Economic survey of the current situation on the Russian market. Why it is the best time to enter one of the most attractive markets and start develop your business with Russian partners.
The Russian market, with population just under 147 million (as of 2018) and low competition in textiles manufacture and trade compared to European, American and Asian markets, is indeed quite attractive for exporting textile goods.
In the recent year, the Russian economy has stabilized, the currency exchange rate is not experiencing serious fluctuations and oil prices have evened out. In 2018 the GDP showed a record growth index since 2012. According to The Federal State Statistics Service of the Russian Federation, “in 2018 the country showed 2.3% growth in GDP, which exceeded the forecast of The Ministry of Economic Development and Trade of the Russian Federation and Central Bank. This index became the record one since 2012, when the economy had grown by 3.7%”. Minister of Economic Development and Trade of the Russian Federation Maxim Oreshkin said: “Dynamics of financial markets are stable now, Russia has passed the peak of inflation acceleration”.
Achievements of the Russian economy have been marked by the foreign analytics, too. “The growth rate of the Russian economy increased in 2018, while inflation remained low”, - the World Bank said in its January report. The International Monetary Fund raised its forecast for Russia’s GDP in 2019 by 0.3%, to 1.8%. In Bloomberg ranking of developing countries Russia raised from the 7th to the 2nd place, leaving China behind. Speaking about domestic retail markets, “there has been
improvement in retail trade (up 2.6% in the first half of 2018) as consumer confidence benefited from wage increases (8.8% in the first half of 2018) in the context of the lower inﬂation rate” (European Business in Russia: Position Paper 2019, Association of European Businesses).
Vladimir Putin, President of the Russian Federation, set new goals after inauguration in May 2018: the May decree and 12 approved national projects, that are to increase the level of life and transform economy dramatically.
Of course, achieving such ambitious goals is impossible without extensive financing. In the beginning the authorities made an unpopular step – increase of VAT from 18% to 20%. It will bring more than 600 mln Roubles into the budget annually. This victim is sensitive, yet necessary for the country development.
"In 2018 the country showed 2.3% growth in GDP, which exceeded the forecast of The Ministry of Economic Development and Trade of the Russian Federation and Central Bank. This index became the record one since 2012, when the economy had grown by 3.7%”
“The growth rate of the Russian economy increased in 2018, while inflation remained low”
"Dynamics of financial markets are stable now, Russia has passed the peak of inflation acceleration"
"There has been improvement in retail trade (up 2.6% in the first half of 2018) as consumer confidence benefited from wage increases (8.8% in the first half of 2018) in the context of the lower inﬂation rate"
Russian textile market
Main textile regions are situated in the Central, Northwestern and Southern Federal Districts. They include such cities as Ivanovo, Saint Petersburg, Tula, Tver, Vladimir, Perm and Vologda. Today around 300 000 people are engaged in the industry with around 14 000 manufacturers of textiles and apparel.
For the past 30 years the situation in the Russian textile market has changed a lot. Today an important distinctive feature of the industry is the progressive unevenness in the distribution of income from the sales of finished products. If a century ago Russian producers of raw materials received up to 50% of revenue, and manufacturers of semi-finished products and accessories took up another 25%, today over 60% of profits are generated by the production of finished goods and the share of raw materials is less than 10%. It is connected with out of date equipment on the factories, slow development of domestic manufacturing of raw materials and accessories.
As a result, more Russian manufacturers of home textile products opt for combined production. They purchase fabrics and accessories abroad and sew in Russia. Since today Russian consumers value not only prices, but also design and quality, factors like modern materials and new processing technologies become important.
It gives a perfect opportunity for foreign companies to enter the Russian market both with finished products, as products of domestic manufacturers don’t fully cover the market needs, and supply of fabrics and accessories for further manufacture of finished products by Russian companies.
It is confirmed by the announcements, made in November 2018 within the framework of All-Russia Light Industry Forum in Ivanovo. Deputy chairperson of the Government of Ivanovo region (textile center of Russia) Ludmila Dmitrieva announced at the forum, that the region has recently focused on strengthening external economic relations with other countries. Considering this fact, such Italian and Turkish companies as Stellini Textile Group, Mirtex, Dilan Tekstile willingly invest in the textile industry of the region.
Besides the above-mentioned signs, one should mention other factors that definitely influence growth of demand for textile products:
- Construction boom: in 2018 the Russians took out a record number of mortgage loans. According to the estimation of Dom.rf Group experts, 1.17 mln loans at the cost of 2.37 trln Roubles have been given out during 10 months in 2018. Moreover, The Federal State Statistics Service of the Russian Federation marks that 4.7% growth of GDP was fixed in the sphere of construction in 2018. Such increase in housing demand and construction causes growth of demand for home and interior textile for interior decoration.
