DFS Worldwide offers trucking service from UK to Russia and road service to Ashgabat.
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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.
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:
Strengths of the Russian market:
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:
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:
Read the Foreign and Commonwealth’s Office’s (FCO) Overseas Business Risk reportfor Russia.
Russian economic growth has slowed annually since 2010. Its GDP grew by only 0.6% in 2014 due to:
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:
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.
Russia became a full member of the WTO in 2012. It’s now expected to follow WTOrules and become integrated into the global economic system.
Russia has committed to:
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:
Department for International Trade (DIT) provides free international export sales leads from its worldwide network. Search for export opportunities.
Russian heavy industry across all manufacturing sub-sectors needs to update:
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:
UK companies can develop their business in this sector via:
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:
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:
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:
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:
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.
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:
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:
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:
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:
There are enormous opportunities for improved energy efficiency across all sectors of the Russian economy and the entire chain of energy use. This includes:
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:
There are also opportunities for UK creative companies in:
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:
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:
There will also be opportunities for UK companies as Russia reforms its insurance and pensions industry which is relatively small.
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:
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:
The main forms of business activity used by UK companies in Russia are:
UK companies choosing direct sales or distributor contracts are:
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:
Taxation, legal obligations, regulative bodies, registering requirements and information disclosure procedures differ depending on the business structure you choose.
The Federal law on foreign investment:
Russian legislation gives foreign investors a number of advantages to provide stability and legal protection for their businesses in Russia. The main advantages include:
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.
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.
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.
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.
The UK and Russia have signed a double taxation convention.
Legislation on taxes and charges is based upon the Tax Code. The Federal Tax Servicehas responsibility for tax administration.
You should hire qualified finance specialists to ensure you comply with the rules. You need to keep accounts meeting:
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.
VAT is applied at a standard rate of 18%. A preferential VAT rate of 10% is applied to:
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.
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.
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:
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.