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22 August 2019

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Russian-Swiss trade relations

VLADIMIR MIROSHNICHENKO, Business mir #22 - 2012-08 MAIL PRINT 
The Russian-Swiss trade relations have a long and rich history. It is well-known that both Russia and Switzerland are mutually interested in expanding close cooperation, including in the sphere of foreign trade. As for Russia, Switzerland is primarily attractive as a reliable partner and a country with a stable demand for various types of raw materials. Besides, Swiss commodities have traditionally been extremely competitive on the global markets, including Russia.
Nowadays, the state of Russian-Swiss relations is characterised by positive dynamics, having continuous support from political dialogue at the highest levels. At the same time, the ties linking the business communities of both states are expanding and strengthening. It is quite evident from a large number of bilateral events such as meetings, forums and conferences held at the trade mission level. Such events have already become traditional and are usually held in an atmosphere of mutual respect and desire to expand the frontiers of bilateral partnership.
Today we can positively claim the existence of established bilateral relations in certain areas of foreign trade. Currently, more than 600 companies with Swiss capital are operating in Russia on the other hand many Russian companies are working on the Swiss market. However, the volume of bilateral trade has been constantly growing, and this suggests that the potential for bilateral cooperation is far from exhausted. Russia and Switzerland are also brought together by a number of major investment projects, designed to be implemented in the years to come.
First of all, we are talking about projects in such important spheres as science-intensive high-tech industries including energy, space, medicine, nuclear and IT-technology. In particular, the most well-known and highly advocated bilateral projects deal with innovation and nanotechnology issues. We must say, that Russia is open for mutual cooperation and such a stance makes a favorable impact on trade ties between our states.
As is widely known, sufficient part of the Swiss-made goods has been exported due to their high competitiveness. Swiss watches, cheese, chocolate are very popular on the global market. However, judging by the country’s foreign trade growth, the bulk of Swiss exports consists of engineering products, electronic and chemical goods. In the last several years experts observe increased imports to Russia of Swiss machinery and equipment, electronic goods, which is encouraged by the economic growth and stable demand on the Russian market.
One might say that currently the Russian economy drives towards attracting foreign investment and building a more powerful production potential, which means the need to upgrade various industries through their retooling and re-equipment. Nevertheless, until recently foreign investors were not very willing to enter the vast Russian market due to a number of constraining factors. However, due to Russia’s policy in the sphere of foreign trade, today we can talk about new prospects in this field, which is proved by the development of many new projects with foreign investment.
Besides, recent years witnessed certain events that can be assessed as strong incentives for the development of foreign economic relations. First of all, it is the country’s WTO accession and the formation of the Customs Union of Russia, Belarus and Kazakhstan. In general, there is a trend to improve the investment climate, which should contribute to upgrading and retooling of the Russian enterprises.
Under such circumstances, imports of technological equipment essential for upgrading Russia’s productive assets and establishment of modern industries become extremely important.
If you consider the subject of customs clearance of goods imported to Russia, both countries continue cooperation in order to simplify customs procedures when declaring goods. The solution to these problems is sought in sharing experience, the necessary information exchange and keeping contacts for a constructive dialogue.
However, one should be aware of a certain specific character of the Russian customs system, which is often rated as very difficult and having many formalities. Speaking of projects dealing in imports of sophisticated high-tech equipment to Russia, it should be noted that their implementation is often a process that requires special attention. Many of the investors and importers faced certain difficulties when importing such equipment to Russia due to the fact they lacked necessary information on the process.
Practice shows that the detailed planning of the imports process enables to avoid unnecessary difficulties and successfully pass the administrative barriers, as well as to achieve significant financial benefits by reducing the costs in regard to customs formalities and logistics optimisation.
In fact, the bulk of problems, including obligations to pay fees to the treasury for goods imports, lie with the buyer. However, given that the projects on equipment imports often fall in a special category of foreign trade transactions, where the seller is also actively involved in the process, the situation will be quite favorable if both parties of the transaction have the necessary information and join forces.
We can say that there are several ways to implement projects of importing sophisticated equipment to Russia. For example, it may be a sales deal, as well as a contribution of the equipment owned by a foreign investor to the Russian company’s charter capital. Each of these schemes goes through predetermined customs procedures. But there are certain ways to make the project of sophisticated equipment imports especially attractive in terms of reducing costs both financial and dealing with the delivery’s time schedule.
The main issues which should be known in the equipment sales transactions for imports to Russia are as follows.
When importing equipment on the basis of buy/sale deal most types of technological equipment have a zero rate of import duties. However, one should pay a value added tax (VAT), which accounts for 18% of the transaction price.
