Economic review

Russia has a developed, high-income market economy with enormous natural resources, particularly oil and natural gas. It has the 15th largest economy in the world by nominal GDP and the 6th largest by purchasing power parity (PPP). Since the turn of the 21st century, higher domestic consumption and greater political stability have bolstered economic growth in Russia. The country ended 2008 with its ninth straight year of growth, but growth has slowed with the decline in the price of oil and gas. Real GDP per capita, PPP (current international) was 19,840 in 2010.Growth was primarily driven by non-traded services and goods for the domestic market, as opposed to oil or mineral extraction and exports.[The average nominal salary in Russia was $967 per month in early 2013, up from $80 in 2000.In March 2014 the average nominal monthly wages reached 30,000 RUR (or US$980),while tax on the income of individuals is payable at the rate of 13% on most incomes.Approximately 12.8% of Russians lived below the national poverty line in 2011,significantly down from 40% in 1998 at the worst point of the post-Soviet collapse. Unemployment in Russia was 5.4% in 2014, down from about 12.4% in 1999. The middle class has grown from just 8 million persons in 2000 to 104 million persons in 2013.Sugar imports reportedly dropped 82% between 2012 and 2013 as a result of the increase in domestic output.
According to the World Bank, Russia takes the 120th place (among 183 countries) in creating favorable conditions for doing business.
Economic recovery of Russia, which was of rather reserved character, took strength in the 2nd quarter, when the annual increase in the 2nd quarter 2010 was 4,5% in comparison with 3,1% in the 1st quarter 2010. Oil price increases and growth of budget expenses for economy support in 2009 favored the improvement of economic indicators. Economic growth in 2010 was reached on account of export supplies and state financing.
In view of forthcoming elections to State Duma in 2011 and presidential elections in 2012 government expenditure increase is expected. Moreover, recently proclaimed reforms oriented to business development, such as reduction of limitations on foreign investments into strategic branches and annulment of capital gain tax on long-term investments (starting from 2011) have to lead to increase of investments in the next year.

Russian Industry

In economy structure of Russia the service sector (trade, transport, restaurants, hotels, telecommunication, financial activity, real estate operations, state management, safety, education, health and other services) dominates. Also manufacturing industry (food industry, textile and clothing manufacture, leather goods production, shoes production, woodworking, wood production, cellulose and paper, publishing and polygraphic activity, coke and oil products industry, chemical production, rubber and plastic articles production, other nonmetallic mineral commodity production, machinery and equipment production, electric equipment production, electronic and optical equipment production, transportation vehicles and equipment production and others) is developed.
According to expert opinion among all industries of Russia the most attractive for investors are:

  • cellulose and paper production (Russian forest resources are the biggest in the world);
  • fuel and energy raw materials recovery (extraction);
  •  publishing and polygraphic activity;
  •  metallurgical production;
  •  electric energy, gas and water production and distribution.

Free economic zones of the Russian Federation

Countries with a high level of investment risk (as Russia) traditionally place their stake on a wide range and immensity of rebates presented in free economic zones (FEZ).
Within the territory of The Russian Federation the first FEZ appeared at the end of 80s, i.e. under the Soviet Union. Their aim was the creation of activation of enterprises and organizations foreign economic activity via starting joint enterprises. The first FEZ were supposed to appear in the Far East (in the region with a developed scientific and technological potential) and favor the increase in production of science-intensive products on the basis of actual national technologies and foreign capital.
The second stage of FEZ development came in 90s. After approving of decisions to create freedom of enterprise zones by the Parliament and the Government there appeared 19 extraterritorial economic formations, further followed by some others. Economical needs of the country, as well as interests of the very experiment pointed to advisability of creating simultaneously several types of such zones in Russia on the basis of world experience:

  • assemblage zones (of industrial character). They were formed on the basis of territorial formations from municipal to the level of the constituent territory of the Federation. There certain measures were taken to attract solid investments with a required development of a necessary structure. As an example of such a zone there is the most part of FEZ created in Russia including FEZ in Kaliningrad region, Nahodka, the republic of Tatarstan etc.
  • foreign trade zones (free custom zones, transition zones and export production zones) are meant to provide currency earnings increase, as well as on the account of consignment storehouses, lettings of premises, holding exhibitions, intermodal exchange and cargo transit. To foreign trade zones one should first of all refer Moscow-area: “Moscow Franko-port” (near the airport “Vnukovo”), “Sherry-zone” (near the airport “Sheremetyevo”), “Franko-port Terminal” (in the territory of Moscow Western river harbour).

