Shipping costs within the Russian Federation can be noticeably higher than those encountered in Western Europe, largely due to the reality that goods must often be transported over long distances. Where goods are made available for purchase in the Far East of Russia, they must almost exclusively be delivered by airfreight, and temperature-proof packaging will in many cases be required, particularly at certain times of the year. Indeed, parts of Siberia are recorded to be some of the coldest continually inhabited places on Earth, with temperatures dropping as low as -60oC in the winter. The proper packaging of goods can thus be a major consideration whether goods are coming from overseas or from a warehouse within Russian borders.
As would be expected, the costs and timeframes associated with delivering consumer goods in Russia differ depending upon the logistics solution selected by an e-Retailer. The Russian logistics market has some key and dominating players, and one of the major Russian natural monopolies is the Russian Post. During the first six months of 2014, the most popular delivery method in the territory was courier delivery, 33% of which was carried out by the Russian Post. Despite its market share, however, the Russian Post leaves something to be desired both in service and reputation. One of the major stumbling blocks identified with the Russian delivery system as a whole is the immaturity of the working process of the Russian Post, which does not meet world service and delivery time standards despite being one of the more popular logistics solutions.
Although historically alternative logistics providers in Russia had been somewhat unappealing as viable delivery options for distance sellers, this area of industry has developed impressively in recent years, undergoing competitive modernisation. Indeed, in 2012, of the 108 million packages shipped across Russia, half were shipped by alternative companies to the Russian Post network. A variety of new providers have appeared on the market, offering a higher quality of service and shorter delivery times to large and mid-sized cities than those offered by the Russian Post. Fees charged for the use of such services - which used to be signi cantly higher than those charged by the Russian Post - now tend to be competitive, though it is important to note that they are by no means negligible. The Russian Post’s offering has thus become less popular in those areas that are also covered by its competitors.
One alternative commercial end-carrier operating in the Russian Federation is certainly worthy of note here. SPSR covers deliveries to around 98% of the Russian population, and the remaining 2% is serviced by EMS, the premium service of the Russian Post (though, impressively this 2% of the Russian population is spread around roughly 30% of Russia’s landmass). SPSR offers competitive delivery times and enhanced parcel tracking mechanisms to its consumers, as well as up to three delivery attempts in total. After an initial failed delivery attempt, a calling card will be left at the specified delivery location, explaining the process for re-arranging delivery or picking up the parcel from a customer’s local SPSR office.
B2B customs processes in Russia will be relevant to some e-Retailers during their trading experiences into the country – either at the outset of slightly later on. Establishing recognition and demand in the Russian marketplace will lead to an increase in order volumes, and eventually there will come a time when a distance seller should optimise his expenses by shipping in bulk. Should necessity dictate, there are myriad advantages for both retailer and consumer in this approach, i.e. cheaper delivery costs and enhanced speeds for the consumer, as well as less onerous labelling and customs requirements for the retailer. Where a merchant elects to establish a physical presence in the Russian marketplace – for example where he sets up or contracts with a local warehouse - the customs procedures and rules directly below may apply. There are three broad methods of customs clearing goods bound for Russia that are to be received by businesses in the territory, all of which require preliminary customs notification.
1. The first option is for all process and procedure to occur directly on the Russian border. Goods are brought to a customs post located on territory lines where they will remain until the purchaser sends all relevant documentation for inspection and pays any associated duties. In this instance, the responsibility for documentation and payment are entirely placed upon the buyer. After clearance, the goods are transported to their subsequent destination. Significant risks include delays with information delivery, especially due to time zone differences. 18% of B2B goods are customs cleared under this scheme.
2. Businesses also have the option of using customs clearance centres located within the territory of Russia itself. Goods can move directly to these internal centres, but in such a case will require specific transit documents that allow them to cross into the territory without immediate clearance. In this case, it is the carrier who has responsibility for presenting the relevant documentation at the customs clearance centre – including these transit documents - though it is the purchaser who must prepare this documentation and pay applicable duties for goods already within borders. 80% of goods are customs cleared under this scheme.
