1. Russia export overview
Russia was the world’s ninth largest economy by Gross Domestic Product (GDP) in 2014 according to the International Monetary Fund (IMF).
Russia improved to 62nd in the World Bank’s ‘Ease of Doing Business’ ranking in 2014. It’s making some headway in meeting President Putin’s target of reaching 20th position by 2018 after starting from the position of 122nd.
Contact a Department for International Trade (DIT) Russia export adviser for a free consultation if you’re interested in exporting to Russia.
Some bilateral cooperation and trade support activity is being affected following Russia’s interventions in Ukraine and the illegal annexation of Crimea. The European Union’s (EU) restrictive measures are targeted, and outside of those specific areas, there remain significant opportunities for UK companies.
Russia has started major investment and modernisation programmes which will provide opportunities for UK firms. It’s looking for foreign investment, expertise, technology and resources to help.
Russia’s diverse regions also present opportunities for UK business. These regions are increasingly competing to attract international investment. Some regions have made significant improvements to make it easier to do business, such as Kaluga and Kazan.
About 600 UK companies have a physical presence in Russia. Over 5,800 UK traders exported goods to Russia in 2013.
Benefits for UK businesses exporting to Russia include:
- desire of Russian companies to use international accounting and legal standards
- respect for ‘UK made’ brands, including retail and luxury
- anticipated increase in the number of Russian mid and small sized businesses
Strengths of the Russian market:
- young and well educated workforce
- strong transport links and logistics
- access to supply chains that could lead to exports to other markets in the Commonwealth of Independent States (CIS)
Doing business in Russia can be more difficult than operating in many Organisation for Economic Co-operation and Development (OECD) countries. It’s important that British companies come to Russia well prepared.
Russia covers one seventh of the world’s land mass. Its incredible size means that it:
- spans 9 time zones
- has extremes of climate and weather ranging from sub-tropical in the south, to Permafrost in the north
- has varying levels of development, and differing social and economic factors
Russia ranked 136 of 174 countries in Transparency International’s 2014 ‘Corruption Perceptions Index’.
You should ensure you take the necessary steps to comply with the requirements of the UK Bribery Act.
Other challenges include:
- Russia’s regions can have different regulations in force
- potential language barriers
- bureaucracy and slow response from local authorities and government agencies
- transparency and rule of law
Read the Foreign and Commonwealth’s Office’s (FCO) Overseas Business Risk report for Russia.
3. Growth potential
3.1 Economic growth
Russian economic growth has slowed annually since 2010. Its GDP grew by only 0.6% in 2014 due to:
- a fall in the oil price over the second half of the year
- the EU’s Ukraine related sanctions regime
- existing structural weaknesses in the economy including the large state sector and inefficient use of labour
A contraction of 2 to 3% is predicted in 2015.
Russia with the smallest population of the BRIC (Brazil, Russia, India and China) economies is in per capita terms the wealthiest by a considerable margin. Russia’s domestic supply of consumer goods and services is underdeveloped in many sectors, but it has:
- a large and growing middle class
- discerning consumers who seek out quality and innovation
3.2 Free trade agreements
Russia, Kazakhstan and Belarus entered into a Customs Union in 2011. In 2015 the union evolved into the Eurasian Economic Union (EAEU), which consists of a Customs Union and a Single Economic Space.
Armenia has since joined the Union and Kyrgyzstan is on the verge of doing so.
The organisation is still in its infancy, but regulation of various different sectors and technical regulations are now being set centrally by the EAEU. Eventually there will be free movement of goods, services, capital and labour.
3.3 World Trade Organisation (WTO) accession
Russia became a full member of the WTO in 2012. It’s now expected to follow WTO rules and become integrated into the global economic system.
Russia has committed to:
- change customs duty rates to permit access to the Russian services market
- apply recognised food safety, and animal and plant health measures
- simplify import licensing procedures
- make changes relating to protection of intellectual property
4. UK and Russia trade
UK exports of goods and services to Russia grew by over 75% between 2009 and 2012. Russia became the largest market for UK goods exports outside of the US, the European Union (EU) and China in 2012.
