Doing
Business In Russia - by
Jeremy Hetherington-Gore, Lowtax.net, Moscow
This
section of the Lowtax.net Russia site is aimed at newcomers
to Russia who want an idea of what it might be like
to start and run a business there, and perhaps live
there, or at any rate visit on a regular basis. Perhaps
no other foreign destination has given rise to so many
myths - both good and bad - and we aim to describe the
reality behind the hype, based on the experience of
our own staff members who have lived and worked in Russia
for nearly ten years.
Most
incoming foreign investors will spend their time primarily
in Moscow or St Petersburg, and it's Moscow that we
will focus on. In many ways Moscow is different from
other parts of Russia, particularly in terms of the
way of life, although business practices and the pervasive
influence of the State are just about the same everywhere.
Russian Travel
For
most Westerners arriving in Russia, their first experience
of the country will be Sheremetevo 2, the international
terminal of Moscow's biggest airport, which has remained
largely unchanged except for some superficial tidying-up
since 1990. Baggage is delivered quite promptly, but
the key feature of arrivals is the passport queue. Nowadays
it is often mercifully short, but it's unpredictable
- up to 2 hours on a bad day - and it's a good idea
to be first off the plane, and don't hang around on
your way to the immigration area. Try to size up the
situation quickly, and pick the shortest queue - if
there's one queue for two booths, that's the one to
pick. Then be aware that additional booths may open,
and dash quickly to the new queue if one does. If you
see an immigration office holding a rubber stamp, that's
a sign that a new booth will open.
Once
through the controls - use the green customs channel
if you have less than USD10,000 and nothing special
to declare - you're probably being met, but if not you'll
need to get a taxi. They'll swarm around you, and they're
quite safe. Bargaining is very much in order, and they'll
take dollars. Sometimes it's possible to change money
at Sheremetevo, but it's not guaranteed, and don't trust
anyone other than a bank. You'll be able to change money
at your hotel.
If
you're up for it, it's just as quick and much more interesting
to take a Mashrutka - the Russian equivalent of an American
limo. They run all over Russia, and charge very little.
From Sheremetyevo, there are Mashrutkas to the nearest
metro station, Rechnoy Vagsal, for 20 roubles, and once
on the metro (a flat 10 roubles) you can go anywhere
in Moscow. The metro is fast, reliable and clean - and
there are good metros in many larger Russian cities.
As
well as the metro and Mashrutkas, Russia has buses,
trolley-buses and trams, depending on where you are.
All are fine, but crowded in the rush-hour. As a business
visitor, of course, you are more likely to have your
own driver, or use taxis. In Russia there are very few
actual taxis, but on the other hand all cars are taxis.
You just stand on the street and hold your hand out
until a car stops, then discuss destination and price
with the driver. Scary at first, but easy once you're
used to it! Hotel cars are fine, obviously, but will
cost ten or twenty times as much.
Outside
Moscow, there are suburban and inter-city rail services
which are quite reliable and cheap. People often prefer
the train to go from Moscow to St Petersburg, for instance.
Russia is so enormous, however, that air travel is the
normal way of getting around the country. The safety
record is pretty good, in fact, now that children aren't
allowed in the cockpit any more, and Russian engineering
is excellent, whether you're talking planes, trains
or tanks. Clunky, but reliable.
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The Visa Problem
If
you are an occasional visitor to Russia and stay in
hotels, there isn't a problem: the hotel will register
you, anywhere in Russia. It's when you visit frequently
and stay privately, perhaps have your own apartment,
that the problems start. You'll probably have a multiple
entry visa, which will have been obtained for you by
the travel agency, and when you arrive in Russia you
have three business days to register yourself. The rules
constantly change, and the official registration offices
(the dreaded OVIR) are to be avoided at all costs. Instead,
you are advised to use a private registration agency,
perhaps affiliated with your travel agent, who will
need your passport, entry document, and a notarised
declaration of residency. They'll give you a 'spravka'
which confirms that they have your passport, in case
you need identification in the meantime. The process
takes a week, give or take, and after all that you may
find that the OVIR has given you only a one-visit registration,
so that you have to go through the whole process again
next time. If you're in luck, they'll give you six months,
but the old days of a year-at-a-time seem to have gone
for ever. If you move around inside Russia, you should
theoretically re-register in every new location after
the statutory three days - but at least that's likely
to be a hotel.
Russian
law is very prescriptive, and lays down extremely precise
penalties for every eventuality, so if you are unfortunate
enough to be caught with an incorrect spravka, or no
registration at all, you are liable for a fine. Russia
being Russia, what actually happens is that the police
('militsya') offer you a choice between a protocol (prosecution)
and paying an on-the-spot fine (= ahem, something else).
Of course, you pay the fine. Neither the police nor
you want a protocol, which is very time-consuming and
unprofitable for all concerned.
