to an invention if it is novel, inventive and industrially applicable. The maximum duration of patent protection for an invention is 20 years from the date of the application, subject to payment of annuities. The term of a patent for an invention related to a medicine, pesticide or agrochemical, the use of which is subject to obtaining special permission, may be extended at the request of the patent owner for a period not exceeding five years. The right to obtain a patent belongs to the inventor, his/her employer (in case of an employee’s invention) and their assignees. A patent application is filed with the Federal Service for Intellectual Property, Patents and Trademarks (“Rospatent”), which examines it and grants a patent if the invention meets the above-mentioned criteria.

A utility model is a technical solution pertaining to a device. Utility model protection is similar to that of inventions, with certain limitations and restrictions. A utility model is granted patent protection if it is new and industrially applicable. The term of a utility model’s patent protection is ten years from the filing date of the application, subject to payment of annuities, and may be extended for an additional period not exceeding three years.

An industrial design is an artistic and construction solution that determines the outer appearance of a product of industrial or handicraft origin. An industrial design is granted patent protection if its essential features are novel and original. An industrial design is deemed novel if the combination of its essential features does not comprise information publicly available in the world before the priority date of the industrial design. An industrial design is considered original if its essential features evince the creative character of a product’s distinctive features. Industrial design patent protection is granted for 15 years, subject to payment of annuities, and with the possibility of extension for an additional period specified in the application, but not exceeding ten years.

Under Russian law it is possible to assign or license an invention, utility model and industrial design protected by a patent to another person. Such assignment and license agreements should be recorded


with Rospatent, failing which the agreements are deemed null and void. These agreements enter into force as of the date of such recordation. The patent owner has the sole right to use an invention, utility model or industrial design that is protected by such a patent. Without the patent owner’s permission no one is allowed to use a patented object in any way, including importation, manufacture, application, offer for sale, sale or other introduction into commercial turnover, or storage for this purpose. Infringement of patent rights may entail civil, administrative or criminal liability in accordance with the applicable legislation.

5.14.3. Trademarks, Service Marks, and Appellation of Origin of Goods

Under Part IV of the Civil Code, trademarks (service marks) are designations individualizing goods or services of legal persons and individual entrepreneurs. Legal protection of trademarks and service marks is granted by virtue of their registration with Rospatent or by virtue of international agreements to which the Russian Federation is a party. A mark may be represented by a word or words, pictures, three-dimensional signs and other designations or combinations thereof. A trademark may be registered in any color or color combination. Trademark and service mark protection is granted for ten years from the filing date of the application, and may be renewed during the last year of validity for a subsequent ten-year period. Trademark and service mark registration is cancelled if the term expires without having been renewed. Trademark and service mark legal protection may be terminated upon a request from an interested party in respect of all or part of the respective goods and services due to non-use of the trademark or service mark during any continuous three year period after the registration date. Assignments and licenses of trademarks and service marks must be registered with Rospatent. In the absence of such registration they are deemed null and void.

An appellation of origin of goods is a name constituting or containing a current or historical denomination of a country, settlement, locality or other geographic unit (hereinafter referred to as a “geographic unit”) or a derivative of such denomination that has become known as a result of its use with respect to goods the specific features of which are mainly or exclusively determined by natural conditions or human factors which are characteristic of such geographic unit. A designation which, though representing or containing the name of a geographic unit, has entered into the public domain in the Russian Federation as a designation of goods of a certain kind (has become generic) and is not related to the place of manufacture of said goods, may not be deemed to be an appellation of origin of goods. Legal protection is given to an appellation of origin of goods based on its registration with Rospatent. An appellation of origin of goods may be registered in the name of one or more persons. The person or persons that have duly registered an appellation of origin of goods obtain the right to use such appellation, provided that the goods manufactured by such person(s) satisfy the criteria mentioned above. The right to use an appellation of origin of goods may be granted to any legal entity or individual which produces goods with the same specific features within the same territory. The protection is granted for ten years from the date of filing the application, and may be renewed for subsequent ten-year period. The owner may not grant licenses for use of the appellation of origin of goods.

Infringement of rights to a trademark, service mark or appellation of origin of goods may entail civil, administrative or criminal liability.

5.14.4. Company Names and Trade Names (Commercial Designations)

Company names are designations that identify or distinguish different legal entities when conducting their commercial activities. Legal protection of company names is provided by the Civil Code and the Paris Convention for the Protection of Industrial Property, to which the Russian Federation is a party. In the Russian Federation, a company name consists of two parts: the indication of a business’s legal structure and the distinctive name of the company. A company may use the official name of the Russian Federation or any words derived there from in its company name only with the consent of the Russian Government. The right to a company name arises from the moment of state registration of the



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legal entity. The owner of a company name is allowed to use its company name exclusively, and to prohibit others from its unauthorized use. The owner of a company name may not alienate its company name or grant the right to use it to another person. A legal entity may not use a company name that is identical or confusingly similar to the company name of another legal entity if both entities are engaged in similar business activities and the company name of the former legal entity has been incorporated in the state register of legal entities prior to state registration of the latter. A legal entity illegally using the company name of another legal entity is obliged to cease such use at the request of the company name owner and to compensate for any losses caused. A company name owner may use its company name or its individual elements as a part of its trade name or a trademark (service mark) belonging to the company name owner. A company name incorporated in a trade name or a trademark (service mark) is protected regardless of the protection of the trade name or the trademark itself.

Trade names are protected by virtue of the Civil Code. Part IV of the Civil Code contains a special section concerning legal protection of trade names. Trade names (so-called “commercial designations”) are designations which individualize trading, industrial or other types of enterprises owned by legal entities and individual entrepreneurs. Trade names differ from company names in that they do not require registration and are not subject to obligatory incorporation into the foundation documents of the trade name owners. The owner of a trade name enjoys an exclusive right to its trade name and may use it by any lawful means. The exclusive right to a trade name arises if the designation which is used as a trade name possesses sufficient distinctiveness and its use has gained notoriety within a certain territory. The scope of protection of a trade name used for the purpose of individualization of an enterprise located in the Russian Federation is limited to the territory of the Russian Federation. An exclusive right to a trade name terminates if the owner of the trade name fails to use it during a continuous one-year period. A trade name owner may grant the right to use its trade name to another person under a lease of enterprise agreement or a franchising agreement.

5.14.5. Copyrights and Neighboring Rights

Part IV of the Civil Code protects works of science, literature and the arts (copyright), and grants protection to the rights of performers, phonogram producers, broadcasting and cable-casting organizations, database compilers and publishers (Part IV of the Civil Code uses the term “publicators”) (neighboring rights). Copyright protection arises by virtue of the creation of a work of art without any registration requirements. An author enjoys personal (moral) rights (right of authorship, right to the name, right to public disclosure, right to protect the author’s reputation) and proprietary rights (right of reproduction, distribution, import, public demonstration, public performance, translation, modification, etc.). Personal (moral) rights are inalienable from the author and cannot be assigned or transferred by agreement. The proprietary rights to a copyrighted object may be licensed or assigned by virtue of a copyright agreement. Part IV of the Civil Code allows for the transfer of copyright in the form of an exclusive or non-exclusive license agreement as well as by an assignment of copyright. The term of copyright protection for all works, including software programs or databases, is the lifetime of the author plus 70 years after his/her death. The author’s moral rights (right of authorship, right to the name and right to protect the author’s reputation) are protected perpetually. Infringement of copyright may entail civil, criminal or administrative liability.

5.14.6. Software Programs and Databases

Copyright protection also applies to software programs and databases. Pursuant to Part IV of the Civil Code, software programs are protected as literary works, while databases are protected as compilations. Although registration is not mandatory for protection, an author may optionally register and deposit software or a database with Rospatent. A software program or a database is protected for the lifetime of the author(s) plus 70 years after his/her (their) death(s). The right to use a software program may be granted under a software license agreement.


5.14.7. Topologies of Integrated Microcircuits

In accordance with Part IV of the Civil Code, legal protection is granted with regard to original topologies of integrated microcircuits, developed as the result of an author’s work. The author enjoys the exclusive right to use the topology as he/she sees fit, including the prohibition of its unauthorized use by third parties. The rights to a topology may be transferred fully or partially to another person under a written assignment agreement or license agreement. Although the registration of a topology is not mandatory for its protection, an author may voluntarily register it with Rospatent. The exclusive right to use the topology is effective for ten years from the date of its initial use or from the date of the topology’s registration, whichever is earlier.

5.14.8. Trade Secrets and Know-How

Use of trade secrets and know-how is regulated by the Civil Code (Part IV) and Federal Law No. 98-FZ dated July 29, 2004 “On Trade Secrets” (the “Trade Secrets Law”), as amended. Pursuant to the Trade Secrets Law, in order to protect (and have others respect) its trade secrets, an entity needs to establish a so-called Trade Secrets Regime and ensure that it is complied with by all of its employees and counterparties. Therefore, broadly interpreted, confidential information may fail to be protected under the Trade Secrets Law. According to the Civil Code (Part IV) and the Trade Secrets Law, information may be treated as a trade secret only if: (i) it has real or potential commercial value due to the fact that it is unknown to third parties; (ii) it is not freely accessible using lawful means; (iii) the owner has taken reasonable measures to protect its confidentiality, including legal, organizational, technical and other measures; and (iv) its confidentiality allows, under existing or potential circumstances, the increase of revenue, the avoidance of unnecessary expenses or receipt of other commercial benefits. If any of the steps required to establish a Trade Secrets Regime are not taken the entity might be unable to protect its trade secrets under the Trade Secrets Law (e.g., to initiate criminal or administrative prosecution for violation of the trade secrets regime, to claim damages, to dismiss an employee for disclosure, etc.). Part IV of the Civil Code prescribes that an employee who has obtained access to a trade secret of the employer is obliged to keep such information confidential until termination of the exclusive right to the trade secret.

5.14.9. Domain Names

Please note that .ru zone domain names are registered in Russia on a first-come, first-served basis by several registrars. When registering domain names, the registrars neither check nor require domain name applicants to prove that they have a legitimate right to use the names they seek to register. Part IV of the Civil Code does not contain a legal definition of a domain name. Pursuant to Part IV of the Civil Code, no one may use, without the permission of the trademark owner, designations that are confusingly similar to a trademark in respect of goods and services for individualization of which the trademark was registered, or similar goods. Part IV of the Civil Code specifies some acceptable forms of use of a trademark by its owner. The exclusive right to a trademark may be exercised, in particular, by use of the trademark on the Internet, including its application in domain names and other means of address. There is no procedure similar to the Uniform Domain-Name Dispute-Resolution Policy in Russia; therefore, all domain name disputes that are not amicably resolved need to be taken either to a court of general jurisdiction (if the defendant is an individual) or an arbitrazh (state commercial) court (if the defendant is a legal entity). There is a trend to submit all domain name disputes to arbitrazh courts, regardless of whether the defendant is an individual or a legal entity. While this does not clearly follow from any statutory provisions, it occurs more and more often.



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5.15. Product conformity assurance in Russia

Information for the current chapter was developed and kindly provided by SGS Vostok Limited, Russian subsidiary of the SGS Group

5.15.1. What is the acting legal framework for product conformity assurance in Russia?

Back in 1993, the Russian Government enacted legislation obliging to certify a number of consumer and industrial products and introduced the GOST R system of mandatory certification with the intention of protecting health and safety of Russia’s population. GOST R certification implies assessment of product conformity against applicable GOST R standards with regard to safety and quality characteristics by an independent properly accredited certification body. The GOST R system has been complemented by other conformity assurance systems relating to sanitary regulations, phitosanitary and veterinary aspects, industrial safety etc.

The Russian Federal Law No.184 on Technical Regulating dated on 27.12.2002 introduced dramatic changes to the former conformity assurance system with the objective to harmonize Russian technical barriers to trade with international practices. It established new rules of state regulatory requirements for industrial and consumer goods, buildings, related business processes, as well as for consumer services. According to this Law, a Technical Regulation (in Russian: Tekhnicheskiy Reglament) has been the primary document, which stipulates the obligatory requirements for various goods to be sold and/or consumed in Russia, whereas standards and norms should be used as a supportive base only. Apart from mandatory certification another form of conformity assurance has been introduced called “declaration of conformity”. However, until new Technical Regulations are adopted, the GOST R conformity assurance system has been still valid.

In view of the Agreement signed on October 6, 2007 Belarus, Kazakhstan and Russia have established the Customs Union in the framework of the Eurasian Economic Community (EAEC or EurAsEC). In December 2009, the Agreement on the circulation of products liable to mandatory conformity assurance within the Customs Union was signed, followed by a number of more specific regulatory documents. As a result, the national legal framework in the area of conformity assurance and supervision over product safety has to be gradually replaced by the Customs Union legal framework.

By January 2012, the first 24 Technical Regulations out of the 47 top-priority Technical Regulations of the Customs Union have been passed. The first 10 Technical Regulations should come into force in July 2012. In 2012, the remaining top-priority Technical Regulations of the Customs Union should pass according to the agreed schedule. Those 47 Technical Regulations would cover over 60% of the goods circulating within the Customs Union. During the period from 2013 to 2015, unified requirements should be adopted towards all significant product categories marketed in the Customs Union. As soon as a Technical Regulation of the Customs Union comes into force, the relevant national requirements are abolished.

A Technical Regulation can be either generic or specific. Example of a generic document can be the Technical Regulation on Electromagnetic Compatibility, which concerns a number of industries. Specific Technical Regulations relate to specific product categories like, for example, the Technical Regulation on Safety of Toys or the Technical Regulation on Juice Products from Fruits and Vegetables.

To summarize, by early 2012, three major co-existing conformity assurance regulatory frameworks in Russia are as follows:

Technical Regulations of the Customs Union;


Technical Regulations of the Russian Federation – applied only when there is no relevant Technical Regulation of the Customs Union;

GOST R system – applied only when there are no relevant Russian or Customs Union Technical Regulations.

In addition, there are special requirements from Russian and Customs Union authorities with regard to conformity assurance against veterinary, phitosanitary, sanitary and industrial safety norms.