At the same time equipment imports can be released from VAT payment if it is included in the special imports list approved by the Russian government. The list comprises those types of equipment, which are not produced locally. In such a case, the product’s code in the foreign economic activity commodity nomenclature of the Customs Union plays an important role. The document provides special codes for all imported equipment. In other words, if the equipment is imported under the code, which is included in the special imports list, the value added tax is not payable.
There is also an option not associated with the sale of imported equipment that is investment of the foreign partner in the charter capital of the Russian company. In this case, the law provides certain incentives and the import duty is not payable even if a certain amount of fee for this type of equipment was initially established. As far as VAT is concerned, it shall be paid on the same principle as described above. If the equipment’s code is not in the preferential list, approved by the Russian government, the tax is payable.
One might say that currently the investment climate in Russia is very favorable, but often, especially when it comes to importing complicated multi-component equipment with insufficient preparation for this procedure, there may be difficulties and delays in customs procedures, which negatively affect both sides of the transaction.
In this regard, optimisation of the deliveries and time saving, as well as protection from the administrative imports risks are other important issues in the implementation of foreign projects.
The manufacturing of complicated industrial equipment usually takes a long time and is often located in different countries, so the most optimal and usually only possible way for its shipment and installation is a phased delivery over a sufficiently long period of time, sometimes a year or more. That is why the classification of equipment components, setting up a possibility to import them at the lowest possible rate of customs duty, as well as facilitating the process and avoiding the unnecessary difficulties in customs clearance are of foremost importance.
The mechanism for obtaining preliminary classification decisions of the Federal Customs Service provides for reaching these goals and the importing partner who is to receive the goods can take advantage of this opportunity prior to the importation procedure.
As usual, the imported equipment consists of a number of units, elements and components, but this is only a part of the final product. Under a general rule, each consignment should be declared separately and go through regular procedures, including determination of its classification code in the foreign economic activity commodity nomenclature of the Customs Union, calculation and payment of fees, granting of permits, which means that each item will be considered by the Customs as a separate product.
To facilitate imports of such complicated goods the Russian customs legislation provides a possibility to classify the entire set of equipment delivered in stages over a specified period of time under the same code with acquisition of a corresponding classification decision.
Such a decision provides for a special goods declaration procedure and equipment can be imported in stages, it is not necessary to identify and prove the product’s code for each consignment. The final declaration on all the imported equipment is submitted only after all deliveries are accomplished, simultaneously with passing all the necessary procedures and payment of customs fees.
The need to obtain classification decisions is caused also by the following fact: if the importer forwards declaration with a product’s code providing zero customs rate, it does not always mean that this code will be approved by the customs authorities, and the goods will be released precisely at the zero rate. Yet, if the classification decision of the Federal Customs Service with a precise code for the imported goods will be obtained in advance, it will guarantee that the code will not be changed, customs will accept it and therefore the cost of customs payments will not increase.
At the same time, if the transaction deals with sophisticated equipment, its imports procedure will also be sufficiently simplified. The Federal Customs Service classification decision provides for a special declaration procedure and the equipment can be imported in stages. Only after all deliveries are done the importer submits final declaration for all the consignments imported and there is no need to calculate customs fees for each component or unit. They are to be paid simultaneously for all the imported goods.
Therefore, receiving a classification decision can ensure that the goods will be imported under the lowest possible rates of import duties in any scheme of equipment imports to Russia. That is why such a procedure for obtaining classification decisions became very popular among equipment importers, it undoubtedly contributes to cost reduction and is an important positive factor in the industries upgrading and retooling process.
It should also be noted that the success of transaction is greatly influenced by the content of external economic contract. It's not just financial success, but it also largely affects the issues of customs clearance. As practice shows, the major part of such contracts is drawn up without taking into account the important details concerning the existing Russian customs policy, therefore, contains the risks that lead to additional time and financial costs during the goods import and customs procedures.
Taking into consideration all aforementioned, we can define the main points that may contribute to the success of such transactions, as the equipment imports to Russia. This includes a preliminary joint planning and preparation by the seller and buyer of future import deliveries, taking advantage of classification decisions of Russia’s Federal Customs Service, drawing external economic contract with due account to characteristics of the customs legislation and procedures as well as competent imports logistics.
Of course, the objectives to minimise risks and financial costs are achieved with less efforts after employing foreign trade professionals, who are capable of integrated approach to the solution of all acute problems and can suggest the best options for the import of goods at the lowest cost.
by Vladimir Miroshnichenko, head of legal department & Anna Lasch, senior lawyer, customs holding TARGO Group
VLADIMIR MIROSHNICHENKO, Business mir #22 - 2012-08  MAIL PRINT 
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Ежедневные новости и аналитика из Швейцарии и Европы, политика, экономика, интервью

Daily news and analytics from Switzerland and Europe, policy, economy, interview