Russia Briefing News
Improvements in Russia’s economic outlook continue as Moody’s, the international ratings agency, has changed its outlook on Russia’s sovereign rating to stable.
According to a statement by Moody’s Investors Service, the company changed “the outlook on Russia’s Ba1 government bond rating to stable from negative”. Moody’s also confirmed Russia’s government bond rating and issuer rating at Ba1.
As sanctions on Russia continue, many Asian countries are now finding this an opportune time to establish closer trade and investment links with Russia.
It makes sense: 70 percent of Russian territory is physically in Asia, and the country has a reasonably sized middle class consumer base. Europeans have stopped selling to them and the Rouble is extremely competitive right now, having lost 50 percent of its value in the past two years – Russia is capable of offering more bang for the Asian buck.
According to the Russian ambassador in Minsk, Belarus, Alexander Surikov, a joint Russian-Belarusian workgroup is reviewing a recommendation for a common visa area for the two countries before 2018.
The media quoted Surikov as saying, “We described it as a mutual recognition of travel visas”. Surikov reportedly continued: “A person who receives a travel visa to the Republic of Belarus will also have the right to visit the Russian Federation. Vice versa, a person who gets a Russia visa will have the right to go to Belarus. A group of experts has been set up. It includes representatives of the Russian and Belarusian Interior and Foreign Ministries who are getting down to more detailed discussions of the issue. I don’t think the discussions will produce immediate results but we’ll sure get some result this year.”
2016 has been a year of hard work and effort on behalf of Russia, beset by sanctions from the EU and US, and globally mired in bad press and media coverage. No matter what it does – from fighting Isis and terrorism in Syria to being accused of influencing the American election results, Russia is often described in far from flattering terms. All this noise has detracted Russia’s real achievements and clouded observation of the true directions the Russian economy is taking.
In fact, Russia has recovered from sanctions rather well, 2017 will see it move into positive GDP growth of 1.5% over the year, the same ironically as the EU. What has changed is that while the EU has damaged its trade relations with Russia – losing an estimated USD60 billion in export vales to Russia over the past two years – the efforts to supply the Russian market with product have moved instead to, and been taken up by Asia. President Obama and German Chancellor Angela Merkel, the two main protagonists of the sanctions, appear not to have understood that when championing a global market economy, the imposition of regional sanctions will not work.
The Comprehensive Double Taxation Agreement (CDTA) between Hong Kong and Russia entered into force on 1st January this year in Russia, with Hong Kong following on 1st April this year.
Signed at the beginning of 2016, the CDTA aims to provide greater certainty on taxing rights between Hong Kong and Russia, incentivizes foreign investment with reduced income tax and withholding tax rates, and helps investors to better assess their potential tax liabilities on business transactions.
Before the CDTA came into effect, companies operating in Hong Kong but listed in Russia were subject to income tax in both jurisdictions. In some cases, the taxation of repatriated profits of a Hong Kong company based in Russia would be determined by the tax bureau individually, depending on the source of the income.
Numerous amendments to the Russian Tax Code came into force on 1st January, mostly related to the issuance of Russian Federal Law 401.FZ dated 30th November last year, which introduced some new concepts and clarified the existing taxation rules. The most important changes that may have impact on foreign investors are outlined as follows:
Third Party Tax Payment Permitted
The revised Tax Code now allows third parties to pay taxes of a taxpayer. This will solve several problems faced by corporate taxpayers. It will be useful for example in cases when a taxpayer’s account is frozen in connection with the revocation of its bank’s licence or if the account is blocked by the tax authorities. Similar problems also occur with payments of taxes when an organisation, which is liquidated, closes its accounts, and unpaid taxes are discovered in the course of preparation of its liquidation balance sheet. It should, however, be noted that third parties who have paid taxes of another person will not be entitled to a refund of the amounts paid from the public funds.
By Marina Romanova
Foreign investment inflow in Russian stock in 2016 showed first positive annual result since 2012 and has exceeded US$727 million, according to the Citibank, which based its calculation on the Emerging Portfolio Fund Research (EPFR) data. In 2012 foreign investors injected US$410 million in Russian assets. The last year results are also a record high since 2010, when foreign investments were amounted to US$3.3 billion.
Russian stocks were up 16 percent since November, 8th, 2016 based on the performance of the RSX Van Eck Vectors Russia ETF (U.S. first exchange-traded fund focused on Russia), while the other emerging markets are down 6 percent collectively, as measured by the iShares MSCI Emerging Markets ETF EEM.
Op-Ed by Chris Devonshire-Ellis
Bilateral trade between Russia and China significantly improved during 2016 as China began to step into place as an alternative supplier to the European Union as sanctions continued to bite. President Putin has used the opportunity wisely and in fact lessened Russian dependence on EU imports. He has also paid down Russia’s debt at the same time. The damage caused by sanctions have impacted instead rather more on the EU. New public transport infrastructure in Moscow and St.Petersburg such as buses and trains for example are now sporting Korean and Chinese manufacturer logos instead of European. GDP growth is returning in 2017, with the World Bank anticipating a 1.5% growth this year, coincidentally the same growth rate as can be expected in the EU. In fact the Russian economy is now expanding, while the EU’s is contracting. The sanctions have also been a boom for Sino-Russian trade, which has significantly picked up over 2016.
As can be seen in the attached graph, Russian trade and exports plummeted following the introduction of sanctions, but is now recovering to pre-sanctions levels. The EU’s loss has been China’s gain.
By Marina Romanova
On the cusp of 2017, Sino-Russian political relations are still ahead of two nations’trade and economic cooperation.
Russia’s worsened relationship with the west after the annexation of Crimea has further pushed Russia’s leadership into China’s arms.In 2014, European Union-Russian trade stood at US$377 billion, making the bloc Moscow’s most important economic relationship. That fell to US$235 billion last year.
After Western sanctions were imposed in 2014, Moscow and Beijing had declared that they would increase their bilateral trade to US$100 billion during 2016 and to US$200 billion by 2020.
The new issue of Russia Briefing is now available as a complimentary download, and discusses internal audit, covering topics including health and safety standards, compliance, HR standards, and security regulations. A couple of years ago, legislation introduced obligatory internal controls for each and every company operating in Russia. An internal audit is the ideal tool for checking whether a company has not only set up such rules, but also adheres to them in its daily business operation. This issue was produced by the Schneider Group in Moscow in collaboration with Dezan Shira & Associates.
To subscribe to Russia Briefing and our Asia Briefing series of magazines, please click here
For assistance with foreign investment into Russia, please email email@example.com