5.15.2. How to find out whether the product is liable to mandatory conformity assurance in Russia?

Starting from July 1, 2010 the Single list of products liable to mandatory conformity assessment (verification) in the framework of the Customs Union resulting in unified document issuance has been enacted. The unified document implies either the Certificate of Conformity or the Declaration of Conformity drafted according with the same unified template in Russia, Belarus and Kazakhstan. This list has been updated on a regular basis.

The other documents to refer to are:

the Single list of products liable to sanitary-epidemiological supervision on the customs border and in the customs territory of the Customs Union approved by the Decision of the Customs Union Commission No.299 dated on 28.05.2010;

the Single list of products liable to veterinary supervision in the Customs Union approved by the Decision of the Customs Union Commission No.317 dated on 18.06.2010;

the List of products liable to quarantine phitosanitary supervision on the customs border and in the customs territory of the Customs Union approved by the Decision of the Customs Union Commission No.318 dated on 18.06.2010.

If the product is not included in the Single product lists of the Customs Union, then one should consult two national regulatory documents: the Single list of products liable to mandatory certification and the Single list of products whose conformity verification is to be made in the form of a declaration of conformity (both approved by the Decree of the Russian Government No. 982 dated on December 1, 2009 and since then regularly updated).

Besides, one should consult the acting Technical Regulations of the Customs Union and the Russian Federation, and if there are any relevant regulations pertaining to the product category in question, then one should check the scope of the Technical Regulation to find out whether the specific product is liable to mandatory verification of conformity.

If the product is not mentioned in any of the product lists and any of the acting Technical Regulations either of the Customs Union or the Russian Federation, then the product is not subject to mandatory verification of conformity in Russia.

5.15.3. What kinds of permissive documents are there in Russia?

There are two forms of conformity assurance in Russia: declaration of conformity (by the manufacturer) and certification of conformity (by a properly accredited certification body being independent from the manufacturer). Declaration of Conformity and Certificate of Conformity have equal legal status and are valid throughout the whole territory of the Russian Federation. The appropriate form of conformity assurance is stipulated by regulatory documents applicable to the product in question. Sometimes, both forms are possible.

The following types of approvals are usually required to prove product compliance in Russia:

Declaration of Conformity with Technical Regulations or Certificate of Conformity with Technical Regulations;

GOST R Declaration of Conformity or GOST R Certificate of Conformity.



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For some measuring instruments the so-called Pattern Approval Certificates need to be obtained. These are issued by a state authority called Rosstandart based on results of tests performed by accredited State Scientific Metrological Centers.

When the product is liable to sanitary and epidemiological regulations of the Customs Union, Certificate of State Registration may be required. For products subject to veterinary and phitosanitary supervision there may be a requirement to obtain Veterinary Certificate, Phitosanitary Ceritificate and/or Import Quarantine Permit.

Some other documents may be required at the stage of commissioning for industrial equipment, such as Technical Passports or Permits to Use.

5.15.4. When are Russian permissive documents required?

Mandatory verification of conformity is conducted before the product has been launched to the Russian market. This concerns both locally produced and imported goods.

Approving documents are required at different stages of doing business in Russia, such as:

Concluding a sales deal;

Customs clearance at the Russian border;

Advertising and PR activities;

Placing a product in retail;

Commissioning of equipment.

5.15.5. What labelling/marking requirements are there in Russia?

According to the Russian Law No.2300-I “About Consumer Rights protection” dated 07.02.1992, all consumer goods, both food and non-food, exported to and distributed in Russia require Russian language labelling and the sale of imported products without consumer information in Russian language is illegal.

Russian labelling has to cover the following items:

Name of a product;

Country of origin;

Name and address of manufacturer or any other contact information for consumers;

How and where the product is to be used;

The main characteristics and description of the product;

Safety requirements;

Conformity assurance and licensing information (relevant Mark of Conformity);

Expiration date, if applicable ;

Other information required by the applicable Technical Regulations.

This information can be contained on a box, label, or any other appropriate material concerning the product such as technical brochures or manuals.


The following marks demonstrate to the consumer the product’s compliance to the applicable

mandatory requirements:

5.15.6. How long does it take to get certified?

The conformity verification process in Russia can take from a few hours up to several months. Its duration depends on the following factors:

The type of certificate you opt for (e.g. verification process for a 3-year validity Certificate of Conformity for serial production normally takes longer than a certificate valid for just one shipment);

The need to make tests, number and complexity of the tests;

Number of certificates you have to obtain prior to the targeted permissive document;

Your ability to quickly collect the internal documents needed for verification;

Time spent upon translation of required documents into Russian language;

Your previous experience with Russian certification (i.e. obtaining a permissive document for the very first time commonly lasts longer than subsequent similar applications).

As a result, you are able to speed up the process by means of manipulating the above-mentioned factors.

5.15.7. Which international certificates are accepted in Russia?

Many procedures in the conformity assurance system of Russia and the Customs Union were copied from the West (especially the EU), and foreign manufacturers face similar requirements for operation in their local market. Still, there are some discrepancies.

The reason for that partly lies in the Russian specific climate conditions, partly in the historical background (many of the Russian standards have not been re-viewed since the Soviet times). Quite often, verification methods considerably differ from those applied in the Western Europe or the US. To cite some examples: in Russia, testing of toys includes verification of formaldehyde and phenol content, although not checked in the EU; transformers have to be tested at -40°C temperature, i.e. in twice as cold conditions as in Europe; steel pipes might be subject to 100% testing as opposed to 10-20% sampling in Europe.

Mark Symbol Definition

GOST R Mark of Conformity

The product is compliant with GOST R standards

TR Mark of Conformity

The product is compliant with Russian Technical Regulations (TR)

CU TR Mark of Conformity

The product is compliant with Customs Union (CU) Technical Regulations (TR)

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Therefore, even if your products are well-known throughout the world and recognized as safe in the EU or any other country, you still have to prove that they comply with Russian/Customs Union requirements in accordance with locally accepted methodology. However, availability of an international certificate might facilitate the procedure of obtaining the appropriate Russian approvals.

5.15.8. Does it matter whether exporter or importer handles product conformity assurance?

When negotiating sales contracts with Russian partners, exporters need to raise issues related to conformity assurance expenses, namely which party bears the costs, procedures and responsibilities. In some cases, exporter and importer alike are able to carry out certification and obtain proper permissive documents. However, a declaration of conformity can be signed only by a Russian legal entity. For an international company it means that the declaration of conformity can be signed either by their Russian distributor representing the foreign manufacturer on the basis of a formal contract for conformity assurance purposes, or by their Russian agent, or by their subsidiary located in Russia.

Exporters should bear in mind that in case the certificate or declaration is issued under the name of their importer, the latter will become their exclusive distributor in the Russian market during the whole validity term of the certificate. Therefore, those exporters who wish to keep control over their Russian marketing strategy and preserve their independence from any local partner are recommended to take care of their products’ conformity assurance on their own.

5.15.9. How much would it cost to get certified?

The cost for conformity verification services is very much dependable on such factors as complexity of a product, complexity of manufacturing process and type of required permissive document. Relevant expenses would usually consist of the following elements:

Cost of samples selected for destructive tests;

Expenses for packing, storage, freight handling and transportation of samples to the testing laboratory;

Cost of product tests in accredited laboratory;

Audit expenses, including travel costs;

Translation services;

Labor expenses of the certification body (man-days * daily rate) over processing of your inquiry, verification of documents, issuance of certificate;

Overheads.

You may be offered discounts in case you wish to obtain a relatively large number of certificates or if you are applying for the same service repeatedly. Such cost reduction is due to decreasing overheads, number of required samples and number of tests.

5.15.10. How to make the certification cost-effective?

To make the certification process cost-effective, we recommend correlating the type of certificate with anticipated volume of exports and range of exported goods. Thus, if you are planning to regularly ship your goods to Russia, and their range is quite wide, it might be wiser to opt for a serial certificate valid for a few years. Although it will require higher single payment versus shipment certification, in the long-term such scheme can save both your time and money. In fact, whole product line will have to be sampled and tested in the framework of a shipment certification, whereas only a limited number of samples will be tested for serial certification since production audit will certify conformity of the rest.

Be prepared that the certification cost might appear not proportional versus cost of the product to be certified. Therefore, if your company intends to take part in a tender for a project in Russia, the advice is


to plan ahead and ask preliminary quotation for certification from a professional body so as to include the cost to your bidding. Otherwise, there is the risk that once the project wins the bid not taking into account real certification cost, your anticipated profit will not be sufficient to cover actual expenses. In some cases, your certification body might suggest slight modifications of initial design for a machine or industrial unit in order to lower your certification expenses.

5.15.11. Whom to address for Russian conformity assurance?

Any approving document is to be issued by an accredited body. There are about 1500 certification bodies and 3550 testing facilities accredited within GOST R system, not counting other certification systems. In July 2010, the Single Register of Certification Bodies and Testing Laboratories of the Eurasian Economic Community (EurAsEC) Customs Union was established. Only organizations included in this Register (1010 certification bodies and 2114 test laboratories by the end of 2011) are allowed to issue Certificates of Conformity and Declarations of Conformity recognized in three member countries of EurAsEC, namely Russia, Belarus and Kazakhstan.

Often, certification bodies focus on a specific type of approvals or on a specific industry (e.g. textile or telecom). It is reflected in their accreditation scope. Only the largest ones provide integrated services assisting in getting a range of approvals in one place.

While selecting a certification body, request for the accreditation certificate and for the reference list, consider whether the future partner is experienced in the kinds of approvals you need and able to guide you in the Russian regulatory environment. Unprofessional or fraudulent service might cause headache in the future such as arrest of the shipment at the customs border or costly delays in delivery schedule.

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5.16. Banking


As of 1 January 2012, there were 988 banks registered in Russia. The Central Bank of the Russian Federation (the “Bank of Russia”) is the key regulatory authority for banking and is also in charge of monetary policy.

The primary pieces of banking legislation are the Civil Code of the Russian Federation, Federal Law No. 395-1 On Banks and Banking Activities, dated 2 December 1990, Federal Law No.86-FZ On the Central Bank of the Russian Federation, dated 10 July 2002; Federal Law No. 40-FZ On the Insolvency (Bankruptcy) of Credit Organizations, dated 25 February 1999; Federal Law No. 177-FZ On the Insurance of Deposits of Individuals in the Banks of the Russian Federation, dated 23 December 2003 and Federal Law No. 115-FZ On Combating Money Laundering and the Financing of Terrorism.

5.16.1. Banking and Banking Operations

5.16.1.1. Banking and Credit Organizations in the Russian Market

Pursuant to Federal Law No. 395-1 On Banks and Banking Activities, dated 2 December 1990 (the “Banking Law”), there are two main types of credit organization: banks and non-banking credit organizations. A bank is a credit organization that has the right to carry out such banking operations as opening and maintaining the bank accounts of legal entities and individuals, attracting deposits from legal entities and individuals and placement of those funds in its own name and at its own cost and expense. Conversely, a non-banking credit organization is an entity that is allowed to perform a limited number of specified banking operations as set forth in its license.

Both banks and non-banking credit organizations are entitled to carry out banking operations from the moment of receipt of a banking license issued by the Bank of Russia. Both types of credit organization may participate in banking groups (when the controlling company is a credit organization) and banking holdings (when the controlling company is a non-credit organization).

5.16.1.2. Foreign Participation in the Banking sector

Although foreign banks may not currently open branch offices in the Russian Federation, a local subsidiary or a representative office may be established.

(a) Foreign direct ownership

A foreign bank may establish a subsidiary in Russia in the form of a Russian legal entity (a joint-stock company or a limited liability company) (see Chapter 5.3 Establishing a Legal Presence).

The participation of foreign banks in the Russian market is subject to certain restrictions. In particular, non-residents need the Bank of Russia’s prior approval if they acquire 20% or more of the shares in a Russian bank or non-banking credit organization. When a non-resident acquires more than 1% but less than 20%, the Bank of Russia need only be notified. This is similar to the regulation that applies to Russian residents. Also, the Bank of Russia may not establish additional requirements for the subsidiaries of foreign banks related to mandatory ratios and minimal charter capital. However, additional requirements on reporting procedures, approval of management bodies and permitted operations of the representative offices and subsidiaries of foreign banks may still be introduced.


(b) Representative Offices

Representative offices of foreign banks are accredited by the Bank of Russia. A representative office of a foreign bank can be accredited for a term of three (3) years. Accreditation can be renewed an unlimited number of times. The Bank of Russia may grant permission to open a representative office to a foreign bank that meets all the following criteria: (i) the foreign bank has been operating in its country of incorporation for at least five years; (ii) the foreign bank has a good reputation in the banking system of its country; and (iii) the foreign bank has a stable financial position. Confirmation of the foreign bank’s compliance with these criteria should be requested from the relevant supervisory body in the country where the foreign bank is incorporated.

Representative offices of foreign banks have limited legal capacity under Russian law. They are allowed to study the economic situation and standing of the Russian banking sector, to maintain and develop contacts with Russian banks, and to develop international cooperation81. While the representative office of a foreign bank may not solicit new clients for the bank, it may provide consultancy services to existing clients of the foreign bank.

Representative offices of foreign banks are subject to the supervisory control of Bank of Russia, which may close the representative office of a foreign bank at any time at its discretion82.

5.16.1.3. Banking Activities

Under the Banking Law only credit organizations holding the respective license are allowed to carry out certain activities, which are called “banking operations”. The list of banking operations includes the following:

Attraction of monetary funds for on-demand and term deposits and placement of such funds in the name and at the expense of the relevant credit organizations;

Holding deposits and placement of precious metals;

Opening and maintaining bank accounts for individuals and legal entities;

Collecting money, promissory notes and bills of exchange, payment and settlement documents;

Providing cash services to individuals and legal entities;

Exchanging foreign currency;

Issuing bank guarantees; and

Transferring money (including e-money) with or without opening of bank accounts.

Banks and non-banking credit organizations are also entitled to perform certain non-banking operations, inter alia: providing financial suretyship; trust management; performing operations with precious metals and stones; renting out safe deposit boxes; participating in financial leasing operations; and providing consultancy and other informational services. Subject to compliance with respective licensing requirements credit organizations may act as professional participants on the securities market. Credit organizations are prohibited from engaging in any industrial, trade, or insurance activities.

