Some aspects of the delivery contract
The contracts should contain several mandatory “key points” to cover the needs of both - the customer in Russia and the foreign exporter.
Payment regulations and delivery terms
Will there be a prepayment? A postponed payment? If yes, for how long and under which conditions? Starting from which date will the period be calculated – the date of the consignment note (CMR)? The date of the customs clearance? When will the delivery be considered as fulfilled? From the date of the handover of goods to importers, or to the forwarder? Who pays customs duties? Who pays bank commission on the payment? When does the supply contract expire?
All these details are very important not only for 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”. Russian banks are obliged to monitor the execution of the agreed terms and conditions of the payment, the completeness of documents, and compliance of the actual payment amount received and paid with the documents provided. The bank receives the customs clearing documents, including the customs declaration, directly from the customs. Any inconsistencies impose a risk of high penalties for the Russian customer, as well as the high level of additional documentation.
Subject of contract
We advise 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 their own specialists to Russia for these purposes;
d) A is providing warranty services for the equipment. As the machinery will be delivered with preinstalled software, the services will be partly provided remotely via the Internet.
In this example, all this is perfectly settled between the contract parties and completely clear for the involved companies. But please note that contracts which include several types of goods and/or services are difficult to handle for the authorities. Please make sure that all the “blocks” of such contracts are very clearly defined and provided with their own calculation and pricing.
Why? A few examples of issues that may rise:
- Customs clearing: the base of the customs value of goods should be as unambiguous as possible. Please also note that the royalties and the use of trademark licenses should be included in the customs value, or specified as already included in the price, to avoid misunderstandings. This issue is being particularly controlled by customs since 2020.
- Taxation: generally, VAT must be paid at the time of customs clearing. However, providing services via the Internet (see point d) in the example above) is considered the so-called “e-services” and, therefore, subject to VAT in Russia which must be paid by the foreign supplier directly upon receiving a Russian Tax Identification Number and providing quarterly tax returns.
In “mixed” contract and “mixed” price calculation, several taxation processes may be difficult to explain transparently. Please make sure the logic is fully transparent for the local tax authorities.
- Documentation: Current pandemic travel restrictions may require - upon certain circumstances – that the contract should be provided to the authorities (e.g. Ministry or Migration responsible authority) while applying for visa permit for the specialists involved in the installation /assembly.
Due to all mentioned above, in most cases it is better to proceed with several separate contracts rather than to include all “blocks” 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.
However, if for some reasons it is preferable to include several “blocks” into one document, a clear description, as well as a transparent price calculation will be appreciated
Assembly
If a foreign company provides assembly support for the machinery installation and/or equipment maintenance and needs to send technicians to Russia, this requires compliance with specific entry visa regulations and should be planned thoroughly.
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. To support the visa 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 process needs to be thought over and specified in the documents very carefully.
Exporting to Russia is a complex process requiring special attention to certain key points from the manufacturer / foreign seller. Clear planning and proper follow up help to avoid most “bottle necks” already at the pre-sales steps.