If
you're planning a more permanent residence in Russia,
then there are longer-term registration options, which
are preferable, but of course involving massive bureaucracy.
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Running A Business
The
process of actually starting a business is dealt with
from a legal perspective on the Forms
of Company page. But you are not advised to try
doing it yourself, unless you speak reasonably fluent
Russian and have studied the legislation. The easy option
of course is to use a Western accounting or legal practice
to do all such stuff for you. They are all represented
in Moscow, and will be very happy to navigate the shoals
and rapids (slows would be a better word) of Russian
bureaucracy on your behalf, but, oh boy, will you pay!
And you need to know that the work will actually be
done by Russian para-legals toiling away downstairs
in Dickensian (Gogolian?) conditions while you sip expensive
coffee with the client manager around a German mahogany
table.
So
it is better, if you are not a
multinational about to enter a PSA with Yukos,
to find an English-speaking Russian firm to work with
on legal and tax issues. Even better (in fact, the only
best way) is to find an English-speaking Russian chief
accountant lady (they are all female) to 'do' for you.
She will handle the registration agencies, the pension
fund, the tax authorities, and every other Russian public
or private type of shark that you can imagine. She will
be worth her weight in gold.
Everything
however is not unrelieved gloom. Russians as employees
are basically wonderful, and if you have a permanent
office then just as soon as you can you should replace
expensive expatriates with qualified Russians in your
business. By nature, Russians are flexible, inventive,
energetic, resourceful, and humorous, and this is especially
true of those Russians (usually young) who have decided
to learn English and become qualified in a discipline
that would be needed by a foreign company. Actual day-to-day
business affairs are not that different from those in
the West, if perhaps a little more bureaucratic, but
definitely less politically correct. Invoices are issued,
they get paid (usually by bank transfer), a sandwich
trolley comes round, all the office equipment is Western,
telecommunications are efficient and quite cheap, everyone
has mobiles, and so on.
Running
a business brings up the subject of the 'mafia'. The
idea of the Russian 'mafia' is now so deeply rooted
in business mythology that the prosaic reality comes
as a surprise to most people. First, it isn't a branch
of the Italian mafia, but a home-grown network of criminal
gangs, often with Chechen or Georgian origins, which
flourishes in the dark spaces where the official writ
doesn't run. In fact, that means almost everywhere,
in the sense that the underpaid Russian police (militsya,
again) don't provide much of a shield against crime
for law-abiding citizens or businesses, and this vacuum
is occupied very effectively by the criminals, who do
actually provide a real service.
In
Russia every business needs a 'roof' (krysha) and that
means protection of some kind. Banks and other rich
organisations have their own gun-carrying security guards
and bodyguards; more ordinary businesses are likely
to be approached by whichever gang controls the street
or building in question, and protection will be offered.
Bargaining is possible, and the end result may well
be not that much more costly than local business taxes
in the West.
It
is pointless and dangerous to refuse the criminals offering
protection, if you don't have your own security. There
are of course many cases in which Russians (and a very
few Westerners) have been eliminated by a hit-man ('killer'
in Russian, as if they didn't have any before 1990!)
but invariably this is because of a quarrel in which
one party has refused, rightly or wrongly, to compromise.
This won't happen to you if you behave normally.
Business
disputes, other than those involving criminals, can
be taken to the courts, as in the West. There are special
Russian business courts called 'arbitrazh' courts, and
at least where major political interests are not involved,
these courts have a record of objective fairness to
litigants. The problem in Russia is not the courts,
it's getting a judgement enforced, because the bailiff
service is vestigial. Most normal Russian companies
in fact accept the jurisdiction of the courts, so if
you're lucky, the enforcement problem won't arise.
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Negotiating With Russians
Many business-people
setting up or investing in Russia will have Russian
partners or counter-parties, with whom there will need
to be a contract. Westerners are often surprised by
what can happen during a contract negotiation process
in Russia, and it is definitely one of the ways in which
Russia can seem very different from the West. It's hard
to put a finger on exactly why it should be so, but
perhaps because of centuries of having to dodge an authoritarian
state, Russians can be very hard to handle in a negotiation.
Nothing is quite what it seems, and a Westerner will
need enormous reserves of patience, cunning and resourcefulness
to succeed in a negotiation (these are exactly the qualities
Russian negotiators display).
Winston
Churchill said about Russia, after long experience of
negotiating with Russians: ' I cannot forecast to you
the action of Russia. It is a riddle, wrapped in a mystery,
inside an enigma; but perhaps there is a key. That key
is Russian national interest.' Allowing for the different
circumstances, this is a good description of how you
may feel after a Russian negotiating session.
The best
advice to give an inexperienced Western negotiator is
to have a Russian on your side, perhaps by using Russian
professionals in an advisory firm, or some other contact
who can be relied upon and has local knowledge. Russians
play to win!
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