5.16.1.3.1 Lending

Of course one of the major activities of a credit organization in Russia is lending. While lending to Russian corporate entities, a number of issues should be taken into account.

The parties to a transaction with a foreign element (i.e. a foreign counterparty) may generally choose foreign law as the law governing their contractual relationship. Thus, if financing is provided to a Russian company by a foreign bank the loan agreement is usually governed by foreign law (usually

81

See Clause 1.2. of the Regulations on the Procedure for Opening Representative Offices of Foreign Credit Organizations in the Russian Federation and for the Activities Thereof (endorsed by Order of the Bank of Russia No. 02-437 dated 7 October 1997), hereinafter, the “Regulations”. 82

See Clause 3.7. of the Regulations.



183

English law and LMA-style agreements are used). The choice of governing law for security documents however is generally determined by where the proposed collateral is situated or created.

It is noteworthy that Russian law does not recognize the concept of trusts. Therefore, the straightforward use of a security trustee in syndicated secured financing may not work in Russia, where alternative structures are used.

Although most of the currency control restrictions were removed in 2007, foreign banks should still take into account some currency control regulations when lending to Russian corporate borrowers, e.g. the necessity of opening a transaction passport, repatriation of funds from export proceeds.

Payments by a Russian borrower to a foreign lender under a loan agreement may, as the payer is a Russian taxpayer, be characterized as a Russian source income. In such case, the payments by the Russian borrower may be subject to Russian profits withholding tax at the rate of 20%, subject to reduction or elimination pursuant to the terms of an applicable tax treaty.

5.16.2. Legal and Regulatory Framework

The foundations of the Russian banking system are provided in the Banking Law and Federal Law No.86-FZ On the Central Bank of the Russian Federation, dated 10 July 2002 (the “Bank of Russia Law”). Bank insolvency is specifically regulated by Federal Law No. 40-FZ On the Insolvency (Bankruptcy) of Credit Organizations, dated 25 February 1999. The Bank of Russia is responsible for regulating banking activities. Through its instructions, regulations, and other acts, the Bank of Russia establishes rules, standards, and obligatory requirements for banks and non-banking credit organizations throughout the Russian Federation.

5.16.2.1. Regulatory Authorities

The primary regulatory body governing the banking sector of the Russian Federation is the Bank of Russia. The Bank of Russia is one of the few institutions under the control of the Russian legislative (rather than executive) branch. The State Duma must not only approve the nomination of the chairman of the Bank of Russia, but also approve the resignation of the chairman. The Bank of Russia Law provides for the establishment of a special body within the structure of the Bank of Russia, the National Banking Council (the “NBC”), comprised of representatives of various executive and legislative bodies. The NBC exercises control over the Bank of Russia’s board of directors, and participates in establishing the basic principles of Russian banking and financial policy.

The Bank of Russia and the Government share authority over monetary policy. The Bank of Russia is responsible for circulating monetary funds and ensuring the stability of the Russian ruble. As part of its regulatory role, the Bank of Russia establishes state registration, accounting, reporting and licensing rules for credit organizations, sets minimum reserve requirements for lending operations, mandatory ratios (capital adequacy, liquidity, etc.) and requirements on the amount of charter capital. The Bank of Russia maintains regional offices throughout the Russian Federation.

5.16.2.2. Licensing and Banking Supervision

A credit organization must be registered in the Russian Federation further to a specific procedure and must be licensed by the Bank of Russia. Newly established banks can receive licenses permitting a limited scope of operations. A bank that has held a license for a period of two years or more is entitled to apply for licenses permitting an extended scope of operations.

The Bank of Russia may refuse to issue a banking license in the event of the following:

Non-compliance of the application documents with Russian legal requirements;

The unsatisfactory financial standing of the founders of the credit organization, or their failure to perform their respective obligations before the federal budget, the budgets of constituent entities of the Russian Federation or local budgets;


The failure of a nominee for the position of chief executive officer or chief accountant of the credit organization (or their deputies) to meet the qualification requirements, or an unsatisfactory business reputation of a nominee for the position of a member of the board of directors (supervisory board) of the credit organization.

The Bank of Russia has controlling powers over Russian Banks: it approves the appointment of the senior management of all credit organizations, holds mandatory reserves placed by credit organizations, and monitors credit organizations’ compliance with applicable requirements. If a credit organization fails to comply with these requirements the Bank of Russia is entitled to exercise various sanctions, which range from a warning and fine to suspension of certain banking operations and revocation of its banking license, which triggers the dissolution or bankruptcy of the credit organization.

Under certain circumstances banks have to cooperate with the Federal Antimonopoly Service (“FAS”). For example, in case of mergers, banks are required to obtain preliminary clearance from FAS if the purchaser will acquire more than 25% in the charter capital of a bank and at the same time the target bank’s assets exceed RUB 33 billion (approx. USD 1.1 billion). Where the figure does not exceed the established limit, it is sufficient for the lending institutions concerned to notify FAS of the merger.

5.16.2.3. Deposit Insurance

Federal Law No. 177-FZ On the Insurance of Deposits of Individuals in the Banks of the Russian Federation, dated 23 December 2003 (the “Deposit Insurance Law”) establishes an insurance system for the deposits of individuals. It stipulates that all banks accepting individual deposits must be members of the deposit insurance system. The Agency for Deposit Insurance (the “Agency”) is responsible for supervising this system.

Banks that hold a valid retail banking license need to apply to the Bank of Russia to become registered as a participant in the mandatory deposit insurance system. A bank is expected to pass a number of tests before it can be admitted. The Bank of Russia must be assured that: the bank’s financial accounts and reports are accurate; the bank is in full compliance with the Bank of Russia’s mandatory ratios; the bank’s solvency position is sufficient; and that the Bank of Russia has not cancelled the bank’s banking license.

If a bank fails the above tests or chooses not to participate in the deposit insurance system, it will not be able to attract deposits from, or open accounts for, individuals. Member banks have to make contributions to a special deposit insurance fund. These contributions are calculated as a percentage of the average daily balance of individual deposits maintained with a particular bank, and beginning from the 4th quarter of the year 2008 are subject to an upper limit of 0.1%. All individual depositors with deposits in member banks are entitled to 100% compensation for aggregate amounts up to RUB 700,000 (approx. USD 23,000) for each bank. However, the deposit insurance would not cover e-money deposits.

5.16.2.4. Countering Money Laundering

Based on recommendations made by the Financial Action Task Force on Money Laundering (the “FATF”), the State Duma adopted Federal Law No. 115-FZ On Combating Money Laundering and the Financing of Terrorism (the “Anti-Money Laundering Law”), which came into force on 1 February 2002.

The Anti-Money Laundering Law imposes certain requirements on credit organizations, professional participants of securities markets, insurance and leasing companies, postal and other entities that deal with the transmission of money or other valuables. These entities must:

Identify clients and beneficiaries pursuant to a specific procedure;

Require certain information on payers in payment orders;

Report to the Federal Financial Monitoring Service on certain types of transactions of RUB 600,000 (approx. USD 20,000) or more (or the equivalent in foreign currency), and transactions with real



185

property of RUB 3 million (approx. USD 100,000) or more (or the equivalent in foreign currency) and all complex or unusual transaction schemes that have no apparent economic or lawful purpose irrespective of their amount;

Identify foreign public officials and the sources of their money and other property; pay increased attention to transfers of monetary funds and other property between foreign public officials and their close relatives.

The Anti-Money Laundering Law disallows the creation and maintenance of anonymously held accounts.

5.16.2.5. Capitalization and Basel II implementation

Russian banks are required to comply with the capital adequacy requirements set by the Bank of Russia, which differ in some significant respects from the regulations applied in those countries that have adopted the guidelines regarding solvency and capitalization set by the Basel Committee on Banking Regulations and the Supervision Practices of the Bank for International Settlements.

Under Russian law, the minimum capital adequacy ratio that banks are required to maintain is calculated (on an unconsolidated basis) as the ratio of a bank’s owned funds (its capital) to the total amount of its risk weighted assets. From the beginning of 2012 the minimum capital adequacy ratio required by the Bank of Russia is currently 10% for banks whose capital is RUB 300 million (approx. USD 10 million) or more and 11% for banks whose capital is less than RUB 300 million. If the capital adequacy ratio of a bank drops below 2%, then the Bank of Russia should revoke its banking license.

Pursuant to the recent amendments, existing banks are required to achieve the above amounts of capital by 2015. Should a bank fail to reach the above level of capital, the Bank of Russia will revoke its license. From the beginning of 2012 the minimal capital of newly registered banks must be RUB 300 million (approx. USD 10 million).

Introduction of the “Basel II” capital requirements, initially scheduled for 2009, has been postponed. A new time-frame for the introduction of “Basel II” in Russia has yet to be announced.

5.16.2.6. Financial Statements and Reporting Standards

Accounting and reporting requirements in Russia are not comparable to those in other (especially Western) jurisdictions. All credit organizations in the Russian Federation must prepare Russian Accounting Standards (“RAS”) statutory accounting reports and, on an annual basis, their financial statements according to IFRS.

The Bank of Russia devises reporting forms for credit organizations and works out procedures for preparing reports and filing them. Banks are obliged to submit a very large quantity of information to the Bank of Russia with some of the reports to be filed on a regular basis. The list of information may vary depending on the type of operations carried out by a particular credit organization and the number of licenses it holds. Thus, all credit organizations should disclose information concerning their affiliates, file accounting statements, provide information on analogous claims and loans grouped in portfolios together with information on the quality of the credit organization’s assets and information on securities acquired by the credit organization, data on loans and market risks, information on obligatory norms and any deviation therefrom, information on forward transactions etc.

If a bank is a joint stock company and a securities market participant, it must also disclose information at various stages of each securities issue. Such information is disclosed in the form of an offering statement, quarterly securities issuer reports and disclosure of material facts affecting the bank’s financial and business activities. Information to be disclosed must be published by one of the authorized services. In addition, a particular issuer may use its own or some other Internet site for such purposes. The rules covering this disclosure are set by the Federal Service for Financial Markets.


5.16.3. Regulation of the Insurance Market and Products

The Insurance Law contains a general description of the organization of the Russian insurance market, licensing requirements, operation and liquidation of insurance businesses, as well as regulation of other participants of the Russian insurance market, such as insurance brokers and dealers.

The Civil Code establishes the types of insurance, the concept and compulsory terms of insurance contracts, the rights and duties of parties to such contracts, rules for the change of parties and beneficiaries to insurance contracts, rules for termination of insurance contracts, as well as other fundamental insurance-related regulation. In particular, Article 934 of the Civil Code establishes the basis for personal (life and health) insurance and Article 929 the basis for property insurance (property insurance, liability insurance and business risks insurance).

5.16.4. Types of Insurance in Russia

Russian law provides for two basic types of insurance: personal insurance (such as life and health) and property insurance (property insurance, liability insurance and business risks insurance). Life insurance activity may not be combined with other types of insurance activities, i.e. an insurer may only offer either life insurance, or health and property insurance.

The law also mentions the possibility of issuing insurance policies incorporating investment elements in the case of life insurance; however, because there is no further regulation of such instruments and for a number of other reasons, it is not clear how the investment provisions of such insurance policies would be treated by courts. The fact that a number of major Russian insurance carriers offer packages for life insurance with investment possibilities referred to as “elite” may be seen as the first step in the appearance of a market for such products.



187

6. Costs of doing business

6.1. Costs of starting a company

6.1.1. Overview

Starting a business in St. Petersburg involves completing a series of legal activities. Russian companies,

as well as branches and representative offices of foreign companies in Russia, must be registered with

several authorities. Companies must be registered with the State Registration Authority (currently, tax

authorities), which takes care of state registration and registration for tax purposes, as well as with the

State Statistical Committee and three social funds. Branches and representative offices must be

registered with the tax authorities and accredited as well as registered with the State Statistical

Committee and three separate social funds. In St. Petersburg registration is carried out through the

Unified Registration Center, which registers companies with all required establishments and

authorities.83

In the preliminary phase, it is required to gather and draft all documents, which are to be filed with competent authorities (notarized and apostilled corporate documents of a foreign company, constitution documents of the newly established Russian company or business, etc.).

Additional steps are necessary for Russian companies, branches, and representative offices to be fully operational, e.g. opening of bank accounts, development of a corporate seal, registration of the issuance of shares (for JSCs only) with the securities authorities, etc.

You can establish a company with your own financial and human resources, however it is highly recommended to refer to the services provided by consulting, law or special registration companies to expedite the whole process.

6.1.2. Costs and duties

The following state duties are applied while registering a company through the Unified Registration Center in St. Petersburg:84

Individual entrepreneur / sole proprietorship State duty: 800 RUB Registration time: no more than 5 business days

Legal entity (all types) State duty: 4,000 RUB Registration time: no more than 5 business days

The following costs may be incurred while registering and starting a company in Russia:

Notary services

Some documents submitted for registration have to be approved by notary

Cost: starting at 200 RUB

83

For more information, please see Section 5.3 Establishing a Legal Presence 84

Effective January 30, 2010


Stamp

In order to run a business all legal entities in Russia are required to have a company stamp

Cost: starting at 400 RUB

Bank account In order to run a business it is necessary to have a bank account Cost: varies depending on the bank

Certification and other issues Certification might be required depending on the nature of your business and products Cost: starting at 2,000 RUB

6.1.3. Contacts

Administration of the Federal Tax Service in St. Petersburg Unified Registration Center at Interdistrict Tax Inspection #15 10-12 Krasnogo Tekstilschika Street 191124 St. Petersburg, Russia Tel.: +7 812 335 14 03, 335 14 00 | Fax: +7 812 335 14 02 [email protected] | www.r78.nalog.ru

mailto:[email protected]

http://www.r78.nalog.ru/



189

6.2. Human resources According to the Territorial branch of the Federal State Statistic Service (www.petrostat.gks.ru), average nominal salary in St. Petersburg constitutes 29,522 roubles (as of 2011). In 2011 real accrued salary calculated with consideration of consumer price index constituted 100.2% to the level of 2010.