UK goods and services exports to Russia were worth £7.6 billion in 2013.
Goods exports worth £5.4 billion meant that Russia was the UK’s 15th biggest market. This represents a fall of 22% mainly due to the oil price, sharp depreciation of the rouble and sanctions.
Services exports worth £2.3 billion made Russia the UK’s 22nd biggest market for services.
The UK’s share of the Russian import market still remains below that of France, Germany and Italy.
Top UK exports include:
- engineering products
- consumer goods
5. Opportunities for UK businesses in Russia
Department for International Trade (DIT) provides free international export sales leads from its worldwide network. Search for export opportunities.
Contact Export Control Organisation (ECO) to check your goods you are meeting legal requirements for export.
5.1 Advanced engineering
Russian heavy industry across all manufacturing sub-sectors needs to update:
- management practices
- production processes
- manufacturing equipment
Over 70% of existing capital assets are estimated to be outdated. Russian demand for new metal-machining equipment alone is valued at USD 1.5 billion annually.
There are opportunities for UK companies to supply:
- energy efficient manufacturing technologies and equipment, such as cleaning and recovery solutions and industrial automation solutions for resource management
- machine tools and tooling
- spare parts and components
- advanced materials for manufacturing and assembly
UK companies can develop their business in this sector via:
- direct supply
- Joint Ventures (JVs)
- taking part in creation and running of engineering centres
- joint Research and Development (R&D)
Contact firstname.lastname@example.org for more information on opportunities in Russia’s advanced engineering sector.
Russia has one of the largest reserves of ferrous and non-ferrous metals in the world. Its domestic mining sector is highly consolidated with many companies that combine extraction with processing, especially in metallurgy.
In the near future, Russia is going to increase state support for its metals and mining companies with extra cash help and by scrapping certain export duties on metals.
The main opportunities for UK companies in this market are in:
- supply of machinery
- environmental and social aspects of the industry
Contact email@example.com for more information on opportunities in Russia’s mining sector.
5.3 Biotechnology and pharmaceuticals
The Russian pharmaceutical market is reported to have grown by 13.5% in 2013 and is valued at about USD 29 billion. Further growth is expected for 2015.
A Good Manufacturing Practice (AGP) certificate is now a mandatory requirement in Russia during registration of medical products.
Russia’s Pharma 2020 strategy aims to increase innovative drug development and domestic manufacturing output.
The Russian pharmaceutical sector offers opportunities for UK investment in:
- innovative R&D
- generic medicines
- Active Pharmaceutical Ingredient (API) manufacture
Contact firstname.lastname@example.org for more information on opportunities in Russia’s biotechnology and pharmaceutical sector.
5.4 Consumer goods
The consumer goods market in Russia was worth USD 597 billion in 2013. It’s an important market for fashion houses and global luxury brands with estimated sales of USD 57.3 billion in 2013.
Russia is also the fastest growing market in Europe for food and drink.
Russia offers opportunities in:
- premium spirits, beer, and non-alcoholic drinks including premium quality tea
- high quality confectionary
- organic, natural, gluten free and locally sourced food
- fashion, high-end/luxury products including vehicles
- kids products and toys
Contact email@example.com for more information on opportunities in Russia’s consumer goods sector.
Russia is in the middle of the biggest reform of higher education in decades. The reforms aim to enhance the international reputation of Russian universities and ensure universities enter the international top 100 ranking.
The reforms offer opportunities for UK providers to:
- assist in the process of reviewing Russian Higher Education (HE) provision
- assist in the design of the new institutions
- form partnerships with Russian HE institutions to further boost their international reputation
The demand for English language training services and associated products is likely to grow rapidly in the next few years. This is a huge commercial opportunity for the UK.
