Russia has been dealt a somewhat unfortunate hand since FIFA announced the country was to hold the 2018 World Cup Soccer FInals, sanctions placed on it by the West, and corruption and vote-rigging scandals and accusations within FIFA itself have made the appetite for investing in Russia and this event rather muted. Nonetheless, it should be pointed out that this is the first time that Russia has hosted this event. It is thus far the largest single, soccer playing nation not to have hosted the finals.
The team has participated in ten World Cup FInals, with Russia’s best performance being arguably in 1966, when under the Soviet Union flag, the team reached the semi-finals. Today, Russian soccer is dominated by a handful of clubs, Spartak, CSKA and Locomotiv from Moscow, Zenit St.Petersburg, and Rubin Kazan.
Concerning the World Cup event itself, all bar one of the stadium venues are in European Russia, West of the Ural Mountains to keep teams and fans travel times more manageable. The tournament will involve 32 national teams, with a total of 64 matches being played in 12 venues located in 11 cities. The final will take place on 15 July at the Luzhiniki Stadium in Moscow.
The venues at which matches will be played are in Moscow, St. Petersburg, Kaliningrad, Kazan, Nizhny Novgorod, Rostov-On-Don, Samara, Saransk, Sochi, Volgograd and Yekerterinberg,
Russia is taking the event seriously. Over one million foreign tourists are expected to arrive in the country around the dates of the tournament. To accommodate foreign fans, Russia is lifting its usual visa requirements for foreign nationals visiting the country, and will permit participants and fans to visit Russia without a visa right before and during the competition, regardless of their citizenship.
It has earmarked USD11.8 billion to be spent on hosting the finals, making it the most expensive finals ever, and about double the spend by the Brazilian Government in hosting the 2014 events. Russia however views this as an investment boost and a timely occasion to upgrade sporting, transportation and hotel facilities. Academics agree. A report by Timetric “Construction in Russia – Key Trends and Opportunities to 2017” has stated that Russia’s economy will be supported by large-scale investment from the construction market because of the nation’s hosting of the 2018 FIFA World Cup, with the construction of stadiums, transport infrastructures and accommodation to come. President Putin meanwhile has praised the event for encouraging Russian nationals to exercise, saying that “The number of people doing physical fitness and sports per 1,000 population is much higher in other countries than in Russia.” and that the event will leave Russia with much improved sports facilities.
Other examples include the planning of the new Stadium at Rostov-On-Don Russia seems to want to ensure that its stadia are used after the event. The stadiums main architect has said that the building will be part of an entire new city centre, encompassing not just sports and the local soccer team, but other local sports teams and public use sports facilities as well as shopping malls and restaurants.
The main area that Russia can provide opportunities for foreign investors and entrepreneurs is in the service industry. As a result, the last few months have seen a plethora of trendy restaurants and bars open up in all cities, and especially so in Moscow and St.Petersburg as these are primary tourist draws in their own right. Russia also has a current lack of medium priced hotel rooms, something that foreign investors, especially those from Germany, Italy and Finland are eager to address. Getting national products onto Russian menus, at least for the duration of the Finals, is also being researched and is a logistics issue. However, there are some items that remain under sanctions and are not permitted to be imported to Russia if they originate from the EU, US, Australia, Norway or Canada.
- Fresh, chilled and refrigerated beef;
- Fresh, chilled and refrigerated pork;
- Poultry meat and all edible poultry by-products;
- Salted, pickled, dried and smoked meat;
- Fish and shell fish;
- Clams and other water invertebrates;
- Milk and dairy products;
- Vegetables, edible roots and tuber crops;
- Fruits and nuts;
- Meat by-products or blood, as well as products made of them;
- Ready-to-eat products including cheeses and cottage cheese based on vegetable fats
This means that sourcing such consumables has become an interesting career opportunity in Russia. In fact, many EU suppliers, hit by the sanctions, have moved production facilities to Russia especially to get around the problems. This is where a knowledge of the Free Trade Agreement with the Eurasian Economic Union which includes Russia, becomes important – what products can be sourced duty free from within the bloc, and which products can be sourced from countries, such as Vietnam – who have a FTA with the EAEU.
Sanctions do not however apply on liquor, meaning a major opportunity will be supplying the thousands of thirsty fans. Import duties apply to wine at rates of 18% VAT, plus a minimal excise tax of 2.6 rubles per litre for still wines, plus wine import duty at 20%. The process is also fairly simple. There are no particular obstacles to the creation of a wine importing company, all that is then required is a federal alcohol sale license. We covered the establishment of a Branch Office in Russia that would permit this activity in this article here. It should be noted that the closure procedure of such entities is also fairly simple, meaning foreign entrepreneurs have the potential to set up a limited life company to first prepare for, then take advantage of the money generated during the finals, and then exit. Please contact us for further information.
Russia however is predominantly a beer drinking nation. Summers in Russia can be hot, and again there are opportunities for foreign entrepreneurs, although the import duty rates are similar to wine.
A good if slightly outdated on Russia’s Imported Beer consumer market can be found here.
Much of the opportunities for investors looking at opportunities in Russia’s hosting of the FIFA 2018 World Cup Finals will revolve about servicing a large, yet temporary market. Information needs to be gathered as to the following:
- Where are the majority of tourists likely to be? (key cities)
- What products can I source duty free?
- What products do I need that attract duty and what is the amount?
- How can I set up a temporary business then exit?
It should be noted that Russia employs a relatively low profits tax rate, and that there are various tax and corporate structural mechanisms that can be employed to make setting up an operation in Russia advantageous as taxes are typically lower than in the EU. Profits tax is 20%.
Branches of foreign legal entities are subject to general taxation. Foreign companies can elect to use either Russian or their homeland accounting systems, while cash transfers between a branch and overseas head office and back are not subject to withholding tax and are not considered taxable income or deductible expenses.
Payments to foreign companies that have no permanent establishment in Russia are subject to withholding tax at 15 percent on dividends and 20 percent on all other payments other than payments for imported goods. These rates can be reduced through bilateral tax treaties.
Russian subsidiaries of foreign legal entities are treated as domestic taxpayers; unlike branches of foreign companies, cash transfers between subsidiary and its parent may be subject to withholding tax; cash transfers from parent to subsidiaries may be considered taxable income. Transfers and repayments of loans do not trigger immediate tax effects.
The potential for a quick entry and exit into the Russian market to take advantage of the FIFA 2018 World Cup Finals is possible, with advance planning. Now is the time to consider such plans if interested in the opportunity.
Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. The firm provides investment advise throughout Asia and works with Russian professional firms handling foreign investment into Russia. For more information please email email@example.com. To subscribe to Russia Briefing, please click here
Dezan Shira & Associates´ Russian investment brochure offers an overview of the services provided by the firm – both foreign investment into Russia and Russian investment into Asia. It is Dezan Shira´s mission to guide investors through Russia´s complex regulatory environment and assist with all aspects of establishing, maintaining and growing business operations in the region.