Treasury Today Country Profiles in association with Citi

Doing business in Russia

Commodity rich

The largest country on the planet in terms of land mass, Russia is endowed with vast natural reources – principally, crude oil and natural gas. The country’s economy has undergone significant change since the collapse of the Soviet Union in 1991, when Russia moved from being a centrally-planned economy to a more market-based and globally-integrated one. During this period of change, much of the Russian economy was privatised, with the exception of energy and defence.

Diagram 1. Map of

Key facts

Geography and society
138,082,178 (July 2012 est)
Population growth rate:
Official language:
Capital city:
Time zone:
UTC+3 to +12
37,653 km
Currency SWIFT code:
GDP per capita:
$11,905 (2011 forecast)
GDP Growth Rate:
4% (2011 forecast)
7% (2011 est)
$343.4 billion (31st December 2011)
Member of:
Fiscal year:
Calendar year
Financial capital:
History and politics
24th August 1991
Government type:
federal semipresidential democratic republic
Vladimir Putin
Prime Minister:
Dmitry Medvedev
Ruling party:
United Russia
Country credit rating
  • BBB (stable)
Trading partners
Top import partners:
Germany, China, Japan, Ukraine, US
Top export destinations:
Netherlands, Italy, Germany, Turkey, Ukraine

For the most part, Russian industry is split between globally-competitive commodity producers – in 2011, Russia was the world’s second largest producer of natural gas and crude oil, and the third largest exporter of steel and primary aluminium. Because it exports the bulk of its oil and other natural resources, the Russian economy is vulnerable to fluctuations in global commodity prices.

Indeed, the Russian economy suffered during the 2008/9 global economic crisis when oil prices plummeted. But the government took steps to mitigate the effects of the crisis by devaluing the rouble to offset falling commodity prices. A number of other industries, including energy, transport and telecommunications, also received financial aid during this time.

Over the 2008/9 period, the government allocated $200 billion to the banking sector in order to aid Russian companies that were unable to roll over maturing debt with foreign banks. The economic decline bottomed out in mid-2009 and the economy began to find its feet the following year. However, a severe drought and fires in central Russia reduced agricultural output, prompting a ban on grain exports for part of the year, and slowed growth in other sectors such as manufacturing and retail trade.

To mitigate the effects of commodity price volatility oil has on the country’s finances, the government recently embarked on an ambitious programme that aims to reduce the country’s dependency on its oil export revenues by developing its high technology sector. To this end, Rusnano, a nanotechnology company, was asked to take a lead. It is engaged in trying to leapfrog the West in semiconductors with the next generation of technology products.

  • Resident accounts in domestic currency are convertible and can be held domestically and abroad. Residents can also have foreign currency accounts both at home and abroad, providing they notify the tax authorities. Non-residents are permitted to hold domestic and foreign currency accounts.

  • Central bank reporting is applicable to all payments between residents and non-residents alike. All reporting is handled by the banks themselves; however, companies are ultimately responsible for the accuracy of the reporting.

  • Exchange rates are announced on a daily basis and are based on quotes for the rouble (RUB) and other currencies against the US dollar. The Central Bank of Russia (CBR) has the power to intervene in the inter-bank currency exchanges and over-the-counter (OTR) inter-bank market in the event of any major discrepancies in the RUB exchange rate.

  • Foreign investment in a domestic project or company considered to be strategically important is normally restricted to 49%. In sensitive strategic areas this is further limited to just 25%.

  • The Federal Anti-Monopoly Service (FAS) regulates market competition by ensuring compliance with Russia’s competition law. Any state aid granted to a commercial entity must first be approved by the FAS.

  • Measures to tackle money laundering include the reporting of transfers between individuals exceeding RUB 600,000 and transactions with immovable assets exceeding RUB 3m to the Federal Financial Monitoring Service. In addition the CBR keeps a close watch on the banking system. Banks are required to keep track of all money transfers that take place without the opening of an account.

FX controls

Foreign currency can be bought and sold in Russia. A significant number of administrative regulations must be followed in respect of FX, export, import, loan, capital related cash flow and other settlements between residents and non-residents. Residents can open accounts offshore so long as the Russian tax authorities are notified within 30 days of the account being opened. All information about foreign currency and RUB transfers of residents and non-residents are reported by the banks to the Central Bank of Russia (CBR) on a monthly basis.

Regulations permit the buying, selling and transfer of foreign currency via banks licensed by the CBR. Sending FX and roubles out of the country is freely permitted provided all required documentation for the transaction complies with the country’s currency control requirements. Settlements in foreign currency between Russian residents are not permitted. Licensed banks are obliged by the federal legislation to perform controlling, monitoring and reporting functions in respect of the transactions.