The English component of the Russian national school leaving exam is currently optional. However, in 2020 a foreign language will become mandatory and the vast majority of students will choose English. English is expected to become a university entrance requirement.
Contact firstname.lastname@example.org for more information on opportunities in Russia’s education sector.
Oil and gas
Russia’s oil and gas market is one the largest markets in the world. It’s valued at USD 50 billion per annum and is predicted to grow in the next 10 to 15 years.
The UK can offer world class expertise across the full spectrum of Russian requirements including:
- upstream, onshore, mid-stream and downstream processing
- subsea projects
The Russian petroleum industry has been affected by the EU and US sanctions imposed after March 2014, However, the sanctions only apply to equipment and services suitable for use in:
- oil exploration or production in waters deeper than 150m in the offshore area north of the Arctic Circle
- shale fracking
Annex II of Council Regulation № 833/2014 provides a detailed list of such equipment.
There are a wide range of opportunities for UK companies in Russia’s oil and gas sector where sanctions don’t apply including:
- conventional oil and gas fields
- construction of LNG plants
- downstream oil-refining facilities
There is a trend for import substitution. Russian oil and gas companies are aiming to increase utilisation of local equipment in their operations.
UK manufacturers should start to explore different routes into the Russian market. They may need to move away from operating through a local distributor towards establishing joint ventures with Russian enterprises. Local legislation and Russian standards may soon require localisation of goods and services.
The Russian nuclear industry is a world leader. The state atomic energy corporation, Rosatom has orders for 80+ units. This includes construction of nuclear plants in India, Bulgaria, Turkey, Armenia, Ukraine, Vietnam, China, Belarus, Czech Republic and Bangladesh.
There are opportunities for UK companies to establish a supply chain relationship with Rosatom and also in the decommissioning sector.
Russia’s vast territory has massive potential for all kinds of renewables. However, Russian interest is growing from a very small base. Russian interest in partnering with overseas companies in the wind, hydro and solar energy sectors is increasing significantly. There are opportunities to supply equipment and expertise.
Russia has recently ratified Renewable Energy Source Development Measures (RESDM). This will increase the volume of renewable energy projects in Russia and open up the market to UK providers of both goods and services.
JSC Russian Grids is the largest electricity distribution and transmission grid company in Russia. The company cooperates with major foreign energy companies with the aim of applying modern managerial decisions and advanced techniques to its operations.
JSC Russian Grids is moving towards the application of new technologies such as:
- automated control systems
- smart grids
- other systems to improve control and operation
There are enormous opportunities for improved energy efficiency across all sectors of the Russian economy and the entire chain of energy use. This includes:
- energy generation
- final consumption
Contact email@example.com for more information on opportunities in Russia’s energy sector.
5.7 Experience economy
Russia offers excellent opportunities for UK firms delivering projects within the museums, heritage and visitor attraction sector.
Russia has 2,631 state and private museums with over 80 million visitors every year. The Russian Ministry for Culture aims to increase visitors to 143 million by 2016.
Museum developers and curators in Russia require international expertise in:
- preparing funding applications
- business planning
- procurement of innovative exhibition equipment and installations
- appointing project teams, including exhibition designers and other museum specialists
- delivery of Information and Communications Technology (ICT) solutions
There are also opportunities for UK creative companies in:
- concept development
- master planning
- landscape design
- interpretative planning
- lighting and other visual effects
- development of museum/attraction shops with branded products
- introduction of interactive elements into content
There are opportunities for UK amusement park designers for the design and fit-out of theme parks. Several major projects have been announced recently, including:
- an ethnographic park under open sky RUSSIA (educational theme park – Russia in miniature)
- 3 theme parks by DreamWorks
- 1 theme park by Universal Studios
Contact firstname.lastname@example.org for more information on opportunities in Russia’s experience economy sector.
5.8 Financial and legal services
Russia’s financial and legal services sector is growing, but at a slower pace than previously. Russia’s banking system is worth around USD 1.6 trillion.