6.2.1. Average salaries by industry (2011)

Industry RUB In % to 2010

Agriculture 26,412 114,9

Mining 40,524 119,2

Manufacturing 31,123 114,7

Electricity, gas and water production and distribution

38,118 109,8

Construction 24,610 104,0

Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods

23,061

106,4

Hotels and restaurants 17,101 112,4

Transport and communication 32,868 110,5

Financial activity 57,528 109,0

Real estate operations, rent and services

35,107 111,1

Public administration, military security, social insurance

32,587 108,3

Education 22,753 110,4

Health care and social services 25,465 108,0

Other community, social and personal services

27,580 115,2

Source: Territorial branch of the Federal State Statistic Service


6.2.2. Salary and compensation survey

Information for the current chapter was developed and kindly provided by Adecco

The salary and compensations survey conducted by Adecco in spring 2012 covers 29 Russian and foreign companies. The total number of employees of the participating companies represents more than 8,000 people. The survey studies more than 100 positions of different level and defines common tendency in salary policy, benefits and compensations policy, etc.

6.2.2.1. Participants information

Type of company

Type of ownership

Core activity in Russia, %

Production:

FMCG 17

DCG 28

Industrial goods 7

Distribution:

Wholesale distribution 52

Retail distribution 21

Promotion / Sales & Marketing 34

Services:

Legal entity 38

Individual person 28

6.2.2.2. Salary payment policy

Salary increase, as planned for 2012 (% of number of companies)

72%

28%

International

National

27%

59%

6% 100% Russiancapital

100% foreigncapital

Joint venture

79%

75%

81%

Total

Russian companies

Foreign companies



191

Number of companies planning to increase salaries in 2012 and total value of salary increase, %

Number of companies provided salary increase during 2012 (1 quarter)

52

Average increase 8

Number of companies provided salary increase in 2012 (2-4 quarters)

48

Average increase 8

6.2.2.3. Bonus policy

Availability of fixed bonus

Availability of non-fixed bonus

Non-fixed bonus payment period

Fixed bonus payment period

6.2.2.4. Overtimes

Number of companies providing compensation for overtimes

By type of company

14%

86%

Yes No

66%

34%

Yes No

21%

42%

32%

79%

42%

Senior management,monthly/quarterly/undefined

Middle management, quarterly

Basic level employees, monthly

Sales department, monthly

Average factory personnel,monthly

50%

100%

Sales department,monthly

Average factorypersonnel, monthly

86%

14%

Yes No

75%

90%

25%

10%

Russian companies

Foreign companies


6.2.2.5. Training programs

Training programs provided in companies, %

Training courses Senior management

Middle management

Basic level employees

Sales department

Average factory personnel

Sales skills 7 14 7 76 7

Presentation skills 28 28 14 55 7

Supervisory skills 62 62 7 7 7

Key account management 14 14 14 41 14

Negotiation skills 34 34 14 48 7

Communication skills 28 28 34 34 7

Team building 21 28 28 28 7

Interviewing skills 14 14 7 7 7

Time management 21 21 14 14 7

Foreign language courses 38 52 45 38 45

Computer courses 17 17 17 17 17

Performance management 21 21 7 7 7

Other - 7 14 - 14

6.2.2.6. Personnel

Number of companies planning to change the number of employees

Planned change in staffing

45%

55%

Yes No

85%

15%

Increase in staff

Reduction in staff



193

6.2.2.7. Salary for some positions

Average monthly cash (base salary + bonuses + annual bonus), RUB, Gross

Position 25 percentile85

75 percentile86

Executive management:

Business development director 173,050 263,700

Branch Director/Manager 142,031 248,307

Administration:

Legal supervisor 171,450 183,109

Office Manager (with foreign language knowledge)

35,175 45,175

Accounting and Finances:

Chief Accountant 100,580 201,183

Financial Analyst 27,356 59,698

Marketing and PR:

PR Manager 53,656 89,214

IS & IT:

Head of IT Department/ IT Manage

81,845 125,265

Programmer 59,595 76,795

System Administrator 52,563 71,459

Sales:

Head of Sales Department 81,258 118,438

Regional Sales Manager 67,219 88,481

Sales Representative 34,573 42,514

Production & Engineering:

Production Superintendent/Production Manager

118,849 145,166

Worker (skilled) 30,141 36,060

Quality Control and Standardization:

Head of Quality and Standardization Department

86,115 142,812

85 25th percentile is the rate that divides the exponents’ row into two parts: 25% of rates are lower than the

percentile, and 75% are higher. Thus 25% of researched employees/companies get salary lower than the percentile, and 75% - higher. 86 75th percentile is the rate that divides the row in two following parts: 75% of the row exponents are lower than

the percentile, and 25% are higher.


Retail sales:

Store Director 57,360 101,503

Retail Specialist/ Shop Assistant 19,418 28,479

Customer Service:

Customer Service Manager 32,630 34,750

Service Manager 32,509 34,213



195

6.3. Office, retail and warehouse market

Information for the current chapter was developed and kindly provided by Jones Lang LaSalle

6.3.1. Office market overview

6.3.1.1. Supply

The total modern office stock in St. Petersburg increased by 124,890 sq m in the first nine months of 2012 and reached 2,150,590 sq m. The share of Class A space is gradually increasing in the total volume of quality office stock. Currently, it amounts to 27%. Completion levels are gradually picking up again with around 200,000 sq m for 2012 in total, although they remain lower than figures in 2008-2009, when over 300,000 sq m were delivered annually. Around 230,000 - 250,000 sq m of office space per year is announced for delivery in 2013-2014. However, this forecast could be adjusted downward as project delivery is delayed or canceled.

6.3.1.2. Demand

In the 3d quarter of 2012 occupier activity was strong. Total net absorption during the first nine months of the year accounts for 190,000 sq m, which is comparable to pre-crisis activity levels. The share of the 3d quarter absorption amounted to around 30% (or 56,550 sq m in Class A and B properties). Occupier activity was particularly high in the Moskovskiy and Vasileostrovskiy districts on the back of recently completed high-quality developments in these areas. In fact, Moskovskiy district together with such central locations as Central and Petrogradskiy districts represented the three leading directions of occupiers demand in the city throughout the last nine months. Overall, Mining and Exploration sector occupiers were the most active in 2012 so far, accounting for a 31% share of leasing deals, followed by the IT sector at 22%. Construction and Wholesale & Retail occupiers were also active at 13% and 8%,

0

500

1 000

1 500

2 000

2 500

Class A&B stock dynamics

Class A Class B

th.sq.m

-20

0

20

40

60

80

100

120

140

Q1

200

7

Q3

200

7

Q1

200

8

Q3

200

8

Q1

200

9

Q3

200

9

Q1

201

0

Q3

201

0

Q1

201

1

Q3

201

1

Q1

201

2

Q3

201

2

th.sq.m. Completions and net absorption

Completions Net absorption


respectively. The largest leasing deals on the market are mainly in the range between 6,000 –10,000 sq m. A recent market trend has been the purchase of entire office buildings by end-users.

6.3.1.3. Market balance

The overall vacancy rate remained virtually unchanged at 9.7% during the last six months, though it decreased from 13.5% registered in the beginning of 2012. Recent data showed decreasing availability of Class A space from 14.7% to 12.2% over the quarter, while Class B choice increased from 7.8% to 8.8% on the back of a number of large (state commissioned) completions. Comparing current market with that in the beginning of the year, the dynamics of available space will be sharper. In total, available space in quality premises reaches 208,230 sq m with Class A space at 69,490 sq m and Class B space at 138,740 sq m (vs. 124,700 sq m and 148,200 sq m, respectively in the beginning of 2012). Rental changes remain quite moderate. Average Class A rents increased by around 2-3% over the quarter, whereas Class B rents recorded a drop of

around the same magnitude. Market rents are recorded at USD 350-420/sq m/year for Class A space, while Class B properties demand rents of around USD 250-330/sq m/year. Prime rents have remained at the same level since the middle of 2011, at USD 450-550/sq m/year (excluding operating expenses and VAT). Landlord incentives usually include fit-out delivery. Anchor tenants with specific fit-out requirements can acquire tailor made fit-out for its compensation. Rent free periods are used mainly for anchor tenants for the fit-out period (maximum 3 months for tenants over 3,000 sq m).

6.3.1.4. Outlook

Office supply in the mid-term will remain split between central locations of the city and Moskovskiy district, where around 30% of all future supply is planned for completion next year. New office supply will offer high-quality space to anchor tenants, and will stimulate average rents upward. Leasing activity will continue to be stable, with IT and Mining/Explorations sector dominating the market in the short-term. Further vacancy decrease will be dependent on completions, but the general trend of office space absorption levels exceeding completions level will remain.

Source: Jones Lang LaSalle, 2012

2004 2005 2006 2007 2008 2009 2010 2011 2012E

Stock at the end of year (thousand sq.m)

506.7 634.8 821.3 997.2 1,402.7 1,713.6 1,825.6 2,025.7 2,215

Completions (thousand sq.m)

192.3 128.1 186.5 175.9 405.6 310.9 111.9 170.08 190

Vacancy rate (%) 5.0 5.0 6.1 5.8 15.0 25.9 19.7 13.5 9

Prime base rent (USD/sq.m/year)

500 600 800 900 1,000 600 500 550 550

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 Q32012

USD/sq.m/ year

Rent and vacancy rate dynamics

Base rent, Class A Base rent, Class B

Vacancy rate, Class A Vacancy rate, Class B



197

6.3.2. Retail market overview

6.3.2.1. Supply

The total volume of shopping center stock reached 1.76 m sq m. The largest projects delivered to the market in 2012 are SEC Piterland (GLA – 80,000 sq m) and RIO (43,700 sq m). Total supply constituted 168,800 sq m. The opening of a luxury department store – DLT (18,000 sq m), St. Petersburg branch of luxury Moscow department store TSUM, which opened in September after reconstruction, was one of the most eminent retail events in 2012. Such luxury brands as Gucci, Lanvin, Celine, Yves Saint Laurent, Chloe, Marni, D&G, Ralph Lauren, Roberto Cavalli, Tom Ford are represented there. Primorskiy District remains the most popular area in terms of new projects delivered to the market. Its share is about 24% of the existing quality shopping centers, but this fact does not stop developers who want to realize projects in the most populated area of the city. In the 3d quarter SK Alice announced its regional project

HOLLYWOOD SEC (leasable area – 65,000 sq m) to be delivered to the market in Primorskiy District in 2015. Construction works for frozen retail schemes are gradually resuming. However, the developers have changed for larger projects. For example, Fort Group resumed the construction of Evropolis SEC in May and started construction of Pyat Ozer SC (former Dolgoozerny SC by Macromir Company) in July 2012. Total leasable area of new supply which will be delivered to the market in the 4th quarter of 2012―2014 is around 440,000 sq m.

6.3.2.2. Demand

Retail turnover and personal income continued to demonstrate positive growth rates throughout January-July 2012, although recent values were quite low due to seasonal drop. Personal income growth in January-June 2012 amounted to 2.8% in total. Currently we observe quite slow monthly growth which hardly exceeds one per cent per month, or even lower. Retail turnover real growth for January-July 2012 reached 8.3%, whereas absolute turnover figures being registered at USD 15 bn in the same period. June/July growth figures demonstrate negative values in comparison to spring months of 2012, however the total amounts are still higher than that in the previous year (June/July 2011). While fashion retailers’ interest in St. Petersburg market still waivers, food retailers actively announce their expansion plans.

0%

2%

4%

6%

8%

10%

12%

14%

0

400

800

1 200

1 600

2 0002

004

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12F

th. sq.m. Shopping center stock

Annual completionsStock at the beginning of the yearVacancy rate (R axis)

-40%

-20%

0%

20%

40%

60%

80%

Dec

07

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

Mar

12

Jun

12

Retail turnover and income dynamics

Real income growth, % YoY

Retail turnover real growth, % YoY



Prime rental rates have not changed since the 2d quarter of 2010 and remained at USD 2,000/sq m/year. The average vacancy rate showed a slight decline from 5% to 4.6% in the 3d quarter of 2012. We expect further decreases to 4% in 2013, although the volume of completions will be high in the next two years. Turnover rent, as an alternative for fixed rents, is used as an option in leasing contracts. However, the target turnover rent is rarely achieved, so fixed rate is applied more widely than that based on turnover. Rents denominated in USD or EUR often specify a fixed lower limit of the exchange rate. Rental contracts usually include an annual increase of 5–10%. Foreign developers are using LIBOR and HICP indices for rental indexation.

6.3.2.4. Outlook

The major part of future projects will be delivered to the market in 2013. As a result the volume of completions in 2013 will be the highest since 2006 but almost twice lower than in 2006. However, the average vacancy rate will continue to decline due to the high occupancy rate in new projects which will enter the market and slow filling of existing shopping centers.


2004 2005 2006 2007 2008 2009 2010 2011 2012E


117.6 186.2 809.5 101.5 1,194.8 1,234.8 1,380.5 1,581.1 1,770


61.7 68.6 623.3 201.0 184.4 40.0 145.7 201 189.4

Vacancy rate (%) 0.5 0.5 0.7 1.0 3.0 13.0 7.0 6.0 4.5


2,000 2,100 2,400 3,000 3,000 1,800 2,000 2,000 2,000

0 1 000 2 000 3 000 4 000 5 000

Moscow

London

Paris

St. Petersburg

Prague

Berlin

Warsaw

Hamburg

Budapest

Prime base rents, USD/sq.m/year



199

6.3.3. Warehouse market overview

6.3.3.1. Supply

In the 3d quarter of 2012, quality warehouse stock in St. Petersburg remained at the level of 1.85 m sq m. Approximately 80,000 sq m of new quality warehouse space (in three projects) will be delivered to the market during the next twelve months. However, the completion of these projects will hardly add new available space to the market as long as the projects are already partially leased out. Less than 30% of these projects will be offered to the market upon their completion. Construction pipeline is very limited with the largest project, St. Petersburg Terminal Complex (leasable area of around 60,000 sq m), to be state commissioned in the 4th quarter of 2012 – 1st quarter of 2013.