Functional or branch zones (technology parks, technopolises, tourism, insurance, banking zones etc.) have both national and foreign economy functions. Particularly they favor scientific and technological progress speeding in separate branches on the basis of foreign economic cooperation activation, realization of national science results, as well as high technologies development, new spicies of manufactured goods and export expansion. Field zones of scientific and technological progress include FEZ in Zelenograd, which have to specialize in microelectronics, informatics and telecommunication; field zones of financial progress (“offshore”) include FEZ in Ingushetia; tourist-recreational FEZ include special economic zone “Caucasian Mineral Water”.

The common feature of different types of FEZ is creation of a hospitable investment climate, which comprises custom, financial, tax incentives and advantages in comparison with General State Institutional environment for the employers. Different FEZ have some quantitative definitions in their benefits and advantages, but in general they are alike.

Establishment of a company in Russia

The registration of companies is regulated by the Civil Code of Russian Federation (of 30 November, 1994), Federal Law № 160-FZ “On Foreign Investment in the Russian Federation” (of 25 July 1999), Federal Law № 128-FZ “On Licensing of Certain Types of Activities” (of 8 August 2001).

Company formation in Russia consists of several standard actions, such as drafting the articles of association, the specimen signatures and some other special forms provided by the company registration office in Russia. Documents must be translated in Russian before submitted with the Russian Trade Register. Company formation in Russia also requires a registered office, a bank account and a local accountant. All these activities must be completed in order to set up a company in Russia.

The main procedural and institutional forms are: LLS, open JSC, CJSC; Representations\Branches.
The lowest nominal capital for establishing a company comprises:
LLS – 10 000 RUR (approximately 252 Euro, according to the central rate, dated January 2011);
CJSC – 10 000 RUR (approximately 252 Euro, according to the central rate, dated January 2011);
OJSC – 10 000 RUR (approximately 252 Euro, according to the central rate, dated January 2011).
An establishment of the LL companies is the simplest and the fastest way to take the status of legal body and start doing business. The establishment of LLC is setup in shorter time period, than establishment of a company of any other institutional form. Besides, the establishment of LLS requires the least number of documents, which are required by the corresponding institutions.

Most companies, which represent Russian market, are the companies of small and mid-sized business, for which the establishment of LLC is quite appropriate for its further administration and reporting procedures. During the establishment process all the co-founders risk by the nominal capital share and they may leave the cast of such a company at any moment, taking their investment in money equivalent.
The establishment of LLC is possible if the nominal capital is not less than 100 minimal estimate indicators, where 50% should be paid until the moment of filing the documents for the LLS establishment. Rest 50% should be paid for the first year after the procedure of company establishment. The whole capital, that is required for the establishment, is formed due to the co-founders’ investments of a certain company.
By the time of company’s establishment it is better to think over how an appropriation of retained earnings will be performed, spell out all the prohibitions in case of enrollment a new investor etc. However after the procedure of company’s establishment its re-registration can be possible in future.
Closed joint stock company (CJSC) is an institution that is a legal body, the number of members of which should not exceed 50. A nominal capital of CJSC has a form of stocks. It is divided between its co-founders or between other certain group of persons. The stocks of CJSC are not allowed for free sale. The members of CJSC are not liable for company and take a downside risk according to the cost of their stocks.
If there are more than 50 members of a company on the first stage of its establishment, a registration of LLS and CJSC is impossible, it is necessary to establish an OJSC.
OJSC is considered to be the most complicated and rematerialized legal form of doing business. At the same time OJSC has a lot of undeniable advantages, which does not have any other form of ownership. OJSC has a right to issue shares, lay subscription and affect a sale of issuable shares. The OJSC shares have a collateral value and may alienate in favor for the thirdsman without an agreement of other shareholders.

The establishment of OJSC is considered to be reasonable due to foundation of big business, especially in case of its further heavy investment.