Moscow has ambitious plans to develop as an International Financial Centre. There are opportunities for UK companies in:
- more efficient banking practices, particularly lending priorities, risk management, data processing and insolvency rules
- Mergers and Acquisition (M&A) services
- privatisation advice
- dispute resolution consultancy
- international professional certification
- English law litigation and arbitration expertise
There will also be opportunities for UK companies as Russia reforms its insurance and pensions industry which is relatively small.
Contact email@example.com for more information on opportunities in Russia’s financial and legal services sector.
2% annual growth is expected in Russia’s communication services market between 2014 and 2016. Russia is Europe’s largest market for mobile phones.
Demand for innovative technologies and equipment will be boosted by the:
- development of Long Term Evolution (LTE)
- government’s programme to improve communication services in distant regions
Traditional telecommunications services will still be in demand for a long time as the network of 44 million fixed lines only covers about 28% of the population.
There are opportunities for UK companies in:
- LTE/4G hardware and technologies
- technologies aimed at development of Value Added Services (VAS)
- innovative broadcasting technologies
Contact firstname.lastname@example.org for more information on opportunities in Russia’s telecommunications sector.
5.10 World Cup 2018
Russia will host the 21st FIFA World Cup in 2018, the first World Cup to be held in Russia. The government has developed an infrastructure programme to deliver the project and create a lasting legacy.
The designated budget of USD 20 billion for 2013 to 2018 will be spent on:
- design and construction of 12 stadiums
- 101 training grounds
- 62 hotels
- broadcasting and media centres
- modernisation of 11 airports and other transport infrastructure
- merchandising, retail etc
Nearly 40% of the budget will go into building, or renovating multi-purpose football arenas.
Opportunities arise in a broad range of sectors including:
- construction technologies
- project management
- transport planning
- security and access control equipment
- sport venue fit-out
- pitch management
- stadium operations management
- venue commercialisation
- fan fests
Contact email@example.com for more information on opportunities for the 2018 World Cup.
6. Start-up considerations
The main forms of business activity used by UK companies in Russia are:
- direct sales
- distributorship agreement
- representative offices
- branch of a foreign legal entity
6.1 Direct sales or distributor contracts
UK companies choosing direct sales or distributor contracts are:
- not subject to Russian taxes
- don’t need to establish a presence in Russia via any corporate structure
- not responsible for Russian customs processes, taxes and fees
6.2 Other business forms
Representative offices are accredited for 1 to 3 years. They can only carry out activities aimed at generating profit, such as market research. They can use rouble and foreign currency bank accounts and transfer funds without restrictions.
A branch of a foreign legal entity is accredited for 1, 2, 3 or 5 years. They can carry out all the functions of the company in the Russian Federation.
UK companies can choose to establish a presence in Russia through a Russian subsidiary. The most common business structures in Russia are:
- limited liability company (OOO in Russian)
- closed joint stock company (ZAO in Russian)
- open joint stock company (OAO in Russian)
Taxation, legal obligations, regulative bodies, registering requirements and information disclosure procedures differ depending on the business structure you choose.
Contact Department for International Trade (DIT) Russia to help find tax and legal advisers before entering into agreements.
7. Legal considerations
The Federal law on foreign investment:
- prohibits foreign investors from getting control, or substantial stakes in Russian strategic industries, eg in extraction and defence sector
- specifies the conditions for foreign businesses investing in Russia cannot be worse than for Russian entities
- protects investors against unfavourable changes in tax, customs and other legislation for up to 7 years
Russian legislation gives foreign investors a number of advantages to provide stability and legal protection for their businesses in Russia. The main advantages include:
- recovery of damages resulting from illegal actions, or inactivity of government authorities, local government bodies or officials of these authorities
- protection of property from seizure, including nationalisation or requisition
- protection from negative changes in tax and customs legislation during payback period of an investment project
- right to an unimpeded transfer of profits, income and other monetary sums from investments
Under Russian transfer pricing law a transfer price is subject to monitoring by the tax authorities. The tax authorities monitor prices to ensure that they are established for commercial purposes and not for the reduction of the tax burden.