6.3.3.2. Demand

In the 3d quarter, net absorption volume was almost the same as in the 2d quarter and amounted to 24,400 sq m. The total volume of net absorption from the beginning of the year reached almost 87,000 sq m. Take-up volumes in the 3d quarter reached 42,000 sq m which amounts to 30% of the total space leased in January- September 2012, including pre-lease agreements in non-completed speculative schemes. The most popular deal size remains at 2,000 – 5,000 sq m (i.e. one or two warehouse blocks). In the 3d quarter of 2012, Manufacturing companies were the most active on the St. Petersburg warehouse market. But the volume of deals in Retail and Distribution sector, which was very active in the first half of 2012, remained the highest throughout the entire period from the beginning of 2012 and amounted 58% of all space leased in quality warehouse projects in the 1st-3d quarter of 2012.

0%

5%

10%

15%

20%

25%

0

400

800

1 200

1 600

2 0002

004

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12F

th.sq.m. Stock and vacancy rate dynamics

Existing stock Vacancy rate (R axis)

0

20

40

60

80

100

120

140

160

20

03

20

04

20

05

20

06

20

07

20

08

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09

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12F

USD/sq.m/ year

Prime rental rates



Vacancy rate continued to decline and reached 3%. Currently, the total volume of available space in quality warehouse complexes does not exceed 50,000 sq m, which refers to absolute minimum of available stock throughout the last five years. After an increase during summer period stabilized at USD 115–130/sq m/year (without OPEX and VAT). As a rule, rental indexation at 3–4% is fixed in leasing agreements. Operating expenses for Class A warehouse properties equal to USD 35–40/sq m/year. In Class B projects operating expenses are included in the basic rent. Typical lease length for quality warehouse projects is 5–7 years. Short-term leases (11 months) are available for Class B complexes.

6.3.3.4. Outlook

The vacancy rate in the nearest future will continue to decline due to lack of new supply. The local market still suffers from the lack of large companies which seek warehouse space over 10,000 sq m per deal. This trend might influence developers’ behavior, turning them to ‘built-to-suit’ solutions as more safe. At the same time, more opportunistic developers which deliver new speculative warehouse schemes in this undersupplied environment can gain higher revenue based on higher rental rates. Meanwhile, the existing market players are not eager to start new speculative projects, preferring to act as providers of prepared land plots for ‘built to suit’ schemes. Further rental growth will be rather moderate with mainly lower limit of prime rental range to increase from USD 115–130 to USD 125–130 during the next six months.


2004 2005 2006 2007 2008 2009 2010 2011 2012E


118.3 460.8 595.8 1,081.7 1,511.9 1,644.1 1,717.9 1,756.7 1,857


110.3 342.5 135.0 485.9 430.2 132.1 73.8 20 101

Vacancy rate (%) 0.1 0.3 0.5 1 19.7 22.3 16.2 5 3


110 115 125 150 110 90 105 120 130

0% 20% 40% 60% 80% 100%

2006

2007

2008

2009

2010

2011

2012F

Logistic

Manufacturing

Retail and distribution

Other

Warehouse demand breakdown by company name



201

6.4. Communication You can easily find all communication channels to suit your business needs in St. Petersburg. The city is a leader among other regions of the Russian Federation in terms of mobile networks penetration as well as quality and volume of fixed broadband access services (following Moscow). Communication market is actively developing through customer service improvement and increase of service packages.

Providers offer extensive telephone, mobile and internet services, depending on your location (technical availability) and needs.

6.4.1. Fixed-line communication

Fixed-line communication is an essential service which is widely used in Russia. Landline communications are available from a number of operators in St. Petersburg. In 2011 the number of landline telephones was estimated at 48 units per 100 residents.87

6.4.2. Mobile communication

The number of mobile networks subscribers in St. Petersburg exceeded 16 million people in 2011.

Mobile penetration accounted for 351% in 2011. According to the forecast carried out by the

Committee of Economic Development, Industrial Policy and Trade, the number of mobile networks

subscribers will exceed the city’s resident population 5 times by 2014.

Most mobile operators in St. Petersburg run on GSM and CDMA 2000 networks. GSM networks are

most widely used and cover all parts of the city. CDMA offers quality communication as well as high-

speed Internet access. The largest GSM operators are Megafon (34% of subscribers), MTS (28%),

Beeline (20%), Tele2 (17%); and Skylink (1%).88

6.4.3. Internet

Virtually all forms of technology for Internet connections are available in the city. Access to broadband

Internet is constantly growing. Today, spending on this type communication does not exceed 3.7% of

the average city’s salary. St. Petersburg has the largest share of Internet users in Russia estimated at

71% of the total number of population. This indicator is comparable to that of the most developed

countries. According to Internet World Stats rating, St. Petersburg could be placed between France

(68.9%) and USA (77.3%) in terms of the level of Internet penetration, while reaching the world leaders’

level by 2014.

109 Internet providers operate in the city. St. Petersburg is ranked second in Russia (following Moscow)

in terms of the volume of provided Internet access services. The largest broadband Internet providers

are Rostelecom North-West (28% of Internet access market), InterZet (13.6%), and TKT (12.8%).89

87

Condition and development of Information and Communication Technologies in St. Petersburg in 2011, Committee on Information and Communication , 2012 88

Condition and development of Information and Communication Technologies in St. Petersburg in 2011, Committee on Information and Communication , 2012 89

Condition and development of Information and Communication Technologies in St. Petersburg in 2011, Committee on Information and Communication , 2012


6.5. Utilities

Utility prices (electricity, water, heating and gas) for business as well as consumer purposes in Russia

are regulated by the state. In St. Petersburg the regulating bodies are the Regional Energetics

Commission of St. Petersburg Government and the Tariff Committee of St. Petersburg Administration.

6.5.1. Electricity

The following electricity tariffs are effective beginning July 1, 2012 and ending December 31, 2012:

Grades and zones Units Tariffs*

1 grade tariff RUB/kW per hour 2.97

Tariffs varied per day/night zones

Night zone RUB/kW per hour 1.81

Day zone RUB/kW per hour 2.98

*Inclusive of VAT. Tariffs provided for residential customers Source: Tariff Committee of St. Petersburg Administration

6.5.2. Heating

The following heating tariffs are effective beginning September 1, 2012 and ending December 31, 2012:

Type of customers Units Tariffs*

Hot water Steam

Customers (which pay for heat generation and transfer)

RUB per hectocalory

1,339.84 1,375.84

Population RUB per hectocalory

1,581.01 —

* Tariffs (with the exclusion of residential customers tariffs) are indicated exclusive of VAT Source: Tariff Committee of St. Petersburg Administration

6.5.3. Water supply and water discharge

The following water tariffs by the State Unitary Enterprise “Vodokanal of St. Petersburg” are effective beginning January 1, 2012 and ending December 31, 2012:

Type of customers Units Tariffs*

Drinking water Technical water Water discharge

Population RUB per cubic meter

15.78 — 15.78

Other RUB per cubic meter

18.70 3.38 21.74

* Tariffs (with the exclusion of residential customers tariffs) are indicated exclusive of VAT. Tariffs provided for residential customers are valid till June 30, 2012 Source: Tariff Committee of St. Petersburg Administration



203

6.5.4. Natural gas

Natural gas tariffs may vary depending on location, season, volume of consumption and other issues.

The following natural gas tariffs are effective beginning January 1, 2012 and ending December 31, 2012:

Units Tariffs*

Natural gas RUB per 1,000 cubic meters 4,375.07

* Inclusive of VAT. Tariffs provided for residential customers Source: Tariff Committee of St. Petersburg Administration

6.5.5. Gasoline and diesel fuel

Fuel prices are not regulated by the state. Numerous local and international supplies, including BP, Shell and Statoil, operate in St. Petersburg.

The average retail prices of gasoline and diesel fuel in St. Petersburg are provided in the following table.

Fuel Units Average retail price*

Gasoline

A76 RUB per liter 25.72

Ai 92 RUB per liter 27.25

Ai 95 RUB per liter 29.45

Diesel RUB per liter 28.80

* Retail prices as of August 2012 Source: Committee for Economic Development, Industrial Policy and Trade


7. Contacts of business support infrastructure

7.1. Overview of the business support infrastructure in St. Petersburg

Business support infrastructure provides extensive opportunities for business development during the economic downturn and support for securing future economic prosperity and growth. This section of the guide summarizes the existing support from government to help your business succeed, including financial support, advice, consulting, information, skills training, etc.

7.2. Authorities

7.2.1. Committee for External Relations

The Committee for External Relations of the Government of St Petersburg is tasked with implementation of the government policy of St. Petersburg in the sphere of development of external relations and interregional cooperation. The Committee includes the following specialized divisions and departments: State Protocol Division; Department for Europe, North America and Australia; Asian, African and Latin American Countries Department; Department for Coordination of State Programs for Interethnic Relations, Cooperation with Compatriots Abroad and Regions of the Russian Federation.

Tasks

Implementation of the government policy of St. Petersburg in the sphere of the development of external relations of St. Petersburg, interregional cooperation of St. Petersburg

Coordination of activities in the development and implementation of international technical assistance and business cooperation programs, including those related to the development of the city economy, social sphere, education, culture and health care in St. Petersburg

Coordination of activities in the organization of participation of citizens and organizations in interregional and international conferences and other interregional and international events held by the executive agencies of the St. Petersburg Government

Implementation of the government policy aimed at supporting and developing ethnic cultures, languages, traditions and customs of the communities residing in St. Petersburg

Organization of work aimed at supporting compatriots residing abroad and using their potential for the development of relations with foreign countries

Other issues of foreign relations of St. Petersburg in compliance with the legislation in force.

Contacts

Committee for External Relations of St. Petersburg Smolny 191060 St. Petersburg, Russia Tel.: +7 812 576 71 13 | Fax: +7 812 576 76 33 [email protected]| www.kvs.spb.ru


http://www.kvs.spb.ru/



205

7.2.2. Committee for Investment and Strategic Projects

The Committee for Investment and Strategic Projects is an executive agency of state authority in St. Petersburg. The Committee consists of a number of departments, including the Department for development of investment attractiveness, Department for expert evaluation of projects and state orders, Sector for hotel infrastructure development, Department for work with investors, Department for strategic development of territories.

Administration for public-private partnership projects and legal support includes the Administrative-legal department and the Department for public-private partnership projects. Administration for tourism includes the Department for coordination of the tourist activity, Department for potential types of tourism, Sector for development of tourism infrastructure.

The Committee also oversees a number of subordinate organizations, including the Agency for Strategic Investment, the City Tourist-Information Center, St. Petersburg Agency for Direct Investment, JSC “The Overground Express”, JSC “Western High Speed Diameter”.

Tasks

Conducting the investment policy of St. Petersburg and developing the investment attractiveness of St. Petersburg;

Developing all forms of public-private partnerships;

Monitoring strategic investment projects which have importance in their social and economic value;

Developing tourism, hotel infrastructure and the hotel management of St. Petersburg.

Contacts

Committee for Investment and Strategic Projects Smolny 191060 St. Petersburg, Russia Tel.: +7 812 576 69 88, 576 60 41 | Fax: +7 812 576 60 81 [email protected] | www.cisp-spb.ru

7.2.3. Committee for Economic Development, Industrial Policy and Trade

The Committee for Economic Development, Industrial Policy and Trade is tasked with long-term objectives of development of growing economy with high level of competitiveness and share of human capital. The Committee is comprised of the following 6 blocks each formed of specialized departments and units: Economic Planning; Development of Industry, Agri-Industrial Complex and Economic Security; Support of Industry, Small and Medium-Sized Entrepreneurship; Development of Innovations and Investment Attraction; Consumer Market and Licensing; Improvement of Public Contracting, External Economic Activity, Development of Medical and Pharmaceutical Projects.

Tasks

Implementation of socio-economic development program of St. Petersburg;

Development and implementation of programs aimed at supporting industry, small and medium-sized businesses in St. Petersburg;

Support of implementation of investment projects in St. Petersburg;

Implementation of innovation policy in St. Petersburg;

Implementation of cluster policy;

Regulation of trading activities;

Licensing of certain activities;

Organization and implementation of citywide celebrations, forums and trade fairs.


http://www.cisp-spb.ru/


The Committee is also entrusted with evaluation and coordination of other committees of the Government of St. Petersburg as well as district administrations in the above-mentioned areas. Together with the Finance Committee, Tariff Committee and Labor and Employment Committee, Committee for Economic Development, Industrial Policy and Trade forms the financial and economic sector of the Government.

Contacts

Committee for Economic Development, Industrial Policy and Trade 16 Voznesensky prospect 190000 St. Petersburg, Russia Tel.: +7 812 576 00 01 | Fax: +7 812 570 35 54 [email protected] | www.cedipt.spb.ru


http://www.cedipt.spb.ru/



207

7.3. Investment support

7.3.1. Agency for Strategic Investment

St. Petersburg State Budgetary Institution “Agency for Strategic Investment” is an independent structural division of the Committee for Investment and Strategic Projects (CISP). It was founded in 2004 with the aim of optimizing the investment support system in strategic projects of St. Petersburg which require significant city areas.

Services

The Agency is engaged in:

Rendering organizational and technical assistance in fulfillment of investment projects in St. Petersburg,

Accomplishing development projects,

Preparing areas for the commencement of investment activity,

Providing technical supervision, and arranging tenders for public-private partnerships.

The specialists of the Agency share their experience and interact with the leading world financial institutes and best international consultants. The Agency has created a unique information database for investment projects in different areas as well as a specialized program in this regard. At present, the Agency is overseeing the fulfillment of more than 20 major investment projects in St. Petersburg.

Contacts

Committee for Investment and Strategic Projects Agency for Strategic Investment 6/2 Griboedov Canal Embankment 190000St. Petersburg, Russia Tel.: +7 (812) 314 22 95 | Fax: +7 (812) 710 42 99 [email protected] | www.asi-spb.ru

7.3.2. St. Petersburg Agency for Direct Investment

JSC “St. Petersburg Agency for Direct Investment” is a structural division of the Committee for Investment and Strategic Projects (CISP) tasked with rendering services in the sphere of marketing communication.

Services

The Agency specializes in providing services in advertising, exhibitions, publishing, consulting activities. The Agency fulfills large-scale image projects through the organization of events, information dissemination and through issuing exclusive published materials.

