Legal Changes Offer Business Savings
- By Mark H. Gay
- Oct. 01 2014 00:00
Changes to the RUssian civil code could save companies money, says Helge Masannek, Director Taxes & Legal, at Russia Consulting. but impending tax rises could boost costs. He spoke to Mark Gay.
On tax, is there a worry that Russia's days as a low tax country may be coming to an end? What will the proposed increase in sales tax mean for businesses?
We have seen a remarkable improvement in the Russian tax system in recent years, along with the tax administration and court practice in tax cases. The governmental tax policy guidelines for 2014 to 2016 state that the tax system shall further be improved and contain a statement that they will not introduce new taxes. Unfortunately we have seen recently a tendency to increase tax rates and to re-introduce the sales tax. This will increase the administrative burden on business and also in terms of tax inspections.
There is a certain probability that smaller businesses will try to evade sales tax. Furthermore the increase or introduction of new indirect taxes will lead to an increase of the tax burden upon consumers and thus will have an impact on consumer demand, as consumers will have less money to spend on goods and services.
Are there any positive changes? How do recent amendments to the civil code affect companies?
The new Civil Code makes it possible to assign the general director functions to a management company. This can be very attractive to foreign investors as the use of a management company can mean a significant cost reduction.
Take the example of a small subsidiary of a Western company that deals only with the sales of goods or services. All business decisions are taken within the parent company, so it does not need to employ an expensive general director on the Russian market. In this case, the use of a management company is more than justified.
Using an independent management company also means improving the quality of control of the Russian business. The employees of the company can objectively inform the parent company immediately about anything important that affects the subsidiary, even in English, German or any other language.
Does this make German companies less likely to acquire Russian subsidiaries or to localize their operations in Russia?
German companies are continuing with their ongoing projects. So if the decision to set up a subsidiary has been taken, such decisions are normally not cancelled. Also companies that have already decided to localize production in Russia are continuing with their projects. But we also are seeing that if decisions have not been taken yet, then plans are likely to be postponed until the situation becomes clearer. So the real problem is the uncertainty about how the situation will develop in the near future.