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An overview of Russia's legal framework

 

Legal Framework

The legal framework of the Russian Federation is highly complex and -at first glance - will undoubtedly appear intimidating to those unfamiliar with its many nuances. Like many developing nations around the world, Russia’s legislative infrastructure is constantly evolving and undulating, and regional differences are rife. This makes understanding the basic legal structure and applicable legislation of the country a step that should not be overlooked when preparing to trade within Russian borders, or –indeed –even after a presence has been established therein. Importantly, the necessity of this comprehension becomes all the more pronounced when a retailer’s sights are set upon setting up a legal entity within Russia, as the legal obligations imposed alter drastically as a result. Overall, as with many other areas covered in this Passport, the varying legal facets of this market are likely to differ significantly from home markets.

The current legislation of the Russian Federation is relatively new and applies according to an intricate hierarchy. A summary of this hierarchy is set out below.

It’s important to note that legislation in Russia is frequently changing, and that this is a common occurrence with lesser orders and directions. These often contradict higher-level laws, at which point the higher-level laws prevail. Often, lower-level acts are enacted as tools to clarify and amend other effective laws.

Court system

Formally, from a legal point of view, Russia is not a country with judiciary law – a court is under no obligation to repeat or abide by the finding or interpretation of another court, and practice can, in theory, vary dramatically by region or by presiding judge. However, in actuality, lower courts almost always follow the decisions of higher standing ones. A brief explanation of the Russian court system is set out in the table below.

The Russian legislature

Federal law in the Russian Federation is drafted and enacted by a bicameral Federal Assembly. This Federal Assembly is made up of the Federation Council (upper house) and the State Duma (lower house). As mentioned previously, however, simply examining federal law prior to expanding into Russian borders may not be adequate for a retailer’s purposes; ignoring applicable regional laws and developments could be a mistake. Within Russia, there is significant competition amongst the different regions to attract investment, whether it be Russian or foreign-sourced. As a result of this, the respective regions have passed a significant number of laws, regulations and other legal measures intended to promote and regulate investment, with the ultimate aim of improving local social and economic conditions. Prospective retailers into Russia should take time to examine which of these regional laws may apply to them, and seeking appropriate professional legal advice is recommended. As noted above, laws in the Russian Federation are constantly being enacted and amended; the State Duma drafted 1,684 bills in 2014 alone, with the Russian president accepting and signing 464 of them into law.

Foreign v domestic legal entities

A vital point should be made at the outset of this section, before the intricacies of applicable Russian legislation are explored. That is, that - practically speaking and with few exceptions - Russian legal norms and domestic laws are not actually enforceable against foreign legal entities targeting Russian consumers. Though the Russian Civil Code dictates that a physical person in Russia is entitled to defend the rights he is granted in accordance with the legislation of the Russian Federation, from a practical point of view, this course of action is infrequently attempted, and an e-Retailer will simply be bound by the rules of the jurisdiction in which he has established a legal entity and by the rules of international law; a local Russian court will largely be unable to enforce its decision against a foreign-established international retailer with any degree of success.

Where an international retailer establishes a legal entity within Russia, however, the applicable rules and associated obligations and benefits can change, and a Russian consumer’s protections, in some circumstances, become more easily enforceable. For more information on Russian legal entities, please see Corporate Forms and Incorporation.

There are, of course, courses of action for foreign international retailers that enable them to establish a physical presence in Russia without actually setting up a Russian legal entity, however, these establishments are somewhat limited in their operations under Russian law. Some detail relating to two of the most popular options when it comes to e-Retail - representative offices and affiliate/branch offices – is set out below.

Representative office: A representative office cannot conduct any transactional or commercial activity in its own right; it is simply established to represent and promote the interests of the foreign international company selling to Russian consumers, typically undertaking marketing and other information-gathering operations. Legally speaking, a representative office is not subject to as much regulation as an affiliate/subsidiary branch, and they are generally easier to establish. Importantly, most legal norms and domestic laws of the Russian Federation are not enforceable against a representative office.