Contacts

Committee for Investment and Strategic Projects St. Petersburg Agency for Direct Investment 1-3 Zodchevo Rossi Street 191011 St. Petersburg, Russia Tel.: +7 (812) 312 24 30 | Fax: +7 (812) 314 15 54 [email protected]




http://www.asi-spb.ru/



7.3.3. St. Petersburg Investment Promotion Agency (St. Petersburg State Institution “City Agency for Industrial Investments”)

St. Petersburg Investment Promotion Agency (St. Petersburg State Institution “City Agency for Industrial Investments”) has been working on implementation of St. Petersburg investment policy and providing integrated support of investment projects for 7 years. The Agency has the status of a duly

authorized organization of the St. Petersburg Government for attraction of investments into the City. The mission of the Agency is to increase the investment potential of St. Petersburg and improve its competitiveness both on domestic and external markets.

The Agency liases closely and personally with every customer and renders full spectrum of investor support services free of charge.

Services

The Agency renders the following services:

Information and consulting support at all stages of investment projects;

Providing information necessary to make decisions on investment, e.g. conditions for doing business in St. Petersburg, availability of sites and condition of infrastructure facilities, applicable legislation and forms of state support, possible partners and project financing sources;

Selection of land plots most suitable for project implementation;

Arrangement and carrying out of meetings with participation of stakeholders and project implementation organizations, resolution of current and extraordinary matters;

Support of investment projects at all stages of design, construction and commissioning of facilities;

Coordination of investor interaction with executive agencies of the State Government in St. Petersburg, subordinate institutions and other entities participating in projects;

Assistance in obtaining necessary approvals (statements, permitting documents) from authorized agencies and organizations;

Preparation of documents for obtaining initial permits and town-planning documents for designing and construction, commissioning of construction/ reconstruction facilities, execution of property rights for land plots and real property facilities.

Contacts

St. Petersburg Investment Promotion Agency St. Petersburg State Institution “City Agency for Industrial Investments” 88-90 A Griboedov Canal Embankment 190068 St. Petersburg, Russia Tel.: +7 812 320 50 16 | Fax: +7 812 320 50 15 [email protected] | www.spbgapi.ru


http://www.spbgapi.ru/



209

7.4. SME business cooperation support

7.4.1. St. Petersburg Foundation for SME Development | Enterprise Europe Network – Module A Branch – St. Petersburg

St. Petersburg Foundation for SME Development is a not-for-profit, non-governmental business support institution and independent professional business consultancy. The Foundation’s mission lies in providing high quality and demanded consulting, training and information services to small and medium-sized enterprises. The services include business planning, business and projects evaluation, managerial accounting, market research, partner search, training, informational services, project management.

The Enterprise Europe Network (EEN) is a key instrument in the EU's strategy to boost growth and jobs. Bringing together 570 business support organizations from 49 countries, it helps small companies seize the unparalleled business opportunities in the EU Single Market. ENN’s mission lies in helping small businesses make the most of the business opportunities in Russia and the European Union. Enterprise Europe Network - Russia, Gate2Rubin Consortium, Module A Regional Center – St. Petersburg is co-financed by the Government of the Russian Federation and the Government of St. Petersburg and is operated by St. Petersburg Foundation for SME Development since 2008.

Services

The EEN branch in St. Petersburg focuses on providing business support to Russian companies. Our services to foreign companies are provided free of charge and are aimed at fostering business cooperation:

Events Together with our partners we implement a number of international and national events aimed at developing and promoting international business cooperation.

Basic partner search In order to find business partners, suppliers or subcontractors in St. Petersburg, please contact your local EEN branch and our colleagues will guide you through the partner search process.

Partners, business offers and products from St. Petersburg You can find business offers and products from companies located in St. Petersburg on our portal at www.doingbusiness.ru.

Information support Our internet portal “Doing business in St. Petersburg” is an entry point for international SMEs, investors and other parties interested in pursuing trade, outsourcing, investment activities and starting business in St. Petersburg.

Contacts

St. Petersburg Foundation for SME Development | Enterprise Europe Network – Russia Gate2Rubin Consortium,Module A Regional Center – St. Petersburg 14 Izmaylovsky prospect 190005 St. Petersburg, Russia Tel.: +7 812 325 84 16, 325 8351, 575 04 80 | Fax: +7 812 712 66 07 [email protected] | www.fbd.spb.ru | www.doingbusiness.ru



http://www.fbd.spb.ru/



7.4.2. St. Petersburg Business Contact Center “Bizkon”

St. Petersburg Information Business Centers established in Finland and Estonia play an important role in development of economic relations and cross-border cooperation of St. Petersburg and the Leningrad Region with these countries.

At present, six official information business centers are functioning in Finland and Estonia, including in Finland – Kotka (Kymenlaakso region), Turku (Turku region), Hameenlinna (Hame region) and Jyvaskyla (region of Central Finland); in Estonia – Kohtla-Jarve (Ida-Virumaa region) and Rakvere (region Laane-Virumaa). The centers’ activities are aimed at promoting St. Petersburg’s image and develop economic cooperation of St. Petersburg’s enterprises with companies and entrepreneurs of respective regions in Finland and Estonia.

Operator of centers LLC "Business-Contacts" (BIZKON) represents the centers in Kotka, Turku, Hameenlinna, Rakvere and Kohtla-Jarve in St. Petersburg.

Services

Organization and servicing of permanent exhibition of information materials of St. Petersburg Administration and enterprises,

Information, consulting and marketing services,

Organization of topical seminars, conferences , symposiums,

Organization of firms' presentations,

Preparation and carrying out of contact meetings and negotiations of firms at the international level,

Assistance in search of business partners,

Assistance in initiation and preparation of joint projects financed by the regional and EU programs.

The main thematic directions of St. Petersburg Information business centers activity:

Innovations

Shipbuilding and shipping

Tourism and culture

Alternative energy sources

Construction and reconstruction, investment offers

Ecology

Transport and logistics.

Contacts LLC “BIZKON” Operator of business contact centers in St. Petersburg 10 Stavropolskaya Street, office 111 191015 St. Peterburg, Russia Tel: +7 812 274 66 73 [email protected] | www.bizkon.spb.ru


http://www.bizkon.spb.ru/



211

7.5. SME support

7.5.1. St. Petersburg State Institution “Center for Business Development and Support”

The Center of Business Development and Support (CBDS) aims to improve the quality and accessibility of state services for juridical entities and individual entrepreneurs.

CBDS was established in 2010 and is managed by the Committee for Economic Development, Industrial Policy and Trade.

Services

Do you need to get permit, license, agreement to develop your business? Make use of the services provided at the Multi-Services Center. The Multi-Services Center started to provide various state services for entrepreneurs on the basis of one-stop shop in cooperation with 11 executive authorities of St. Petersburg from January 2012.

Would you like your company to participate in state support programs? CBDS advises SMEs on state support programs, such as crediting by commercial banks, backing the costs caused by product exports, protection of intellectual property, certification, acquisition of fixed assets on leasing, energy efficiency. CBDS contributes to involvement of St.Petersburg’s SMEs in the process of creating high-tech products on subcontract basis paving the way for localization of the leading foreign companies. Further, the Center implements the mechanism of import substitution in cooperation with large -scale enterprises of St. Petersburg.

Do you have any ideas? Do you want to create or have you already been creating new products and technologies? CBDS facilitates the implementation of measures aimed at stimulating R&D activities and contributes to the development of Technological platforms. The Center provides support to St. Petersburg companies participating in competitions for funding of innovative projects by the programs of innovative development of companies with state participation, government corporations, federal state unitary enterprises, as well as in federal programs. The Center cooperates with development institutions and St. Petersburg organizations tasked with ensuring continuous financial and non-financial support for innovative projects. CBDS promotes the creation of R&D-centers in St. Petersburg.

The Center conducts educational seminars, panel discussions, meetings and consultations as well as assists in the organization of fairs and exhibitions. Extensive information on services and activities is available at www.crpp.ru.

Contacts

St. Petersburg state institution “Center of Business Development and Support” 16 Voznesenski prospect 190000 St.-Petersburg, Russia Tel.: +7 (812)576-25-89 | Fax: +7 (812)576-25-89 [email protected] | www.crpp.ru Multi-Services Center let. O 10-12 Krasnogo tekstilschika street Tel.: +7 (812) 417-31-31, 417-31-30 Business hours: M-Th 9:30 am to 5.30 pm; Fri 9.30 am to 4.30 pm, Sa-Sun closed.

http://www.crpp.ru/


http://www.crpp.ru/


7.5.2. Public Council on Small Business Development under the auspices of the Governor of St. Petersburg

Consulting and advisory body under the auspices of the Governor of St. Petersburg on the issues pertaining to the realization of government policy in the sphere of small business development and support.

Public Council unites representatives of the most important public business organizations, including the Union of Industrialists and Entrepreneurs of St. Petersburg, St. Petersburg Chamber of Commerce and Industry, OPORA RUSSIA, St. Petersburg Union of Entrepreneurs, St. Petersburg branch of «Business Russia», Merchant club of St. Petersburg and many others.

Services

Rendering assistance to executive authorities in the implementation of government policy in the sphere of small business development and support;

Aligning interests of executive authorities and small business associations regarding the issues of implementation of socio-economic development policy of St. Petersburg;

Developing recommendations on protection of rights and interests of small businesses in the course of development and implementation of economic, proprietary, city planning and social policy;

Informing the Governor of St. Petersburg, Government and other executive authorities on the most acute problems of small business development;

Developing positive image of small business, raising public confidence in businesses, developing business culture and business ethics.

Public Council actively carries out analyses of legislative acts regulating business activities. A lot of attention is also paid to information support. Public Council publishes periodical «Public Council Newsletter», presents TV program «Small business of a big city», organizes 4 city competitions – «Best entrepreneur of St. Petersburg», «Young, bold, ambitious», «Business lady Petersburger», «Mass media about small business».

Public Council regularly holds seminars, conferences, round tables on acute issues for businesses.

Contacts

Public Council on Small Business Development under the auspices of the Governor of St. Petersburg 46/5 Mayakovskogo Street 191014 St. Petersburg, Russia Tel.: +7 812 576 25 66, 576 26 59, 576 26 58 | Fax: +7 812 273 58 45 [email protected] | www.osspb.ru


http://www.osspb.ru/



213

7.6. Financial support

7.6.1. Nonprofit organization “Fund for Small Business Credit Assistance”

Nonprofit organization “Fund for Small Business Credit Assistance” was established by the Government of St. Petersburg in 2007. The Fund carries out two programs aimed at supporting small and medium businesses in St. Petersburg:

Services

Credit guarantee for businesses to the amount of 50% of the total credit amount and up to 12 million roubles

Conditions of the credit guarantee program: - Credit agreements concluded for at least 3 months - Fund’s commission: 1.75% per annum - 37 participating banks Eligibility requirements: - Small and medium-sized businesses - At least 3 months of business activity prior to the date of application - No breaches of previously concluded credit agreements, loan agreements, leasing, etc. 6

months prior to the Fund’s guarantee application

Loans to individual entrepreneurs and legal entities to the amount of 50,000-1,000,000 roubles at 10% interest per annum

Conditions of the micro finance program: - Application review period: 3 to 5 days - Percentage accrues on the actual amount outstanding - Overpayment for 12 months: 5.5% - Maturity: 3 to 12 months - Repayment any time, commission free - Individual approach to every customer - Standard package of documents Means of loan guarantee: - Business owner guarantee - Loans up to 100,000 roubles: business owner guarantee - Loans over 100,000 roubles: guarantee and collateral (motor vehicles, property, bank

guarantees, etc.)

Contacts

Fund for Small Business Credit Assistance let. A, 46 Mayakovskogo Street 191014 St. Petersburg, Russia Tel.: +7 812 576 25 75 | Fax: +7 812 273 49 55 [email protected] | www.credit-fond.ru


http://www.credit-fond.ru/


7.6.2. Nonprofit organization “Fund for Venture Investment Development Assistance for Small Science and Technology Enterprises of St. Petersburg”

The Fund for Venture Investment Development Assistance for Small Science and Technology Enterprises of St. Petersburg was established by the Government of St. Petersburg with the participation of the Committee on Economic Development, Industrial Policy and Trade. The Fund aims to

create and develop venture (risk) financing infrastructure for small science and technology businesses in St. Petersburg.

Services

Selection of innovative investment projects for small science and technology enterprises engaged in priority areas of science, technology and engineering in Russia The Fund carries out the selection of innovative projects for investment from two sources – (1) Closed-End Mutual Fund for High-Risk (Venture) Investments “Regional Venture Fund for Investment in Small Science and Technology Enterprises of St. Petersburg” and (2) “Fund for Seed Investments of the Russian Venture Company”. Selection criteria (1):

- Volume of investment requested – from 10 to 90 million roubles - Transmission of more than 25% of shares to the Fund - Strong business team capable of developing a company in conditions of fast growth and limited

resources - Availability of intellectual property rights (patents, copyrights, certificates) - Project aimed at development of a new type of knowledge intensive products (works, services)

or increase of its technical level, introduction of new and improvement of applied technologies - High level of project development, potential for mid-term business development (4-7 years) at

the regional, Russian and international markets, clear company development strategy and plan for application of investment resources

- Business development plan, including description of risks linked to financing Selection criteria (2): - Volume of investment requested – up to 33.3 million roubles - Qualified team - Availability of intellectual property rights (patents, copyrights, certificates) - Attraction of investments with the aim of acquiring, development, manufacturing and

promotion of commercial version of innovative product/service - Withdrawal from Investment company in 1-5 years is carried out though transmission of shares

to strategic partner or venture fund or through buy-out of company’s management

Expert support and consulting of project authors and innovation companies on investment support and preparation of investment projects The Fund advises entrepreneurs on venture infrastructure in St. Petersburg and provides information on government measures aimed at small business support.

