Registering new business now simpler, quicker
New law requires companies to file only with tax authority

A new law that went into effect Jan. 1 should result in much simplified and quicker procedures for registering business organizations in Russia, reports Evgeny Y. Kuzmenko, of Russin Vecchi’s office in Yuzhno-Sakhalinsk. The time between registration and opening bank accounts will be reduced to about six business days, and new companies will have to file with only one agency — a tax authority — he notes.

Formerly, new companies also had to register with pension and social insurance funds and with the state statistics committee, he explains. Companies could not open accounts until about five additional days after filing with all those bodies, he observes.

The law came into effect rapidly — with President Putin signing it Dec. 23, its publication coming Dec. 27 and its effective date Jan. 1 — possibly because of upcoming presidential elections in March, Kuzmenko reports. As a result, “tax authorities were unprepared to apply it properly,” he explains. Confusion over which forms to use and procedures to follow should ease in coming weeks, he says.

Russia gets new tax enforcer
Consolidation axes Tax Police, empowers Internal Affairs

A presidential edict in November finalized the transfer of Russia’s tax investigation authority to the Ministry of Internal Affairs, reports Rinat Zakirov-Ziev, of Russin Vecchi’s Moscow office. The transfer is one of a number of developments that could make law enforcement information-sharing more efficient, he notes.

Ideologically, this transfer appears to be a part of consolidation of more law enforcement functions within fewer agencies,” Zakirov-Ziev explains. The process started in March 2003, with a presidential order abolishing the Federal Service of Tax Police and moving its functions to the Federal Service on Economic and Tax Crime Investigations, within Internal Affairs. Later amendments affected the powers and functions of the ministry, he adds.

Other developments include the merger of the Federal Agency on Government Communication and Information and the Federal Border Guard Service into the Federal Security Service, which is now closer in terms of functions and powers to its legendary predecessor, the KGB,” Zakirov-Ziev reports.

Option in tax cases disappears
Criminal Code change cuts ‘active repentance’ to avoid penalty

Criminal Code amendments that went into effect in mid-December eliminate the option for individuals to avoid criminal liability for tax evasion by paying all arrearages, reports Zhanna Radmaeva, of Russin Vecchi’s Vladivostok office.

"Under the previous practice of ‘active repentance,’ first-time offenders could be exempt from criminal liability if they assisted in disclosing a crime and entirely reimbursed the damage caused,” Radmaeva explains. The law now provides penalties for failure to file required tax declarations or other documents, and for knowingly providing false information in tax statements for such acts comitted in large or specially large amounts, she notes.

“ The new Criminal Code also adds penalties for tax withholding agents who do not fulfill their obligations to calculate, withhold or transfer taxes in a specially large amount,” she reports. It also penalizes organizations and sole entrepreneurs who conceal funds or property subject to large tax assessments, she adds.

Sakhalin elects Malakhov as new governor
Late leader’s former deputy likely to stay course on projects

Ivan Malakhov won a Dec. 21 runoff election to succeed the late Igor Farkhutdinov as governor of Sakhalin, reports Evgeny Y. Kuzmenko, of Russin Vecchi’s office in Yuzhno-Sakhalinsk. As Farkhutdinov’s former deputy and longtime ally, Malahkov seemed the most likely candidate to continue the fallen leader’s course, Kuzmenko comments.

“It is doubtful that Sakhalin's new governor will bring any changes to the current policy on Sakhalin oil and gas projects,” Kuzmenko observes. Farkhutdinov died in a helicopter crash Aug. 20. In the runoff between the top candidates in a Dec. 7 election, Malahknov defeated Yuzhno-Sakhalinsk Mayor (and Farkhutdinov rival) Fedor Sidorenko, winning 55% of the votes, Kuzmenko reports.

Revoked Sakhalin border zone decree still enforced
Some guards demand passes for travel in northern regions

Although a decree declaring most of the Sakhalin region a border zone was revoked officially in July by late Sakhalin Gov. Igor Farkhutdinov just one month before his death, some border guards in the island’s northern regions have continued to enforce it, reports Denis Marchenko, of Russin Vecchi’s Yuzhno-Sakhalinsk office. “As a result, all foreigners and even Russians without registration in these regions have been required to have passes in order to travel out of the city of Yuzhno-Sakhalinsk into the border zone,” he explains.
“ Although such illegal demands are becoming a thing of the past, there is a possibility that the decree itself may be reinstated by the Sakhalin Regional Court in response to an appeal of the regional prosecutor's office,” Marchenko cautions. The Regional Court is expected to consider the appeal — the contents of which are confidential — in the early part of this year, he notes.

R&V lawyers share insights on Russia’s Far East
6 present workshop at London conference on Sakhalin projects

At an international conference for Sakhalin contractors, suppliers and project operators in November, six Russin Vecchi attorneys shared practical solutions from their daily experience in meeting legal requirements for operations in Russia’s Far East. The six presented a full-day, post-conference workshop at IBC Energy’s Sakhalin Oil and Gas Conference in London.
Workshop topics included a survey of legal developments since the firm first opened a Moscow office in 1991; joint ventures with Russian partners; Russian content requirements for Sakhalin projects; political risk insurance; contract, tax and benefit requirements under Russian employment law; maritime and water use laws affecting the oil and gas industry; special rules affecting workers in far northern regions; and factors to consider in leasing real property in Russia.

Russin Vecchi presenters included Jonathan Russin, managing partner for the firm’s Russian Practice Group; Sergei Lazarev, executive partner for the firm’s Russian Practice Group; Tom Mansbach, from the Washington, D.C. office; Natalia Prisekina, director of the Vladivostok office; Denis Marchenko, a senior associate in the Yuzhno-Sakhalinsk office; and Rita Hoffmann, director of the Yuzhno-Sakhalinsk office. In-house counsels for two operators of the Sakhalin I and II projects — David Bertoch of ExxonMobil and Matthew Crawford of Sakhalin Energy Investment Company Limited (SEIC) — also significantly contributed to the Russin Vecchi-sponsored event.

© 2004 Russin & Vecchi, LLP