- Another factor, stimulating sales increase of textiles in Russia is active development of domestic tourism. According to the data of Rosturism, total inflow of tourists to Russia in 2017 exceeded 81 mln people. The year of 2018 has beaten the record of 2017 due to FIFA 2018 World Cup; the number of tourists enlarged by 50% compared to 2017. Inflow of tourists stimulates construction of new hotels and mini-hotels, which increases demand for contract textiles. “In the course of recent years, hospitality in Moscow has diversified with the help of arriving international hotel operators, and with expansion in luxury and select service hotel brands”. (According to European Business in Russia: Position Paper 2019, Association of European Businesses). And again, The Federal State Statistics Service of the Russian Federation marks that the largest growth of GDP in 2018 was fixed in the sphere of hotel and restaurant business – it came to 6.1%.
- One should also consider active development of Internet trade as one of the sources for demand in textile finished products. According to Data Insight, annual growth volume of the Russian Internet trade market is increasing: 5 years ago the increase was 5 bln Roubles per year, in 2018 it grew by 185 bln Roubles. Keeping the current trends, the market will have grown twice as much by 2023.
"In 2018 GDP in the sphere of construction grew by 4.7%. Even higher growth rates were fixed in the field of hotel and restaurant business (6.1%)"
"In 2018 the Russians took out a record number of mortgage loans: 1.17 mln loans at the cost of 2.37 trln Roubles have been given out during 10 months in 2018"
“In the course of recent years, hospitality in Moscow has diversified with the help of arriving international hotel operators, and with expansion in luxury and select service hotel brands”
"Annual growth volume of the Russian Internet trade market is increasing: 5 years ago the increase was 5 bln Roubles per year, in 2018 it grew by 185 bln Roubles. Keeping the current trends, the market will have grown twice as much by 2023"
Discover the Russian market with Heimtextil Russia!
Discover the Russian market with Heimtextil Russia!
One of the most effective ways to expand the company’s presence in a target country is to take part in the local professional trade fair with a stable reputation.
Heimtextil Russia is the only specialized trade fair for home and contract textiles in Russia. Being the main business platform of the Russian textile industry for 20 stable years, the fair annually gathers on its grounds industry professionals from all over the world: manufacturers, importers, distributors, wholesalers, retailers and representatives of contract business, as well as designers and decorators. In 2018 Heimtextil Russia hosted 229 companies from 19 countries and over 17 000 professional visitors from all regions of Russian and the CIS countries.
In 2019 Heimtextil Russia will take place on 17-19 September in IEC Crocus Expo, Moscow.
*Main legal issues tied to doing business in Russia
Many companies when entering the Russian market ask themselves the question regarding the appropriate form of incorporation. Most companies start by working with distributors in order to ensure a more comfortable and safe market entry. At the next stage, they usually open a branch or a representative office through which they arrange sales and import of goods, acting independently and with their own name.
The most common form is the Russian limited liability company, which can be founded independently or with a Russian partner. We recommend creating a joint venture with a Russian partner only if there is an objective need to do business together, if you know your partner well and can interact with them effectively.
Textile goods are classified into several categories (goods groups). Depending on the category, different customs duty rates apply to goods being imported, ranging from 5% to 15%.
Russia is a party to double tax treaties with approximately 60 countries. This is an important aspect to consider when doing tax planning and choosing the jurisdiction for the parent company.
Russia is a member of the Eurasian Economic Community (EurAsEC), which brings together mainly former CIS states, with the number of member states constantly increasing. Within the EurAsEC the Customs Union is in effect with the aim of creating a single customs territory using a unified customs tariff, as well as other unified measures for doing trade with third countries. This allows not only to export goods to Russia, but also through Russia to Customs Union countries and vice versa. Therefore, the scheme for importing goods can vary greatly.
|Main taxes in Russia: corporate taxes
|Corporate profit tax||20%|
|Annual property tax
||up to 2.2%|
|VAT||20% (10% or 0% in certain cases)
|Tax Free System
||pilot version started on April 10, 2018
The particularly beneficial aspect of Russia is a very low rate of 13% for personal income tax, with foreigners being taxed at 30% until they have lived in the country for over 183 days, at which point the rate changes to 13%.
A foreigner who spends at least 183 calendar days within 12 consecutive months in Russia is a Russian tax resident.
In Russia, as opposed to other countries, a simplified employment system is in effect for foreigners. If a foreigner is a highly qualified worker and their monthly salary exceeds RUB 167,000 (roughly EUR 2,400), they can obtain a work permit within mere 14 days.