3. The third option when it comes to proceeding through Russian customs clearance necessitates the use of electronic declaration. With this method, though goods and their transportation vehicles are physically present on the Russian border, customs clearance itself takes place in one of the centres of remote declaration located within the territory. All relevant documentation is sent to this centre, and is usually presented in electronic format. The two customs points will then communicate electronically with each other with the aim of clearing the goods, and - should the goods require inspection - the internal centre will give the order to the customs post on the border to carry this out. Cleared goods can then be shipped to different destinations within Russia right from the border
From July 2010, a unified customs scheme was implemented for all goods delivered to individual customers in Russia from abroad; these rates are equivalent whether a package is delivered by a commercial carrier or the Russian Post, the national carrier of the Russian Federation. If the total value of a particular purchase is less than EUR 1000 and the full weight does not exceed 31 kg, this purchase will be exempt from customs duties altogether. It is important to note that a customer can only receive a particular purchase from abroad customs duty-free in the case that the total value of online purchases received by this customer during any one month does not exceed a limit of EUR 1000 (including cost, freight and insurance). If they do, this customer will be required to pay customs duties of 30% on the amount exceeding this limit. Customers who purchase in excess of 31 kgs per month (combined) will be charged a duty rate of EUR 4 per kg on any excess. If the customer’s monthly orders exceed both maximum weight and value, a greater charge is applied.
Whilst during 2014 the Russian Government had approved the lowering of this duty-free threshold for cross-border trade from January 2015 – legislation which could have had a negative impact on ecommerce orders in the territory by increasing the number of orders subject to customs duties, in the wake of economic recession in Russia, no further action has been taken. However, with Russia’s ascension into the Eurasian Economic Union, it seems likely that the issue of harmonised thresholds will be reconsidered as soon as economy is back on track. A specific figure has yet to be publically disclosed, and opinions are divided, but it is anticipated that this new tax-free threshold will be around EUR 500. It is important to note that even this threshold is substantially higher than the average price of cross-border shipments, so the actual impact on cross-border ecommerce will be limited. In 2014, Greenway estimated that with the introduction of the new limit, every 100th shipment would require the payment of customs duties, as opposed to the current threshold which subjects one out of every 500 orders to the tax. Retailers selling luxury goods to Russian consumers, however, might suffer from the introduction.
As has been highlighted elsewhere in this Passport, there are strict limitations on certain categories of good when it comes to import into the Russian Federation. For example, some goods can be carried only by commercial carriers, and some only by the Russian Post. Some goods are prohibited from shipment into Russia altogether, and there are some products that are always considered by Russian customs to be products for commercial – as opposed to personal – use, even when a consumer has stated otherwise. An e-Retailer into Russia should thus be vigilant in checking which categories the goods he is offering fall into before offering the products to Russian consumers. For instance, medical and photo laboratory equipment are always considered to be commercial products, and thus need to be customs cleared in accordance with B2B procedures. Additionally, video and audio CCTV surveillance products, live plants and seeds are prohibited from import for personal use, whilst cultural valuables can be carried only by commercial carriers and not by the Russian Post.
Importantly, a different customs declaration procedure is followed depending upon whether a parcel goes through the Russian Post or a commercial carrier, though the duties paid are the same in either case. • If the product is shipped by a commercial carrier, the carrier prepares the declaration and presents a list of the items transported to customs. This will include such details as value, contents, country of origin and details of the buyer for customs’ inspection. If the shipment requires the payment of customs duties, a carrier will notify the customer regarding the payment of this duty. • If the parcel is transported by a national carrier in the Russian Federation, i.e. the Russian Post, then the national carrier of the shipment in the goods’ country of origin puts forward the customs declaration, and a CN22 form- a declaration created in accordance with international postal agreements – is issued to customs authorities. Russian customs accepts this CN22 as a declaration. If Russian customs authorities don’t agree with the specifics of a declaration, i.e. if they think that the value has not been correctly stated, then customs can approach the end consumer directly and require them to present additional documentation.
