The New Civil Code of the Russian FederationThe new Civil Code (first and second parts) became law in 1995. It is based on certain fundamental principles including:
According to the Civil Code, goods, services and financial assets may move freely throughout Russian territory. Limitations on the exercise of civil rights may only be established under federal laws. The Civil Code defines a legal entity as an organization that owns, exercises jurisdiction over or manages property and is liable for that property. A legal entity may acquire and exercise property rights, undertake obligations, and sue and be sued in court or arbitration. It must have its own independent balance sheet and books of account. Under the Civil Code, foreign legal entities and individuals and their Russian counterparts are to receive equal treatment under Russian legislation, unless other-wise provided by federal law. The Civil Code puts legal entities into two categories: commercial and non-commercial organizations. Commercial enterprises, whose goal is to make a profit, can be established as business partnerships and companies, production cooperatives, and state and municipal enterprises. While non-commercial organizations, those that do not aim to make a profit, may not distribute any profits, they may engage in profit-making activities to reach their goals. Non-commercial organizations may take the form of consumer cooperatives, social and religious organizations and associations, and charitable and other funds. Land OwnershipLand ownership remains one of the most controversial and rapidly changing topics in Russian property law. Limitations on absolute ownership of land were abolished by the Russian Constitution in 1993. However, Constitutional authorization for full-scale, private ownership of land has not been implemented. Employment IssuesEvery employee must work under an employment contract that includes responsibilities, salary, leave, working hours, and dispute resolution. Russian law contains provisions against discrimination on the basis of gender, religious belief and age. Written reasons must be given for a refusal to hire a woman with a child under three years old or a single mother with child under 14 years old. Joint ventures, wholly owned subsidiaries, and accredited representation offices of foreign companies have the right to hire Russian citizens. Russian law provides for a minimum wage, which is revised regularly to take account of inflation. Russian legal entities, including enterprises with foreign investment, may not compensate employees who are Russian citizens in hard currency. The regular working week may not be greater than 40 hours. Any additional hours are considered overtime. Employers make social insurance and pension payments in the form of a percentage of their employees' total remuneration, including bonuses and benefits. There is no requirement to form a trade union organization and to have a union representative in the decision-making body of the employee. Tax SystemThe Russian tax system is only 5 years old and it has changed frequently from the very beginning. New taxes have been added, tax rates and bases are changing rapidly. All this was considered one of the barriers to sucessful foreign investment in Russia. But in 1995 the Russian Government appeared to move towards more stable and simple tax system. A draft of a new Tax Code has been prepared and approved by the Government. Its basic goals are to improve tax collection, simplify the tax system, reduce the number of taxes and increase incentives for investments. Taxes in Russia are divided into three categories:
Principal TaxesLegal entities doing business in Russia are subject to a corporate profit tax, assets tax and road fund tax. Capital gains are included in the corporate profit tax base. A value added tax (VAT) is applied to the sale, exchange, transfer or import of most goods and services. Employers must pay payroll taxes to the Pension Fund, the Social Insurance Fund, the State Employment Fund and the Compulsory Medical Insurance Fund, plus a transportation tax and an education tax that are also based on wages. Withholding taxes are imposed on dividends, interest on debentures and payments to nonresidents for services. Other local and regional taxes such as housing, advertising and militia taxes, are also imposed. These taxes may use a basis other than profits, such as sales, turnover, or the amount of payroll or advertising expenses. Russian citizens and permanent residents must pay personal income taxes. Tax rates by the end of the 1995 were the following:
Tax collection is a severe problem in Russia. Russian tax collection is the root cause of poor revenue performance. The inexperience of the staff of the State Tax Service plays a leading role but three other factors contribute to the problem: the reluctance of regional authorities to remit the full amount of revenue due to the federal government, tax evasion and corruption. Though it is commonly thought that the share of profit tax accounts in total tax revenues is three to seven times higher in Russia than in Western Europe, in fact this is not true, because of very low tax collection. Taxation of personal income and natural resources does not differ greatly from international level. Double Tax TreatiesThere are a number of double tax treaties of Russia (and the USSR) that provide for either reduced rates of withholding or complete exemption from withholding for payments made to residents. Customs RegulationsRussian import duties change frequently. Rates of 15-20% per cent are imposed on most goods considered nonessential for economic development, and rates of 25-30 per cent are applied on a range of consumer goods. The highest duties are levied on such goods as alcoholic beverages, entertainment goods, precious metals and stones, and watches. Russia has set goals for reducing customs duties gradually on most goods. The maximum import tariff will be 20 per cent as of 1 January 1998 and 15 per cent from January 2000. The average import tariff rate as of 1998 will be 80 per cent of its existing level and in 2000 it will be 70 per cent. Commodities imported into the customs territory of Russia are also subject to a 20 per cent VAT. Customs DutiesDuties are applied to imports and exports. When goods cross the customs border, they must be placed under a customs regime. Goods brought into Russia by foreign companies usually fall under two regimes: Release for Free CirculationDuty calculated by multiplying the customs value of the goods by the appropriate duty rate, which ranges from zero to 100 per cent. Temporary ImportThis status may be applied only to goods to be used by the foreign company that will not be sold and will remain in the ownership of the company. Two types of exemptions from duties are granted: full and partial. No duties are charged on goods that receive a full exemption. For goods receiving a partial exemption, the importer is required to pay three per cent per month of the amount that would have been due had the goods. |