Affiliate/branch office: An affiliate/branch office may undertake all the activity available to a representative office (see directly above), but additionally can engage in many commercial activities, performing many of the functions of its establishing foreign company on its behalf. An affiliate/branch may, however, find that it is subject to an increased level of Russian regulation as certain responsibilities within the legislated remit may be delegated to the branch by the organisation’s international head office. Applicable rules depend upon the activities conducted by the local office, as it will be the legal norms and rules relevant to these areas that are enforceable.

Importantly, neither a representative office nor an affiliate/branch office is regarded as a separate legal entity from its establishing foreign company; it is seen as an agent under Russian law. Whilst both representative offices and branches can import goods into Russia, these goods can be used only for internal purposes – neither of these bodies can sell products on their establishing companies’ behalf in the Russian Federation. Should an e-Retailer wish for his Russian contingent to sell goods with Russian borders, he will need to set up a Russian legal entity, though this is only the case when it comes to physically selling goods to the end customer –a retailer can distance sell into the territory from anywhere in the world without establishing a legal entity of any form in Russia.

International retailers establishing legal entities within Russia for the purpose of conducting commercial activities, i.e. selling to Russian consumers, will have to comply with stringent Russian legislation relating to these goods, including those laws relating to the category and quantity of goods that can be imported into Russian borders by a physical entity without incurring duties and taxes.

Key legislation 

The Civil Code

In the Russian Federation, the Civil Code is the primary source of civil law. Importantly for a prospective e-Trader into Russia, this law governs – amongst other things - civil relations between Russian citizens, the purchase and selling process, intellectual property rights and the rules relating to identifying which jurisdiction’s legislation is applicable in a particular international transaction.

The table opposite contains some key legislation to consider before you begin trading in the Russian Federation. Please note that the table is not an exhaustive list, and that it is limited to the legislation that applies in Russia at the date of this Passport’s publication unless otherwise stated.

* Many of the laws governing data protection detailed in this table are not currently in full force – at the date of this Passport’s publication, a seller can simply detail on their online shop that they are protecting a consumer’s personal data.

In contrast to Russian consumers, domestic Russian legal entities encounter very onerous procedures and processes when it comes to purchasing products from foreign online shops, as legislation regulating the international economic activities of Russian legal entities imposes very strict documentary rules for such purchases, both for the transaction itself and for the associated customs clearance procedures. Because of these rules, where avoidable few internationally-based companies sell to Russian legal entities; it is much easier for a Russian legal entity to make online purchases from other Russianbased internet shops, or otherwise make international purchases as individuals where processes are simpler.

Where a foreign online retailer does choose to sell to a Russian legal entity, this legal entity can only refuse a product and demand a refund where there is a significant problem with the quality of the product purchased; i.e. where it is not fit for purpose and/or the cost of repairing the product is higher than its original price. Individuals are thus afforded much greater protection than legal entities when it comes to product quality.

Whether a Russian individual or organisation is buying from a foreign internet shop or a Russian one depends upon the status of the owner of the venture – i.e. whether it is a Russian or international legal entity. In accordance with Russian legislation, it is the responsibility of the seller to inform a buyer of the pertinent details of a transaction, i.e. who is offering the goods for sale and the conditions of sale, and penalties are imposed for the breach of this duty.

Where an international e-Retailer wishes to operate via its own warehouse within Russian borders, it first must establish a Russian legal entity, though it is possible to contract separately with a third-party Russian commercial warehouse. In such cases, goods must move from an international legal entity to a Russian counterpart; foreign legal entities are unable to declare goods in Russia for the purpose of customs clearance procedures. A Russian legal entity, whatever the form, will then be able to sell goods to consumers. As stated previously, a foreign legal entity’s affiliate/branch office can clear goods from abroad, but only if they are for the office’s internal use.

 

 

 

 

 

Demographics

Political, social and economic environment

Online and mobile usage

Online shopping behaviour

Marketing

Payment methods

Taxation

Logistics and communications

Customs clearence procedures

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