Starting from 1 January 2015 foreign companies may be recognized as Russian tax residents (and become fully taxable in Russia on their worldwide income) if they are effectively managed in Russia. The company is deemed effectively managed in Russia if at least one of the following criteria is met: (1) the majority of board of directors’ meetings are in Russia; (2) management of the day-to-day activities takes place in Russia, or (3) executive bodies’ management decisions are made in Russia. There are also certain secondary criteria which may impose an even higher compliance burden in order to avoid Russian tax residency. The secondary criteria for foreign companies to be recognized as Russian tax residents include: (1) accounting and management accounting is performed in Russia, (2) document (records) management is performed in Russia, or (3) operational HR management is performed from Russia. There is an exemption for companies with strong substance, i.e., local qualfied staff and assets in a State which has a tax treaty with Russia. This may be helpful to protect bonafide companies registered in tax treaty jurisdictions.
Russia is a territory notorious in reputation for the level of governmental regulation and red tape that accompany business transactions, and it is undeniable that the Russian Government exercises strict control over commercial procedure and infrastructure, as well as the economy at large. Natural monopolies, for example, are severely restricted through legislation and government bodies, in particular the Federal Antimonopoly Service (FAS). Forbes magazine, in its ninth annual ranking of the Best Counties for Business in 2014, allocated Russia 91st out of 146 countries for its business environment, and 30th for government interference in business. It is easy to see why Russia’s business environment might not be perceived to be particularly inviting for a foreign e-Retailer into the territory. Russia’s recent macroeconomic policies, however, suggest future progress in this area, and long-term initiatives have been put in place with the aim of creating a nurturing and progressive environment for international and domestic enterprise. Advancement in this area is therefore eagerly anticipated for coming years; organisations can expect to see the lessening of government supervision of businesses, as well as a reduction in administrative hurdles related to day-to-day practice. Plans additionally include the unification of the regulatory powers of State authorities.
Over the next few years, a goal of the National Association of Mail Order and Distance Selling Trade is the establishment of a State program aimed at Russian distance selling development. Unfortunately, however, despite goods intentions, actions of Russian authorities are still somewhat uncoordinated and inef cient and - whilst ministries and departments are trying to launch several stimulating programs for business development - difficulties are complex and must be solved systematically. It is possible that focus on schemes to nurture enterprise and promote investment will be lower on the Government’s agenda whilst Russia is in the midst of international dispute and domestic crisis.
Overall, it is well-acknowledged amongst Russian authorities that the territory’s regulatory and supervisory practices require improvement, and in some areas are archaic. There are additionally important steps to be taken with regard to the cultivation of commercial enterprise. As indicated above, however, reform and public discussion are underway, and approaches are likely to change as tensions reduce. Coming practices in this area will likely be a compromise between the interests of the Russian Government, businesses and citizens. As mentioned elsewhere in this Passport, the administrative procedures and regulations applicable to foreign legal entities trading in Russia differ to those applicable to domestically incorporated bodies, though a foreign company choosing to establish a Russian legal entity will be subject to the same standards and requirements as its Russian counterparts. For distance sellers looking to expand into the Russian market, it is important to note that there are minimal differences in the level of official intervention and regulation between domestic and foreign retailers. 
The social demographics of a targeted e-Market are an important consideration for any e-Retailer looking to sell to international consumers, and the Russian Federation is certainly no exception to this rule. The social structure of Russia is undeniably unique, and historically has been known to attract some fairly negative press. On the whole, however, the Russian Federation has made progress over the last decade in improving the quality of life of its citizens. Throughout his time in power, Vladimir Putin has promised to level the socio-economic playing eld, and has placed emphasis on growing the Russian middle class.