You must take into account the regulations in Russia’s different regions. There may be significant divergences and contradiction in legal practice adopted by authorities and commercial courts.
7.1 Regulatory bodies
The State Chamber of Registration is the major registering authority for most legal entities operating in Russia.
There are a number of other government bodies with responsibility for foreign trade regulation. Certain types of business activity can only be carried out in Russia with a special licence issued by authorised licensing bodies. Licensing is carried out on a federal and regional level. You must seek the necessary approvals from the relevant body. Contact the Department for International Trade (DIT) team in Russia for advice.
7.2 Standards and technical regulations
GOST-TR is the approved quality indicator. Sample testing is necessary to obtain this certificate. These tests are made in accredited laboratories by GOSSTANDARD, the Russian standards organisation. SGS is the approved partner of GOST in the UK.
Packaging and labelling requirements for Russia vary significantly for food and non-food items. You must check the requirements prior to shipment.
7.3 Intellectual property
Russia is a signatory to major international treaties on intellectual property rights.
Patent protection is given for 20 years from the date of the application, subject to payment of annuities. Patent protection for medicine, pesticide or agrochemical products may be extended for up to 5 years with special permission.
The Federal Service for Intellectual Property, Patents and Trademarks (‘Rospatent’) has responsibility for intellectual property.
8. Tax and customs considerations
The UK and Russia have signed a double taxation convention.
Legislation on taxes and charges is based upon the Tax Code. The Federal Tax Service has responsibility for tax administration.
You should hire qualified finance specialists to ensure you comply with the rules. You need to keep accounts meeting:
- International Accounting Standards (IAS) (if required)
- Russian accounting standards, which are moving towards the IAS but still adopt a more formal approach
- tax accounting requirements, as the Tax Code requires taxpayers to maintain separate accounts for tax purposes
8.1 Special Economic Zones (SEZ)
There are 28 SEZ which grant certain tax, customs and other concessions to residents.
More information is available on the SEZ from the Ministry of Economic Development.
8.2 Value Added Tax (VAT)
VAT is applied at a standard rate of 18%. A preferential VAT rate of 10% is applied to:
- medical goods
- books and periodicals
- food products
- children’s garments
There is an import VAT exemption for ‘technological equipment that has no equivalent produced in Russia’ according to a government approved list. The listed equipment generally also qualifies for a 0% rate of customs import duty.
8.3 Corporate taxes
Profits are taxed at a maximum of 20% on net income.
Payments by employers to the Russian Pension Fund, Social Insurance Fund and Medical Insurance Funds amount to 30% of total payroll.
8.4 Income tax
Personal income tax is paid at a flat rate of 13%. You are considered a Russian tax resident if you live in Russia for over half a year in 12 consecutive months.
Non-residents are also subject to personal income taxation on Russia generated income.
The Federal Customs Service regulates all goods imported into Russia. Customs duty can be calculated and paid in:
- percentage of customs value of goods imported
- specific value, charged for one piece of the relevant goods category
- combined volume, a combination of the above
Import customs duties are collected based on the classification code and the country of origin of the goods being imported. In the majority of cases, they are 5%, 10% and 15%. Certain goods are exempt from import customs duties.
The import of certain goods require a licence.
You can find more about import tariffs in the Market Access Database.
9. Entry requirements
All visitors must have a valid passport and visa. Russia has a strict visa regime.
You can find out more about visa requirements on the Russian embassy’s website.
Read the Living in Russia guide before you go to work in Russia.
9.1 Travel advice
If you’re travelling to Russia for business, check the FCO travel advice beforehand.
Contact the Department for International Trade (DIT) team in Russia for more information and advice on opportunities for doing business in Russia.