Contacts

Fund for Venture Investment Development Assistance for Small Science and Technology Enterprises of St. Petersburg 37 Sedova Street, office 802, 192148 St. Petersburg, Russia Tel.: +7 812 640 96 45, 910 34 33 | Fax: +7 812 640 96 45 [email protected] | www.vf-spb.ru


http://www.vf-spb.ru/



215

7.7. Techno parks and business incubators

7.7.1. Ingria Technopark and Business Incubator

Ingria Technopark will be created on the principles of state-private partnership with the support of the Government of the Russian Federation and the Government of St. Petersburg. The project is a part of the federal program aimed at creating techno parks in the sphere of high technologies. The

Management company, OJSC Technopark of St. Petersburg, was founded in July 2007. The total volume of investment in the creation of Ingria Technopark equals to 30 billion roubles, including 66% of private investment and 34% of state investment. The construction of the first stage will start in the second half of 2012 with the opening planned for 2013. Three companies, Microsoft, DataArt and STC North-West Laboratory, have announced their plans to locate their R&D centers in Technopark. The largest object of external engineering infrastructure, substation Technopark, was opened in November 2011. Business Incubator Ingria is a subdivision of OJSC Technopark of St. Petersburg. The key specialization of its residents is information technologies. During the period of 3 years the Incubator's residents attracted more than 500 million roubles in investments from international IT companies, private and state funds, business angels. Dozens of large global-level Russian companies and leading international innovation centers became customers of the Incubator's residents. Ingria is actively developing its cooperation with Russian and St. Petersburg Universities, thus sharing its experience with other regions. Nowadays, Ingria has 85 residents. Many residents of the Business Incubator have already become companies engaged in developing various promising fields, from IT and energy industry to construction and medical equipment production. The Incubator's residents attracted more than 378 million roubles in investments in 2011. Yandex, Headhunter and RBC Holding are examples of investors.

Services

Programs offered to the residents Pre-Incubation and Incubation: Pre-Incubation lies in formation of a business model, while Incubation is aimed at progressing the business and entering the market. Regardless of incubation program, companies can reside in the office during their cooperation with Ingria.

Organization of events Every year Business Incubator Ingria organizes more than 60 events, including Open Days Ingria (featuring lectures of famous speakers), Lead The Way (discussions of technology trends), StartupLynch, Train&Develop Program (specialized trainings), VC Corner, seminars, round tables, conferences as well as partners’ and residents’ events. During these events start-ups have an opportunity to receive expert feedback, investment estimation of their projects and improve their presentation skills.

Experts and mentors Ingria cooperates with major IT and technological companies and venture funds. As a part of joint programs Ingria engages leading experts as mentors of business incubator’s residents.

Contacts

Ingria Technopark Business Incubator 70 Obukhovskoy Oborony prospekt, building 2 192029 St. Petersburg, Russia Tel.: +7 812 313 10 85, 313 10 86 | Fax: +7 812 313 10 87 [email protected] | www.ingria-park.ru | www.ingria-startup.ru


http://www.ingria-park.ru/

http://www.ingria-startup.ru/


7.7.2. The First St. Petersburg Business Incubator

The First St. Petersburg business incubator supports and facilitates the development of small innovation companies. It is a unique business, information and creative environment for successful development of innovative business of residents.

The First St. Petersburg business incubator was founded in 2006 by the Administration of St. Petersburg in cooperation with the Ministry for Economic Development of the Russian Federation. It is managed by Managing Company «REO «Service». The First St. Petersburg business incubator is located in «Crystal» Business Center.

Services

The St. Petersburg business incubator provides following services:

Offices Renting comfortable offices equipped with furniture, computers and conditioning system at a reduced rental rate

Consulting Consulting on legal issues, economy, taxation, marketing, business planning, promotion, PR, accounting, financing, loan services, HR, internationalization

External accounting services

Promotion of the companies Advertising, exhibitions, media, PR-support, events

Education programs Seminars, trainings, master classes

Internationalization Business trips, seminars, joint projects, internships, consulting

Access to business incubator’s partnership network

To find more information about the First St. Petersburg business incubator, its services and resident companies visit www.start-business.ru.

Contacts

The First St. Petersburg Business Incubator 37 Sedova St. 192148 St. Petersburg, Russia Tel.: +7 812 448 56 65 | Fax: +7 812 560 97 49 [email protected] | www.start-business.ru


http://www.start-business.ru/



217

7.8. Educational programs and internships

7.8.1. St. Petersburg State Institution “St. Petersburg Interregional Resource Center” (SPIRC)

The President Management Training Program is a leading program in professional business education for managers since 1997. Nearly 3,500 managers graduated from the Program during these years. In 2005 St. Petersburg Interregional Resource Centre (SPIRC) was registered as State Institution.

SPIRC represents a new format of the President Management Training Program in St. Petersburg – a state training program for managers of national economic enterprises of the Russian Federation.

Services

President Management Training Program State Plan for training managers of national economic organizations of the Russian Federation

Postgraduate work with President Program’s alumni Supporting President Program graduates in career development, assistance in promotion graduate’s business and projects

Regional University of small business Governmental support programs, educational programs, seminars

Development and maintenance of international and interregional educational projects

Special educational projects Trainings, Consulting, Coaching, Special Internships

Wide range of partnership all over Russia Signed collaboration agreements with 18 regions of Russia, Northwest Russia consortium coordination center

Event management International conferences, meetings, seminars, business meetings in St. Petersburg, exhibitions

Database of business contacts Business match-making for Russian and potential foreign partners

Business exchange program Russian-foreign exchange management training program for top-managers in Russia and abroad

Contacts

St. Petersburg State institution “St. Petersburg Interregional Resource Center" 88/90 Griboedova embankment 190068 St. Petersburg Russia Tel. + 7 812 326 42 75 | Fax: +7 812 326 42 74 [email protected] | www.spbmrc.ru


http://www.spbmrc.ru/


7.9. Chambers of commerce and industry St. Petersburg Chamber of Commerce and Industry 46-48 Chaikovskogo Street 191123 St. Petersburg, Russia Tel.: +7 812 719 66 44 | Fax: +7 812 272 97 13 [email protected] | www.spbcci.ru

American Chamber of Commerce in Russia, St. Petersburg Chapter 24 Yakubovicha Street 190000 St. Petersburg, Russia Tel.: +7 812 448 16 46 | Fax: +7 812 448 16 45 [email protected] | www.amcham.ru/spb/

Finnish-Russian Chamber of Commerce 4-6-8 B Bolshaya Konjushennaya Street, office B301 191186 St. Petersburg, Russia Tel.: +7 812 322 21 21 | Fax: +7 812 322 21 21 [email protected] | www.svkk.ru

Russian-German Chamber of Foreign Trade 4A Finlyandsky prospect 194044 St. Petersburg, Russia Tel.: +7 812 332 14 15 | Fax: +7 812 332 14 16 [email protected] | www.petersburg.russland.ahk.de

Russo-British Chamber of Commerce 23A Vladimirsky prospect, office 705 191002 St. Petersburg, Russia Tel.: +7 812 346 50 51 | Fax: +7 812 346 50 52 [email protected] | www.rbcc.com

7.10. Business associations Union of Industrialists and Entrepreneurs of St. Petersburg 1 Smolny proezd, Letter B 191060 St. Petersburg, Russia Tel.: +7 812 576 76 81 | Fax: +7 812 576 77 92 [email protected] | www.spp.spb.ru

St. Petersburg Union of Entrepreneurs 16 Stachek prospect 198095 St. Petersburg, Russia Tel.: +7 812 252 39 50, 252 43 50, 252 38 10 www.spbsp.ru

St. Petersburg International Business Association (SPIBA) 21 Nevsky prospekt, office 506 191186 St. Petersburg, Russia Tel.: +7 812 325 90 91, 312 53 07 | Fax: +7 812 325 90 92 [email protected] | www.spiba.ru


http://www.spbcci.ru/


http://www.amcham.ru/spb/


http://www.svkk.ru/


http://www.petersburg.russland.ahk.de/


http://www.rbcc.com/


http://www.spp.spb.ru/

http://www.spbsp.ru/


http://www.spiba.ru/



219

7.11. Audit, tax and consulting firms BANKO Audit & Consulting Tel./Fax: +7 812 702 07 03 www.bankoaudit.ru BDO Tel.: +7 495 797 56 65 Fax: + 7 495 797 56 60

www.bdo.ru

Deloitte Tel.: +7 812 703 71 06 Fax: + 7 812 703 71 07

www.deloitte.com

Eccona Tel./Fax: +7 812 622 12 13 www.eccona.ru

Ecovis Audit-Advance Tel.: +7 812 445 13 68 Fax: + 7 812 444 06 27

www.ecovis.com

Energy Consulting Tel.: +7 812 327 55 22 Fax: + 7 812 327 55 39

www.ec-group.ru

Ernst & Young Tel.: +7 812 703 78 00 Fax: + 7 812 703 78 10

www.ey.com

G.C.E. Group Tel.: +7 812 334 55 61, 334 55 62, 334 55 63 www.gce.ru Hannes Snellman Tel.: +7 812 363 33 77 Fax: +7 812 363 33 88

www.hannessnellman.com

IBS Tel.: +7 812 333 15 44 www.ibs.ru Impex Consult Tel.: +7 812 309 39 85

www.impexconsult.ru

Intalev Tel./Fax: +7 812 677 90 67, 600 99 24

www.intalev.spb.ru

Institute for Enterprise Issues Tel.: +7 812 703 40 41 Fax: + 7 812 703 30 08

www.ipp.spb.ru

Institute of Independent Social & Economic

Research (INSEI) Tel.: +7 812 232 84 54 www.insei.ru

Juralink Tel.: +7 812 606 66 24 Fax: + 7 812 606 66 23 www.juralink.ru

Jurconsult International Tel.: +7 812 324 73 24 Fax: + 7 812 274 68 09 www.jurconsult.spb.ru Konsu SP Tel.: +7 812 325 82 94, 327 38 92 Fax: + 7 812 325 82 93, 321 29 96

www.konsu.com

KPMG Tel.: +7 812 313 73 00 Fax: + 7 812 313 73 01 www.kpmg.com PKF Tel.: +7 812 600 91 00 Fax: + 7 812 600 90 50

www.mcd-pkf.com

Moore Stephens Tel.: +7 812 332 28 51 Fax: + 7 812 332 14 88

www.mscis.moorestephens.com

PricewaterhouseCoopers Tel.: +7 812 326 69 69 Fax: + 7 812 363 66 99

www.pwc.ru

Prime Advice Tel.: +7 812 449 50 00 Fax: + 7 812 449 50 01 www.hlbprime.com PROUD Tel.: +7 812 329 40 04

www.pra.ru

RBS Tel.: +7 812 332 13 55

www.rbsys.ru

Russia Consulting Tel.: +7 812 458 58 00 Fax: + 7 812 458 57 00

www.russia-consulting.eu

http://www.bankoaudit.ru/

http://www.bdo.ru/

http://www.deloitte.com/dtt/home/0,1044,sid%253D7541,00.html

http://www.deloitte.com/

http://eccona.ru/

http://www.eccona.ru/

http://www.ec-group.ru/

http://www.ecovis.com/



http://www.ey.com/

http://www.ey.com/

http://www.gce.ru/en/

http://www.gce.ru/

http://www.hannessnellman.com/

http://www.ibs.ru/

http://www.ibs.ru/

http://www.impexconsult.ru/

http://www.intalev.spb.ru/

http://www.intalev.spb.ru/

http://www.ipp.spb.ru/

http://www.ipp.spb.ru/

http://www.insei.ru/



http://www.juralink.ru/

http://www.juralink.ru/

http://jurconsult.spb.ru/

http://www.jurconsult.spb.ru/

http://www.konsu.com/

http://www.kpmg.ru/

http://www.kpmg.com/

http://www.mcd-pkf.com/

http://mscis.moorestephens.com/

http://www.mscis.moorestephens.com/

http://www.pwc.com/

http://www.pwc.ru/

http://www.hlbprime.com/

http://www.hlbprime.com/

http://www.pra.ru/

http://www.rbsys.ru/

http://www.rbsys.ru/

http://www.russia-consulting.eu/

http://www.russia-consulting.eu/


St. Petersburg Foundation

for SME Development Tel.: +7 812 325 84 16 Fax: + 7 812 712 66 07 www.fbd.spb.ru

7.12. Banks Cetelem Tel.: 8 800 500 89 98 www.cetelem.ru Citibank Tel.: +7 812 336 75 75 www.citibank.ru Banca Intesa Tel.: +7 812 275 41 54 www.bancaintesa.ru Bank of Moscow Tel.: 8 800 200 23 26 www.bm.ru Bank Uralsib Tel.: +7 812 334 44 33 www.bankuralsib.ru Barclays Tel.: +7 812 747 34 30 www.barclays.ru Gazprombank Tel.: +7 812 301 99 99 www.gazprombank.ru GE Money Bank Tel.: +7 812 320 87 56 www.gemoney.ru Nordea Bank Tel.: +7 812 747 34 30 www.nordea.ru

Promsvyazbank Tel.: +7 812 321 20 20 www.psbank.ru Raiffeisen Bank Tel.: +7 812 334 43 43 www.raiffeisen.ru Rosbank Tel.: +7 812 332 12 29 www.rosbank.ru Russian Agricultural Bank Tel.: +7 812 335 06 30 Fax: + 7 812 335 06 30 www.rshb.ru Sberbank Tel.: 8 800 555 55 50 www.sbrf.ru Swedbank Tel.: +7 812 313 63 63 www.swedbank.ru TransCreditBank Tel.: +7 812 703 44 30 www.tcb.ru UniCredit Bank Tel.: 8 800 700 73 00 www.unicreditbank.ru VTB 24 Tel.: 8 800 100 24 24 www.vtb24.ru

7.13. Certification and testing Center for Certification and Marketing Tel.: +7 906 239 58 30 www.gost-spb.ru Center of Quality Control Tel.: +7 812 274 14 30 Fax: + 7 812 274 14 32 www.quality.spb.ru Center for Testing and Certification - St. Petersburg Tel.: +7 812 251 39 50 Fax: + 7 812 251 41 08 www.rustest.spb.ru

