Employment and commercial agency in

Russia

May 2015

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Table of content

Secondment

Employment contract under the Russian law

Commercial agency

Common terms of Distributorship agreement

Antitrust regulation of distributorship in Russia

Customs Requirements. Quality Compliance

Secondment arrangements will be allowed as of 1 January 2016 if the personnel will be seconded by:

•Private recruitment agencies subject to the following requirements:

They are Russian companies duly accredited in Russia

They do not apply special tax regimes

Their charter capital is at least 1 million RUR

Their CEOs conform to certain special requirements, etc.

•Legal entities other than private recruitment agencies in the following cases:

A legal entity is affiliate of the seconding party

A legal entity that is a joint stock company if the seconding party is party to shareholders’ agreement on the exercise of rights certified by the shares of such a joint stock company

A legal entity that is party to a shareholders’ agreement with the seconding party

SECONDMENT IN RUSSIA: RECOGNIZED BUT SUBSTANTIALLY RESTRICTED

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SECONDMENT IN RUSSIA: RECOGNIZED BUT SUBSTANTIALLY RESTRICTED

Secondment arrangements will be prohibited in the following cases:

For replacement of the employees on strike

Insolvency of the host party

Replacement of employees who stopped working in cases provided by law (e.g. non-payment of salary for a period exceeding 15 days)

Performance of job duties in the period of work stoppage

Part time working regime is established in the host company in order to avoid massive dismissals

Liability of the host party

Organize investigation of incidents occurred with seconded employees

Bear subsidiary liability for all employment – related obligations of seconding party to seconded employees, in particular all payments due to seconded employees (salary, leave payments, etc.)

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EMPLOYMENT CONTRACT

RequirementsRequirements Written form Should be signed within 3 business days upon

hiring Governed by Russian law

Term of Employment ContractTerm of Employment Contract Fixed term (max for 5 years and only in certain

cases) Indefinite term (most common)

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WHAT TO INCLUDE IN THE EMPLOYMENT CONTRACT?

Mandatory provisions Mandatory provisions names and details of the

parties place and date of signature place of work the employee’s job description

(labour function) start date term (if fixed) salary social security work conditions

Optional provisionsOptional provisions probation period training confidentiality additional benefits etc

Changing the employment contract requires the employee’s written consent

HIRING A HIGHLY-QUALIFIED SPECIALIST?

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Work Permit

Work Visa

Registrationwith Tax Inspectorate

Notification ofFMS on taxregistration Notification of

Tax Inspectorate on hiring

Invitation letterissued by FMS

Arrival in Russia,registration at an address

WANT TO WORK IN RUSSIA? TAKE AN EXAM, PLEASE

As of 1 January 2015 when applying to work permit foreign nationals will be obliged to confirm their knowledge of Russian language, history and key laws in the following forms: Document confirming graduation from educational organization in Russia (or USSR prior to 1991) Certificate issued after sitting for an special exam

The exceptions from this obligation are made for: Highly – qualified specialists Individuals aged under 18 y.o. Male and female foreign nationals aged 65 y.o. and 60 y.o. respectively Foreign nationals studying at educational organizations in Russia, etc.

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COMMERCIAL AGENCY IN RUSSIA

Available options:

Sale and purchase agreement;

Agency agreement;

Service agreement

Distribution agreement.

Even if agreement is governed by Italian law, provisions of the Russian law shall be kept in mind in part of:

-Imperative norms of the Russian law-Law On state regulation of trade -IP provisions-Taxes-Antitrust-Currency control rules

Often parties conclude distributorship or agency agreement as framework agreement and supply goods under separate contracts of sale or orders

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TERMS OF AGENCY AGREEMENT

If Agent undertakes to act on its own behalf or on behalf of Seller and at the

expense of Seller, we should apply Agency agreement concept regarding such

relations.

Agency provisions:

Remuneration for the agency acts is the must;

Unilateral termination at any time;

Limitation of territory for agency activity;

Obligation of Agent not to act in interest of Seller’s competitors.

IMPORTANT: The restriction of competition may apply only to respective agency rights

and obligations (See slide “Antitrust regulations”).

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COMMON TERMS OF COMMERCIAL AGENCY AGREEMENTS

Agreement customarily contains the following material provisions

Goods to be supplied and sold

Specification of goods; agreed minimum sales

Method of price calculation and payment terms

The final price shall be prescribed in the contract of sale; discounts; advance payment or grace period

Remuneration of agent Fixed amount, percentage of purchase price for final customer, target bonuses

Entrusted territory exclusive / non-exclusive distributorship

Specific conditions Limitation of territory; list of customers; resale price fixing; non-compete obligations

Advertising and marketing

Advertising activities including budgets; participation in exhibitions; promotion

Supply conditions Ordering process; delivery basis; transfer of title and risk of loss

IP issues Right to use logos; know-how; commercial names

Technical support and repair

Allocation of costs for maintenance and repair; warranty period; replacement of defective goods

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ANTITRUST REGULATION IN RUSSIA

• Russian effective antitrust legislation prohibits the following restriction of competition:

Market-sharing regarding: Territory; Volume of sales or purchases; List of sellers or purchasers.

Not economic based refusal from entering into the agreements with other sellers or purchasers.

Prevention to entering the market; Resale price fixing.

Vertical agreements (where Seller and Distributor do not compete with each other on one market) may fix resale prices or impose obligation not to sale competitors’ goods if the market share of each party in any market does not exceed 20 %.

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TAX ISSUES

Sale of goods is subject to:Profit tax (Tax base - amount of received income decreased by amount of expenses; Tax rate - 20%)VAT (Tax base - amount of sold goods; Tax rate - 18%)

Fees for the rendered by Agent services are subject to:Profit tax (Tax base - total amount of fee; Tax rate – 20%)VAT (Tax base - amount of fee for rendered services (e.g. merchandising, product promotion, marketing, advertizing, etc.); Tax rate - 18%)

Bonus for proper fulfillment of agreement is subject to:Profit tax (Tax base - total amount of bonus; Tax rate – 20%)no VAT since bonus is not connected with rendered services (e.g. supporting of distribution area, growth and volume of turnover, timely payments, etc.)

License of IP rights:If agency agreement provides license of IP rights the remuneration should be stipulated. Use of IP rights without its compensation (gratuitous use) entails taxable income of the AgentLicense of trade marks and right of its use is subject to VAT (18%). License of exclusive rights to know-how, inventions, useful model, industrial sample, computer program, database and rights of its use are non-VATable operations

CUSTOMS CLEARANCE AND QUALITY CONFORMITY

If commercial agent is responsible for customs clearance, then

• Agent shall act as an importer in the customs. Only Russian entities might

import goods into the territory of the Russian Federation.

• He shall assure availability of duly executed shipping documents including

the contract of sale and purchase, as well as the documents confirming

products’ conformity documents

Quality Conformity

• The products to be sold in Russia shall pass quality conformity procedures

(certification or declaration of conformity) otherwise they will not be

released by the customs service.

• Declaration of conformity might be issued in favor of Russian entity only,

therefore producer of goods shall nominate a Russian entity (distributor or

other entity) as its representative for compliance needs

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THANK YOU FOR YOUR ATTENTION!

My contact details: Maria Ostashenko mostashenko@alrud.com Tel.: +7 495 234 96 92