Some aspects of the delivery contract
The contracts need to contain several mandatory “key points” to cover both the needs of the customer in Russia and the foreign exporter.
Payment regulations and delivery terms
Will there be a prepayment? A postponed payment – for how long and under what conditions? Starting from what date will the period estimated– the date in consignment note (CMR)? Date of the customs clearance? When will the delivery be considered as fulfilled? From the date of handover of goods to importers or to the forwarder? Who pays customs duties? To whose costs goes the commission of the bank while transferring the payment? When does the supply contract expire?
All the nuances are very important not only from the point of view of the commercial agreement of the contract parties, but also from the very formal point of view of the so called currency control regulation in Russia.
All international payments are subject to the “currency control”. Banks are obliged to monitor the execution of the agreed terms and conditions of payment, completeness of documents and compliance of actual amount received and paid with the documentation provided. The data’s of the customs clearing including the customs declaration will be handed over from the customs to the banks directly.
Any violations are combined with the risk of high penalties for the Russian customer as well as with the high documentation level needed.
Subject of contract
It is advisable to clearly define in the contract what is intended to be supplied: only goods? Services? Assembly and warranty services? Trademark licenses? Something else?
Example: foreign producer A agrees with the client B, that for the project in Russia:
a) A sells its machinery to B, while B is acting as an importer to Russia;
b) B has a right to use trademark of A in Russia;
c) A is providing assembly support after the delivery and will be sending own specialists to Russia for the purposes;
d) A will be providing warranty services for the equipment. As the machinery will be delivered with the preinstalled software, the services will be partly provided remotely via Internet.
All this is perfectly settled between the Parties and completely clear for the involved companies. Though:
“mixed” contracts that include several types of goods and/or service are difficult to handle for the authorities. One needs to be sure, that all the “blocks” contained in such a contract are very clearly defined and provided with their own calculation and pricing.
Why? A few examples:
- Customs clearing issue: the base of the customs value of goods shall be as unambiguous as possible. Please also note, that the royalties and the use of trademark licenses need to be included in the customs value (or be specified as already included in the prices to avoid misunderstandings). The issue is being especially controlled by customs since 2020.
- Potential taxation issues: VAT needed to be paid while custom clearing. Though some of the following steps listed above would underlie Russian VAT too.
- Providing of services via Internet (see assumption d) above) will be for example considered as so-called “e-services” and needs to be subject of VAT in Russia paid from the foreign supplier directly (upon receiving a Russian TIN and providing quarterly tax returns). If “mixed” contract and “mixed” price calculation, several taxation processes may be difficult to explain transparently. The logic though needs to be fully transparent for the local tax authorities.
- Documentation efforts. Current pandemic travel restrictions may require - upon certain circumstances – that the according contract will be provided to the authorities (f.e. responsible Ministry or migration authority) while applying for visa permit for the installers/ specialists involved in the assembly.
Due to all mentioned above in most cases it is better to proceed with several separated contracts then to “mix” all issues in one document. Each step provided with own transparent calculation and pricing will not only be easier to handle for the local accounting department of the Russian customer but will also be more transparent for the authorities.
If though for some reasons it is preferable to include several “blocks” into one document, the clearly description – and as well transparent price calculation – is clearly to be estimated.
Assembling of supplied machinery and engagement of employees in Russia after delivery for the machinery installation requires compliance with specific visa regulations and very detailed process planning.
Current regulation requires a “special work visa” with the purpose of “assembly work” for service technicians entering the Russian Federation. This visa allows a single entry for up to 90 days. For the application, a contract for the maintenance or assembly of the imported equipment must be presented.
If the assembling takes more than 30 calendar days, the assembly operation must be registered as a construction site at the place of business in Russia, and is then subject to profit tax, so the whole assembly processing needs to be thought over and specified in the documents very carefully.
Exporting to Russia is a complex processing requiring special attention from the manufacturer / foreign seller at the certain key points. Thus under clear planning and according proceeding most “bottle necks” may be avoided already during the pre-steps of sales.