Center-Test Tel.: + 7 812 328 62 62, 328 62 02 www.okp.ru Certification Tel.: +7 812 337 16 02, 388 12 16 www.sertis.ru Kvatro – Certification Center Tel.: +7 812 712 66 05, 972 66 30, 712 67 01 www.kvatro-spb.ru Mezhregiontest Tel.: +7 812 600 06 07 www.megregiontest.ru


http://www.cetelem.ru/

http://www.citibank.ru/

http://www.bancaintesa.ru/

http://www.bm.ru/

http://www.bankuralsib.ru/

http://www.barclays.ru/

http://www.gazprombank.ru/

http://www.gemoney.ru/

http://www.nordea.ru/

http://www.psbank.ru/

http://www.raiffeisen.ru/

http://www.rosbank.ru/

http://www.rshb.ru/

http://www.sbrf.ru/

http://www.swedbank.ru/

http://www.tcb.ru/

http://www.unicreditbank.ru/

http://www.vtb24.ru/

http://www.gost-spb.ru/

http://www.quality.spb.ru/

http://www.rustest.spb.ru/

http://www.okp.ru/

http://www.sertis.ru/

http://www.kvatro-spb.ru/

http://www.megregiontest.ru/



221

Reglamentsert – Northwestern Scientific and Technical Center for Testing and Certification Tel.: +7 812 777 05 15, 766 19 40 Fax: + 7 812 766 1940 www.reglamentsert.ru Rostest Tel.: +7 812 927 94 11 Fax: + 7 812 633 05 16 www.i-trade.spb.ru Russian Register Tel.: +7 812 600 11 67, 600 11 68 Fax: + 7 812 600 11 69 www.rusregister.ru

SGS Vostok Limited Tel.: +7 812 449 04 66 Fax: + 7 812 449 04 67 www.sgs.ru Test St. Petersburg Tel./Fax: +7 812 334 02 62, 327 55 51, 327 5552, 575 0093 www.en.test-spb.ru

7.14. Exhibitions ExpoForum Tel.: + 7 812 240 40 40 www.expoforum.ru FarExpo Tel.: +7 812 718 36 37 Fax: +7 812 777 04 07 www.farexpo.ru Imperia Tel.: +7 812 327 49 18 Fax: + 7 812 327 49 18 www.imperiaforum.ru Monomax Tel.: +7 812 335 20 55, 335 20 39 www.monomax.ru PrimExpo Tel.: +7 812 380 60 00 Fax: +7 812 320 80 90 www.primexpo.ru Severnaya Palmira Tel.: +7 812 975 12 40, 448 36 55 Fax: +7 812 449 52 44 www.congresscity.ru

Sivel Tel.: +7 812 324 64 16 Fax: +7 812 596 38 14 www.sivel.spb.ru Sovencon Tel.: +7 812 369 01 34, 369 00 16, 369 08 45 www.sovencon.ru Stachek 47 Tel.: +7 812 702 04 38 Fax: + 7 812 784 65 30 www.stachek47.ru Restec Tel.: +7 812 320 63 63 Fax: + 7 812 320 80 90 www.restec.ru Vystavka, LLC Tel.: +7 812 320 24 57, 320 24 55, 766 47 17 www.y-expo.ru

7.15. Law firms Baker & McKenzie Tel.: +7 812 303 90 00 Fax: + 7 812 325 60 13 www.bakermckenzie.com Beiten Burkhardt Tel.: +7 812 449 60 00 Fax: + 7 812 449 60 01 www.bblaw.com

Capital Legal Services International Tel.: +7 812 346 79 90 Fax: + 7 812 346 79 91 www.cls.ru Castren & Snellman Tel: +7 812 325 80 85 Fax: +7 812 325 80 86 www.castren.fi

http://www.reglamentsert.ru/

http://www.i-trade.spb.ru/

http://www.rusregister.ru/

http://www.sgs.ru/

http://www.en.test-spb.ru/

http://www.expoforum.ru/

http://www.farexpo.ru/

http://www.imperiaforum.ru/

http://www.monomax.ru/

http://www.primexpo.ru/

http://www.congresscity.ru/

http://www.sivel.spb.ru/

http://www.sovencon.ru/

http://www.stachek47.ru/

http://www.restec.ru/

http://www.y-expo.ru/

http://www.bakermckenzie.com/

http://www.bblaw.com/

http://www.cls.ru/

http://www.castren.fi/


Clyde&Co Tel.: +7 812 232 22 97 Fax: +7 812 233 81 09 www.clydeco.com DLA Piper Tel.: +7 812 448 72 00 Fax: + 7 812 448 72 01 www.dlapiper.com Duvernoix Legal Tel.: +7 812 702 62 00 Fax: + 7 812 702 62 55

www.duvernoixlegal.ru

Egorov Puginsky Afanasiev & Partners Tel.: +7 812 322 96 81 Fax: + 7 812 322 96 82

www.epam.ru

Hellevig Klein & Usov

Tel.: +7 812 244 75 49

Fax: + 7 812 244 75 48

www.hkupartners.com

Mannheimer Swartling Tel.: +7 812 335 23 00 Fax: + 7 812 335 23 01 www.mannheimerswartling.se

Pepeliaev, Goltsblat & Partners Tel.: +7 812 640 60 10 Fax: + 7 812 640 60 20 www.pgplaw.ru Salans Tel.: +7 812 325 84 44 Fax: + 7 812 325 84 54

www.salans.com

Unicomlegal Russia Tel.: +7 812 380 16 61 Fax: + 7 812 380 16 61 www.unicomlegal.ru

7.16. Real estate Advecs Tel.: +7 812 322 52 00 www.advecs.com ARIN – Agency for Development and Real Estate Research Tel./Fax: +7 812 600 03 94 www.arin.spb.ru Colliers International Tel.: +7 812 718 36 18 Fax: + 7 812 718 36 16 www.colliers.spb.ru

Jones Lang LaSalle Tel.: +7 812 363 32 31 Fax: + 7 812 363 32 30 www.joneslanglasalle.ru Knight Frank Tel.: +7 812 363 22 22 Fax: + 7 812 363 22 23 www.spb.knightfrank.ru

7.17. Recruitment Adecco Group Tel.: +7 812 329 57 70 Fax: + 7 812 329 57 70, ext. 133 www.adecco.ru ANCOR Tel.: +7 812 448 88 35 Fax: + 7 812 448 88 36 www.ancor.ru Avenir Group Tel./Fax: +7 812 718 81 57 www.avenir.ru

BARONA Tel.: +7 812 640 90 33, Fax: + 7 812 640 90 34 www.barona.ru Business Kernel Tel.: +7 812 315 55 88, 222 52 51, 222 37 58 www.business-kernel.ru BusinessLink Personnel Tel.: +7 812 327 89 96 Fax: + 7 812 327 89 93 www.blp.ru

http://www.clydeco.com/

http://www.dlapiper.com/

http://www.duvernoixlegal.ru/

http://www.epam.ru/

http://www.epam.ru/

http://www.hkupartners.com/avenirhku/editor/index.asp

http://www.hkupartners.com/

http://www.mannheimerswartling.se/

http://www.mannheimerswartling.se/

http://www.pgplaw.ru/

http://www.pgplaw.ru/

http://www.salans.com/

http://www.unicomlegal.ru/

http://www.unicomlegal.ru/

http://www.advecs.com/

http://www.arin.spb.ru/

http://www.colliers.spb.ru/

http://www.joneslanglasalle.ru/

http://www.spb.knightfrank.ru/

http://www.adecco.ru/

http://www.ancor.ru/

http://www.avenir.ru/

http://www.barona.ru/

http://www.business-kernel.ru/

http://www.blp.ru/



223

CASE HR solutions Tel.: +7 812 334 24 25 Fax: + 7 812 334 24 25 www.case-hr.com HR Solutions Tel./Fax: +7 812 702 70 99 www.hrsolutions.ru Kelly Services Tel.: +7 812 332 22 44 Fax: + 7 812 332 23 35 www.kellyservices.ru Manpower Tel.: +7 812 324 46 46 Fax: + 7 812 324 46 47 www.manpower.ru

Morgan Hunt Group Tel.: +7 812 336 38 28 Fax: + 7 812 336 38 27 www.morganhunt.ru 1000 kadrov Tel.: +7 812 313 93 80 www.1000kadrov.ru Staffwell Tel.: +7 812 640 20 01 www.staffwell.com Ventra Employment Tel.: +7 812 635 86 16 www.ventra.ru

7.18. Transport and logistics Ahlers Tel.: +7 812 332 67 00 Fax: + 7 812 332 67 01 www.ahlers.com DHL Tel.: +7 812 326 64 00 www.dhl.ru FedEx Tel.: +7 812 325 88 25 Fax: + 7 812 571 59 30 www.fedex.com/ru

IWM Tel.: +7 812 393 70 54 Fax: + 7 812 309 12 12 www.iwm.ru TNT Tel.: +7 812 718 33 30 Fax: + 7 812 718 34 95 www.tnt.com UPS Tel.: +7 812 703 39 39 Fax: + 7 812 703 16 50 www.ups.com

http://www.case-hr.com/

http://www.hrsolutions.ru/

http://www.kellyservices.ru/

http://www.manpower.ru/

http://www.morganhunt.ru/

http://www.1000kadrov.ru/

http://www.staffwell.com/

http://www.ventra.ru/

http://www.ahlers.com/

http://www.dhl.ru/

http://www.fedex.com/ru

http://www.iwm.ru/

http://www.tnt.com/

http://www.ups.com/


8. Authors and contributors

Guide “Doing business in St. Petersburg” was developed by St. Petersburg Foundation for SME Development by the order of the Government of St. Petersburg - Committee for External Relations with the kind contribution of the following legal, certification, human resources and real estate firms.

St. Petersburg Foundation for SME Development Enterprise Europe Network - Russia, Gate2Rubin Consortium, Module A Regional Center – St. Petersburg St. Petersburg Foundation for SME Development is a not-for-profit, non-governmental business support institution and independent professional business consultancy. Our mission lies in providing high quality and demanded consulting, training and information services to small and medium-sized enterprises that ensure prosperity and economic growth of the North-West Federal district of Russian Federation. The Enterprise Europe Network (EEN) is a key instrument to boost growth and jobs. Bringing together 570 business support organizations from 49 countries, we help small companies seize the unparalleled business opportunities on the world Market. ENN’s mission lies in helping small businesses make the most of the business opportunities in Russia and the European Union. Regional Center in St. Petersburg is co-financed by the Government of the Russian Federation and the Government of St. Petersburg and is operated by St. Petersburg Foundation for SME Development since 2008. Tel.: +7 812 325 84 16, 325 8351, 575 04 80 | Fax: +7 812 712 66 07 www.fbd.spb.ru| www.doingbusiness.ru

Baker & McKenzie Baker & McKenzie’s St. Petersburg office is recognized as a market leader in the region. We are consistently ranked as a Tier 1 law firm in St. Petersburg by Chambers Europe and The Legal 500. Our clients benefit from working with lawyers who have deep knowledge of local laws combined with a strong global outlook. Lawyers in our St. Petersburg office have extensive experience and sophisticated capabilities in a broad range of key market sectors. For more than 20 years we have helped clients navigate a broad range of matters, from corporate registrations and maintenance to complex cross-border acquisitions, international financing transactions and dispute resolution cases. We have also been involved in pioneering projects that have helped drive meaningful development and legal reform in Russian industry and business. We attract the best legal talent and invest more than any firm in training programs and a system of knowledge sharing across our network of 72 offices in 45 countries. We are committed to various pro bono efforts in our community, including serving as special legal adviser to the State Hermitage Museum. Tel: + 7 812 303 9000, 325 8308 | Fax: + 7 812 325 6013 www.bakermckenzie.com



http://www.bakermckenzie.com/



225

SGS The SGS Group is the global leader and innovator in inspection, verification, testing and certification services. Founded in 1878, SGS is recognized as the global benchmark in quality and integrity. With 70,000 employees, SGS operates a network of over 1,350 offices and laboratories around the world. Operating in Russia since January 1981, today SGS Vostok Limited, the Russian subsidiary of the SGS Group, employs a staff of 3,300 people at the Moscow headquarters and the various offices and laboratories all over the Russian Federation, including Northwest Russia. T: +7 812 449 04 66 | F: + 7 812 449 04 67 www.sgs.ru

Adecco The Adecco Group is the world’s leading provider of HR solutions. The services offered fall into the broad categories of temporary staffing, permanent placement, outsourcing, consulting and outplacement. We help over 750,000 people find work every day through our network of approximately 33,000 full-time employees and over 5,500 branches in over 60 countries and territories. Adecco Group Russia was established in 2002. Other Adecco Brands in Russia include Avanta Personnel and Lee Hecht Harrison. Services provided in Russia include Temporary staffing, Outstaffing, Permanent Placement, HR Consulting, Outplacement, Salary Surveys. The branches are situated in 15 cities (Nov 2012): Moscow, St. Petersburg, Dzerzhinsk, Lipetsk, Kaluga, Krasnodar, Yekaterinburg, Novosibirsk, Bryansk, Nizhny Novgorod, Samara, Saratov, Vladivostok, Veliky Novgorod, Togliatti. T: +7 812 329 57 70| F: + 7 812 329 57 70, ext. 133 www.adecco.ru

Jones Lang LaSalle Jones Lang LaSalle is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 167 million square meters worldwide. In Russia and CIS Jones Lang LaSalle has offices in Moscow, St. Petersburg, Kiev and Almaty. Jones Lang LaSalle, Russia was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010 and 2011 at the Commercial Real Estate Awards, Moscow and Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg. T: +7 812 363 32 31 | F: + 7 812 363 32 30 www.joneslanglasalle.ru

http://www.sgs.ru/

http://www.adecco.ru/

http://www.joneslanglasalle.ru/



227



229

Legal disclaimer All of the information included in this document is for informational purposes only, and may not reflect the most current legal developments, judgments, or settlements. This information is not offered as legal or any other advice on any particular matter. St. Petersburg Foundation for SME Development and the contributing authors expressly disclaim all liability to any person in respect of anything, and in respect of the consequences of anything, done or not done wholly or partly in reliance upon the whole or any part of the contents of current brochure. No client or other reader should act or refrain from acting on the basis of any matter contained in this document without first seeking the appropriate legal or other professional advice on the particular facts and circumstances. If you have finished with this document, please pass it on to other interested parties or recycle it. Thank you

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