“The biggest challenge for companies in Russia today is the serious administrative burden,” says Andrei Gusev, Managing Partner at Borenius Russia. “There are a huge number of outdated conglomerate regulations in various sectors, applied since the Soviet times, that leads to contradictions among requirements and regulations.”
According to Gusev, authorities strictly monitor compliance with corporate regulations and conduct numerous checks, which, as a consequence, creates tension in companies, forcing them to commit considerable time and energy into ensuring compliance. “This distracts from the development of business,” he says.
Yet some efforts have been made to lessen that burden on companies, according to Gusev, including, most notably, amendments made in 2016 to the law of December 26, 2008 No. 294-FZ “On the Protection of the Rights of Legal Entities and Individual Entrepreneurs During State Control (Supervision) and Municipal Control,” which, among other things, imposes a moratorium on inspections of small and medium-sized businesses. “This has had a positive effect on small and medium enterprises,” he says, adding that, although the moratorium is set to expire in December 2018, expectations are that it will be extended.
At the end of 2017, Gusev says, Russia’s tax law underwent major changes as well, clarifying how the tax base is calculated. Earlier, the concept of tax evasion resulting from the use of artificial structures was based only on judicial practice, whereas today there is a norm of direct action, which, he says, means that “liability is imposed on taxpayers who use formal ways to escape payments of taxes.” According to Gusev, the new approach is seen as a game changer because it crossed over the massive court practice built over years.
Going forward, Gusev reports that Russia’s plan to impose counter-sanctions on the West is an important issue in the country and will bring some legal challenges and, hence, lawyers’ work. According to him, the first reading of a draft law on counter-sanctions is scheduled for May 15, 2018. The draft law allows the Government to impose new measures against the US and its allies. “I think it’s quite a firm draft bill, with a mechanism that mandates the government to establish concrete measures.”
Russia’s Federal Law No. 214-FZ on the Participation in Shared Construction of Apartment Houses and Other Immovable Property Units comes into force in July 2018. “On the one hand,” Gusev says, “shared construction has had a positive social effect by providing an opportunity for young families to buy apartments.” On the other hand, he explains, a lot of people were lured to invest in infrastructure and cooperated directly with construction companies, without having insurance that the property would be transferred to them. Thus “shared construction led to a high level of bankruptcy and hoodwinked investors in the country.” The new law is promising, he reports, as shared construction will be substituted by project financing, providing more control over the process. However, he says, “The change restricts market growth and raises the costs of living.”
Finally, Gusev mentions the ongoing discussion on reforms in the legal profession. “Some proposed changes were quite controversial,” he says, “from the introduction of advocates’ monopoly to the ban for international law firms to operate in the Russian market.” None of those proposals have been adopted so far, but according to him, “if those changes happen in the form they are currently proposed in, it will change the entire market, and the quality of legal services in the market may drop.”
