Warsaw, 28th February 2019
Polish companies should give Russia a try
Polish companies should test their strength in Russia – the Union of Entrepreneurs and Employers postulates in their report. The report published by the Union describes in detail the possibilities and conditions of doing business in the Russian Federation. In spite of the cold political relations, one should try to develop economic relations.
“Polish business in Russia should be an element of Polish ‘soft power’, especially in the Kaliningrad Oblast,” said the Cezary Kaźmierczak, President of the Union. “I wouldn’t recommend any Polish entrepreneur to build a factory there, but any other type of business should be fine. Building such bridgeheads is beneficial for Poland and competition there is also moderate making it relatively easy to be successful.”
Kaźmierczak also appealed to the Polish authorities to restore the local border traffic with Kaliningrad. It is both of economic significance, very important for the border regions, and politically relevant. Residents of Kaliningrad have stopped perceiving Poles as enemies – a trend that ought to be continued. “The borderless movement with Kaliningrad is one of our few soft initiatives that we have succeeded at,” he said.
In terms of legal aspects, for a foreign entity there are three basic ways of running a business in Russia: as an exporter, by opening a sales office, a representative office or a branch, or by opening or taking over a company operating in Russia. The most popular legal forms are, like in Poland: a limited liability company or a joint-stock company. According to analyses by the World Bank, the establishment of a company in Russia takes a dozen or so days on average, whereas the liquidation of an economic entity registered in Russia lasts 6-12 months.
The tax system in Russia includes the standard CIT rate in the amount of 20%. On the other hand, the VAT rate was raised on 1st January 2019 from 18% to 20% (with the concession rate being 10%). The property tax must not exceed 2.2% of the book value of fixed assets, whereas social security contributions – 30% of the employee’s annual income (above a certain level – the premium value drops to 15.1% of income). PIT, CIT and VAT taxes are collected on a monthly basis.
As regards labour law, employment conditions are similar to the ones in Poland, as employment contracts can be concluded for a definite period (up to 5 years) or unspecified, the trial period lasts 3 months (in some cases it is possible to extend it to 6 months), but attention should be drawn to the fact that the employer has a much broader red tape requirement in Russia (in the Russian language), it is therefore advisable to use external HR services to avoid future problems.
Customs regulations were developed within the framework of the Eurasian Economic Union (EAEU comprising of Russia, Belarus, Kazakhstan, Tajikistan, Armenia and Kyrgyzstan). Since 2012, Russia also belongs to the World Trade Organization (WTO).
It is also worth paying attention to the values and trends of Russia’s foreign trade in recent years. Generally, there is a close correlation between Russia’s exports and imports. In 2008-2009: declines were observed; in the years 2011-2013: stagnation; in the years 2014-2016: further declines; whereas since 2017: there are symptoms of recovery and growth. The last trends are indirectly related to the persistence of a high level of prices of raw materials exported by Russia, mainly energy-related, which translate into a direct inflow of funds and a revival of demand for imported goods and services, both of an investment and consumption nature. It is expected that the above trend will not weaken significantly in the coming years, nor will it reverse. In 2017, imports of goods and services to Russia closed in the amount of USD 227.5 billion, and the index for the first half of 2018 shows an increase in imports by 13.4% (year-on-year), which indicates that imports in 2018 may oscillate within USD 250 billion.
Poland is an important trading partner of the Russian Federation. According to data for 11 months of the previous year, we imported Russian goods and raw materials worth USD 15 billion (a 48.2% increase compared to the year before), while our exports to Russia amounted to USD 4.61 billion (increase by 5.1%). Taking into account the size of the economy, Polish trade with Russia is relatively higher than the trade turnover of other significant Russian partners, such as Germany, France or Italy. This proves that there are numerous trade ties and there’s cooperation between the two nations in spite of rather difficult political relations. The lack of a balanced trade ration with Russia (much higher value of imports to Poland than that of our exports) can be treated as an opportunity for future development, in terms of promotion of Polish products and brands on the market of our eastern partner.
Russian companies, Poland’s trading partners, have their headquarters mainly in Moscow, the Moscow region, as well as in St. Petersburg and the Kaliningrad region. Especially the last of them – connected to the active policy of the Oblast’s authorities and those of the Russian Federation as well as with regard to the opening to new perspectives of international trade – aims to attract investment (including that from Poland) and to revive cooperation, therefore it may become a promising area for increasing the activity of Polish companies.