The physical export/import of foreign currency and roubles in banknotes by individuals is limited to the equivalent of $10,000 and must be officially declared to the country’s customs authorities. Cash up to $3,000 in value can be brought into or taken out of the country without declaring the fact to the authorities. All domestic and international transfers must be reported to CBR and other authorities empowered to monitor fulfilment of the currency control regulations by residents and non-residents having accounts with licensed banks. Non-compliance with the currency control legislation may result in penalties and bank licence revocation.

Taxation framework

The general corporation tax rate is 20% (having been reduced from 24% in response to the global economic crisis), consisting of a federal portion (2%) and a regional portion (13.5-18%). Companies are required to make monthly advance payments of profits tax, amounting to one-third of the quarterly advance payment for the previous quarter. Companies may choose to calculate advance payments on a monthly basis, taking into account actual cumulative profits from the beginning of the year to the end of the month in question.

Withholding tax at 15% is applicable on all dividends paid by Russian companies to their foreign parent. Dividends paid to Russian shareholders are subject to 9% withholding tax. All other types of income carry withholding tax of 20%, except for income from international freight, which is taxed at 10%. Withholding tax may be reduced under the terms of a double taxation treaty, of which Russia currently has more than 60 in place.

VAT is payable quarterly by all corporate business (including offices and branches of foreign companies) registered with the Russian tax authorities, and individual entrepreneurs. The standard rate of VAT is 18%, although a reduced rate of 10% is applied to certain foods, children’s goods and medicines. Certain activities are exempt from VAT including:

  • The lease of accommodation/office space to accredited foreign representatives.

  • Medical services and the sale of medical equipment.

  • Banking and insurance services.

  • Services of lawyers.

  • Provision of loans and gambling.


Thin capitalisation rules apply to interest paid to a foreign parent who holds more than 20% of the capital of the Russian company under the following circumstances:

  • The Russian company is in debt to the foreign company.

  • The Russian company is in debt to another Russian company affiliated with the foreign company.

  • The Russian company has a debt for which the foreign company/affiliated Russian company acts as guarantor.

If the loan from the parent company is more than three times the Russian borrower’s capital, interest on any excess debt is not deductible. Transfer pricing rules apply to related parties in accordance with the arm’s length principle. The Russian tax authorities may review transactions between related parties; the burden of proof is on the authorities to provide evidence that the price used is not the market price.

Case study

Breaking new ground in liquidity management

Severstal is one of the world’s leading vertically-integrated steel and mining companies. It has assets in Russia, the US and Europe. The company has grown rapidly in recent years to become an international conglomerate with a focus on steel and related mining operations. In 2010, it generated revenues of $13.57 billion. Following this expansion, Severstal recognised that it needed to centralise its liquidity. This was done in two phases – first for its assets in Russia and then for its international assets.

With rating agencies and equity analysts looking favourably on companies with strong liquidity positions, it was important for Severstal to optimise the visibility on its cash positions. At the same time, scarcity of credit meant that cash is a vital internal source of funds for the company. They also needed a complete, end-to-end process, from collections to investments, to increase the speed of cash flows. Given that cash management regulations can be more challenging in emerging markets, the goal was to bring all countries within a global pooling cash management structure.

At the same time, the company also wanted to ensure smooth workflow and seamless IT system integration across the enterprise and an efficient investment policy. Severstal awarded its domestic cash management mandate to Citi and another bank to facilitate the restructuring of its treasury operations. The company chose Citi’s Global Transaction Services team due to its technological expertise and willingness to meet the company’s credit requirements.

In partnership with Citi, Severstal implemented a zero balancing structure across 14 of its domestic subsidiaries. This liquidity solution is the first in Russia to outsource an automated pooling structure across multiple entities. In addition to liquidity management, Citi’s solution for Severstal includes SpeedCollect for orderly receivables reconciliation. By enhancing the order-to-cash and purchase-to-pay cycles with financial supply chain solutions such as these releases substantial trapped internal liquidity for steel companies like Severstal.

By concentrating its cash across multiple subsidiaries, Severstal has greatly reduced its working capital requirements and debt. In the current market, it is vital that steel corporates prepare themselves for tighter credit conditions by restructuring their inefficient and expensive cash management and treasury structures: for opportunities in growth markets or risk losing market share to more prepared and ambitious competitors.

Treasury activities

Local banking sector

The Central Bank of Russia (CBR) was established in 1990 under the ‘Law on Banks and Banking’. The CBR plays a supervisory role over the Russian banking sector and is responsible for maintaining stability of the rouble. In 2008, under the Banking Sector Development Strategy, CBR attached priority to the development of risk based supervision and improvement of the quality of the financial soundness assessment of credit institutions. During the next stage (2009-2015), the priority is to position the Russian banking sector on international financial markets. Within the scope of the CBR’s role are the following:

  • Being the sole issuer of roubles and managing currency circulation.

  • Acting as the lender of last resort to credit institutions.

  • Issuing licences to, regulating and supervising all credit institutions.

  • Being responsible for the continued functioning of payment systems.

