Regional Focus

Doing business in Russia

Published: Mar 2010

The largest country in the world, Russia is an economic power with which to be reckoned. Russia’s leading industry sectors are oil and gas. Over 10% of international oil production takes place in Russia and more than 70% of Russia’s crude oil is exported. Russia is also responsible for about 20% of the world’s natural gas production.

Map of Russia

Key facts

Geography and society
Population growth rate:
Official language:
Capital city:
Time zone:
UTC+2 to +12
37,653 km
GDP per capita:
$32.2 billion
Member of:
Fiscal year:
Calendar year
Financial capital:
History and politics
24th August 1991
Government type:
Federal semi-presidential democratic republic
Dmitry Medvedev
Prime Minister:
Vladimir Putin
Ruling party:
United Russia
Country credit rating
  • BBB
Trading partners
Top five import sources:
Germany, China, Japan, Ukraine, US
Top five export destinations:
Netherlands, Italy, Germany, Turkey, Ukraine

Russia – an economy in transition

The dissolution of the USSR in 1991 marked the start of a long decline in Russia’s GDP as the country underwent transition to a market economy. This led to fiscal imbalance and culminated in a banking crisis in 1998. However, a variety of factors, including the devaluation of the rouble, tax reform and a tightening of fiscal policy, soon improved political and social stability and an increase in the price of Russia’s main exports (oil, petroleum products, gas and metals), contributed to the recovery of the country’s economy.

While the Russian economy was hit by the global economic crisis in 2008, the government took steps to mitigate the effects of the crisis, with a controlled devaluation of the rouble to respond to falling oil prices. Certain industrial sectors, including energy, transport and telecommunications, also received financial aid.

The government is also looking to invest in infrastructure and to take steps to diversify the country’s economy going forward. The recently reduced profit tax rate (from 24% to 20%) is among the lowest of the world’s major economies, and it is hoped that this will encourage investment in certain industries.

  • Resident accounts in domestic currency (RUB) are convertible and can be held domestically and abroad. Likewise, residents can also have foreign currency accounts both domestically 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 RUB and other currencies against the USD. The Central Bank of Russia (CBR) has the power to intervene in the inter-bank currency exchanges and OTC 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 Antimonopoly 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.

Taxation framework

  • The general corporate profits 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.

  • Value added tax (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.

  • Transfer pricing rules apply to related parties in accordance with arm’s length prices. 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.

  • 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 act 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.

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.

Within the scope of the CBR’s role are the following: it is the sole issuer of roubles and manages currency circulation; it acts as the lender of last resort to credit institutions; it issues licenses to, regulates and supervises all credit institutions; it is also responsible for the continued functioning of payment systems.

The Russian banking sector is characterised by a very large number of small banks. During the early 1990s when banking regulations were looser than they are now, 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%) is controlled by just five state-owned banks.


  • Cash.

    Cash is still used for 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.

  • Letters of credit.

    These are only used on a small scale.

Case study

An innovative receivables programme that shares risk and improves working capital.

Selim Baraz

Finance Director for Russia and Eastern Europe region

Diageo is the world’s leading premium drinks business and established its presence in Russia in the early 1990s.

The challenge

In 2008, Diageo Russia decided that it wanted its 100 distributors to take early delivery of November/December goods (the drinks industry’s peak period) in September/October to mitigate some operational challenges. In return, it offered the distributors extended credit. “As the financial environment worsened, the company became unwilling to assume a similar exposure in 2009 and sought an alternative solution to manage the risk while achieving the same operational objectives,” explains Selim Baraz, finance director for Russia and Eastern Europe Region for Diageo.

The solution

Diageo Russia began negotiations with the Russian insurance company ROSNO (which is 97% owned by Allianz/Euler Hermes) to insure some of its exposure to the distributors in summer 2009.

“We rapidly recognised that this insurance policy afforded us a greater opportunity than simply managing the risk of our distributors,” says Baraz. “In early 2008, we had talked to Citi – our main bank in Russia and a long-time partner domestically and internationally – about receivables finance. However, given the exposure to a number of small domestic distributors the only possible solution at the time entailed full recourse, which failed to get the risk off our balance sheet, and was consequently rejected. The insurance policy made a non-recourse programme possible.”