The Russian banking sector is characterised by a very large number of small banks. When banking regulations were loosened in the 1990s, a large number of domestic banks were established. The number of banking licences peaked at around 2,500 in 1995 and the banking sector has since continued to consolidate to around 1,100. Nevertheless, a large proportion of the country’s banking assets (42.1%) are controlled by just five state-owned banks.

Moscow is not only the administrative, but also the financial capital of Russia. More than 50% of all commercial banks of the state are registered there. The share of banks registered in Moscow accounts for more than 85% of assets of the entire Russian banking system. The same situation applies for insurance, pension and fund management companies. The country’s second biggest financial centre is St Petersburg.


  • Cash

    Cash is still used for around 90% of all payments in Russia.

  • Payment cards

    These are the most common form of cashless payment instrument. There are around 119m cards in circulation, but their use is mainly concentrated in large cities.

  • Credit transfers

    These are the second most widely used cashless payment instruments. The majority of transactions are carried electronically. Most credit transfers are processed by the BESP RTGS system or the CBR’s net settlement system.

  • Direct debits

    The third most common form of cashless payment instrument, there are two main types of direct debit: payment requests and collection orders. The majority are processed by the CBR net settlement system.

  • Cheques

    Rarely used, there are no central bank rules as to their usage and layout. Instead, cheques are administered by individual agreements between the credit institution and the customer. There is no inter-bank cheque clearing system currently in existence in Russia.

Clearing and settlement

Each bank, located in one of the nine time zones spanning the country is connected to its closest CBR clearing centre. These are located in all main regional cities across Russia.

  • BESP (Bank Electronic Speed Payment) RTGS (real-time gross settlement) system. This system was introduced by the CBR in December 2007 to manage the clearing of urgent, large value, RUB-denominated payments. Payment instructions are processed and settled individually in real-time across participants’ CBR settlement accounts. In December 2007, the real-time growth settlement (RTGS) system was launched as a part of the CBR payment system. The new RTGS system and the existing CBR clearing system are operated in parallel. RTGS ystem provides its members with the real-time RUB settlement throughout the day and instantaneously on the payment’s arrival. Taking into consideration the nine time zones in Russia, the RTGS system practically functions on a 24-hour basis (02.00–22.00 Moscow time), allowing prompt processing of RUB payments between credit institutions (both banking and non-banking), operational units of the central bank, and their customers.

  • CBR automated net settlement system. The majority of non-urgent, low value transactions are processed in batches in RUB by the CBR’s processing centre several times a day. There are 78 regional branches acting as processing centres, 59 of which carry out settlements on a centralised basis (the remainder operate on a decentralised basis).

  • Other clearing and settlement systems. Transactions which are not processed by either of the above two systems may be processed by one of the following: CBR correspondent accounts, correspondent accounts opened by credit institutions with each other, correspondent accounts at clearing non-bank credit institutions or intrabank settlement. The most popular is the settlement system of the state-owned Sberbank (Savings Bank of the Russian Federation), which is the country’s second largest clearing and settlement system. It operates the only national clearing system for bulk retail payments.

Short-term investments

Bank demand and time deposits are popular short-term investment instruments among Russian companies. Government bonds, such as treasury bills (GKO) and federal loan bonds (OFZ), are issued by the Ministry of Finance through auctions held by the CBR; however, demand for these is low. Corporate bond issuance is on the increase. Zero-coupon promissory notes – known locally as veskels – are popular with banks because they offer better yields than government bonds, corporate bonds and deposit accounts. Money market funds are not commonly available in Russia.

Key websites

Government website
Ministry of Finance
The Central Bank of the Russian Federation
Federal Financial Markets Service
Parliament website
Federal Tax Service
Association of Regional Banks of Russia
Federal Financial Monitoring Service

Citi’s capabilities in Russia

ZAO Citibank, a fully owned subsidiary of Citigroup in Russia, was one of the first international banks to enter the Russian market in 1992. Today, Citi is one of the largest and best capitalized banks in the country. More than 3,000 institutional clients and over one million retail customers, including 500,000 credit card holders, are served by Citi’s 3,500 employees in more than 50 branches located in 12 cities across Russia. Citibank’s clients have access to the full spectrum of banking services and are provided with integrated and innovative financial solutions.

Citi offers integrated treasury solutions. Leveraging the industry’s largest proprietary network, spanning 100 countries, we are uniquely qualified to serve an organization’s local and cross-border interests, enabling clients to increase efficiency and reduce costs, effectively manage business locally and globally, and gain greater control over financial positions.

Citi’s unique cash management solutions and platforms enable clients to link their international subsidiaries into one banking system. Citi provides its clients with end-to-end servicing and financing of their trade needs.

Contact details:
Natalya Belaya
Director, Cash Management Head Russia, Central and Eastern Europe, Client Delivery Head Russia and CIS
Citi Transaction Services
+7 (495) 642 7676
Kevork Kahanian
Director, Trade Head Russia and CIS
Citi Transaction Services
+7 (495) 642-7647