Citi developed an innovative Credit Insurance Account Receivables programme that leveraged the cost of Diageo Russia’s insurance policy with ROSNO more effectively. “By combining ROSNO’s insurance with a factoring programme to monetise Diageo Russia’s receivables and improve cash flow, the company was able to achieve two objectives at once: managing risk and reducing working capital,” says Baraz.

The result

A deal between Citi and Diageo Russia was signed in mid-2009 and on 31st December 2009, a first tranche of receivables were financed through the Credit Insurance Account Receivables programme. The parties expect the programme to be expanded during 2010 to a wider universe of distributors.

Although documentation for the programme was time-consuming in order to meet the needs of Diageo Russia, ROSNO and Citi, implementation went smoothly. Diageo Russia has improved its working capital – and offloaded its receivables from its balance sheet – through a receivables financing programme that was feasible only because of Citi’s innovative risk sharing with ROSNO. Diageo Russia is currently considering whether the Credit Insurance Account Receivables programme can be replicated in other CIS markets.

Clearing and settlement

The Central Bank of Russia (CBR) oversees the country’s payment system.

  • 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.

  • 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 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.

Cash management

Cash concentration, zero balancing and domestic notional pooling are offered to residents by a number of banks, subject to certain legal and currency control restrictions. Cash concentration structures are only available in RUB-denominated accounts. There is currently no clear legal framework in this regard, so independent legal advice should therefore be sought.

For non-residents, foreign exchange controls on the cross-border movement of funds make cross-border cash management difficult. Cross-currency cash pooling is not permitted.

Notional pooling between different resident entities is permitted in line with Russia’s arm’s length transfer pricing and thin capitalisation rules.

Electronic banking is becoming increasingly popular in Russia, with international banks and leading domestic banks offering electronic banking services.

Short-term investments

Bank demand and time deposits are popular short-term investment instruments with 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 as veskels are popular with banks, since 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:
National Taxation Service:
Association of Regional Banks of Russia:
Federal Financial Monitoring Service:

Citi’s capabilities in Russia

Citi has been present in Russia since 1993 with the opening of its office in Moscow. Citi’s St. Petersburg branch opened in 1996. ZAO Citibank, a wholly owned subsidiary of Citigroup Russia, holds a full banking licence to conduct banking activities in local and foreign currencies with resident and non-resident entities. Citi currently employs over 3,000 people in Russia and has a distribution network comprising more than 55 retail branches and 350 ATMs.

ZAO Citibank offers a wide range of cash management advanced banking services, solutions and products whose objectives are optimisation of the customer’s working capital management and acceleration of cash conversion cycles to increase the clients’ efficiency and competitiveness in today’s challenging and changing business environment.

CitiDirect® online banking platform continues to represent the gold standard in integrating online corporate and institutional banking services and web-based treasury management solutions. Together with Speedcollect® clients are able to integrate the statements with their ERP system to automate reconciliation processes. Strategic alliances with correspondent banks and Russian Post offers Citi clients extended collection capabilities across Russia. For those clients that have significant sales volumes in cash, Citi provides cash collection services in Moscow, St. Petersburg and other regions.

Various liquidity solutions are offered to help the clients to use their excess funds more effectively, reducing banking expenses and increasing working capital efficiency. This efficiency is also supported by Citi’s TreasuryVision® cashflow forecasting and reporting capabilities.

ZAO Citibank offers a range of trade solutions designed specifically for the corporate and financial institutions in Russia, delivering an array of trade finance and specialised services from a simple LC confirmation to the most sophisticated and tailor-made financing structures, including risk distribution schemes, supplier finance and distributor finance programmes. In addition, ZAO Citibank is one of largest arrangers of financing covered by export credit agencies in the Russian market.

Citi offers the security, trust, and guidance necessary to navigate global trade finance.

Natalya Belaya
CIS Cash Management & Client Delivery Head Global Transaction Services
+7 (495) 642 7676

Julia Petrova
CIS Trade Head Global Transaction Services
+7 (495) 642 7667

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