As we prepare to kick off this year’s World Cup in Russia, ParcelHero’s Head of Consumer Research, David Jinks MILT, reveals how to win in Russia’s huge e-commerce market; and the potential penalties of not playing by the rules.
How to win in Russia’s huge e-commerce market
With the World Cup kicking off in Russia on June 14th, how easy it is to export to Russian consumers and do business there, and what difficulties will face companies shipping to Russian businesses and world cup venues?
As final preparations for the 2018 FIFA World Cup get underway, all eyes are turned to Russia. It’s a market frequently described as not for the fainthearted – but there are some considerable opportunities for British retailers and exporters of all sizes.
Whether you are looking to expand your e-commerce activities to this huge new potential market, shipping merchandising or sports equipment as part of the World Cup bandwagon, or are just sending a few suitcases ready for a month of football watching, we have the best tips and tricks for shipping into Russia.
Brexit and beyond
As the UK prepares for Brexit, one obvious potential new market for traders to develop is Russia. It’s the wealthiest per head of the BRICS nations (Brazil, Russia, India, China, and South Africa) that are the emerging economic high flyers.
Russia was the world’s ninth largest economy in 2015, and around 600 UK companies have a physical presence in Russia. Over 5,800 UK traders export goods to Russia currently.
However, be warned, couriers shipping retail items to private homes in Russia have faced significant issues at times, as the country cracks down on cheap imports – and there’s a complete ban on private individuals shipping to domestic address inside the Russian Federation.
So how easy is it to trade with Russian shoppers and ship items to Russia?
Russia has improved to 62nd in the World Bank’s ‘Ease of Doing Business’ ranking. Though it looks like it won’t reach President Putin’s target of reaching 20th position by the start of the World Cup, it’s not doing badly after starting from the position of 122nd.
E-commerce opportunities in Russia
With recent events causing strain between the UK and Russian Governments, trading with Russia might not be a piece of cake this year – but to gain a slice of this lucrative market it is worth mastering the complexities of Russian Customs’ procedures.
Russian customs are very particular about what they allow into the country. Each package will have to clear customs, and that can involve some extensive red tape for receivers as well as buyers, with many customers being asked to produce passports, and other ID, in order to collect their purchase.
Additionally, Russia covers one seventh of the world’s land mass. Its incredible size means that it spans nine time zones. This can impact on delivery times significantly, particularly if you use Russia’s own postal system rather than an international courier.
But there is plenty of good news for UK exporters into Russia. Parcels that are worth less than €200 do not have to pay customs duties and fees when clearing customs. It’s important to note, however, that Russian individuals are restricted to €1000 of items up to 31 kg per person per month, for personal consumption. Over this allowance and they will have to pay duties, even on low value parcels. It may pay you to contact your buyer to see if they are nearing their monthly threshold before you send an item.
British goods enjoy a certain cache in Russia, particularly well-known retail companies and luxury brands. With British products eagerly sought-after by many Russian consumers there are significant retail opportunities for businesses from marketplace traders to chain stores and automotive brands.
Helpfully, Russia became a full member of the WTO in 2012. It’s now expected to follow WTO rules and become integrated into the global economic system.
And it’s a potentially huge market. 50 million people shop online in Russia: that’s 50% of the population. And 85 million use the internet.
Russians spent €24bn online on goods and services in 2016 – a figure that’s expected to rise to €28bn in 2017 – and spent an average of €741 online per household. The vast majority of domestic purchases are picked up from a store rather than delivered to the customers home.
Parcels from foreign online stores rose to around 400 million in 2017, and the even better news is that over 30% of the population shop cross border – and cross border sales are worth $4.3bn.
Great for Britain
In terms of British sales, UK exports of goods and services to Russia grew by over 75% between 2009 and 2012. Russia briefly became the largest market for UK goods exports outside of the US, the European Union (EU) and China in 2012, but trade has since been hit by sanctions on Russia.
UK goods and services exports to Russia were worth £7.6 billion in 2013. And services exports worth £2.3 billion made Russia the UK’s 22nd biggest market for services. However, the UK’s share of the Russian import market still remains below that of France, Germany and Italy.
British exporters have everything to play for. The consumer goods market in Russia is worth $597 billion. It’s an important market for fashion houses and global luxury brands with estimated sales of $57.3 billion.
In 2014-2015, Chinese players took advantage from the growth of the Russian cross border market. In 2016, deliveries from China accounted for more than 80% of total fulfilled cross-border orders, and AliExpress is often the number one selling e-commerce platform in Russia.
However, e-commerce, like football, is a game of two halves. After almost three years of fall or stagnation, Western retailers’ sales to Russian online consumers are now fighting back – in certain cases dramatically. ASOS saw its sales to Russia grow by more than 200% in the period between September 2016 and February 2017 compared to the same period one year before.
Next has been present in the Russian market since 2011. From 2011 to 2015 Next delivered to customers directly from the UK. During this time Russia grew to be one of the largest markets amongst all the international countries for Next Directory. In 2015 Next launched its in-country warehouse to improve the service to Russian online customers
Russian top tips
If you receive an order from Russia and your delivery is likely to be in part fulfilled by Russian postal service, ask your customer to provide you with their name and address in Cyrillic. While postal staff at the major international hubs are well educated and familiar with the western alphabet, local delivery staff in the Russian provinces may not be so Anglo-literate.
Cash on delivery is still surprisingly popular in Russia, but today around 75% of all online payments in Russia are conducted by cards or eWallets. Contrary to other card-dominated markets, Russians prefer to pay online by debit cards (40%), which is almost seven times more than credit cards (6%). Visa has the largest market share with 61%, followed by MasterCard (36%) and other, local card schemes (3%).
Russians also like to pay online by using a digital wallet. Nearly 30% of all e-payments are paid for using an eWallet like Yandex, Money, Webmoney, QIWI, PayPal and RBK Money (in that order of importance). As PayPal only has a small market share in Russia, international merchants should really look into payment providers that allow them to offer the local strong eWallet payment.
Changes to e-commerce this year
Russia is currently planning to make B2C e-commerce couriers responsible for declaring and deducting VAT and customs on imported goods. The measure was announced by the Ministry of Finance in a draft regulation on 13 February 2018.
Currently, the importer is accountable for reporting and paying any Russian import taxes. Under the proposal, the Russian post office and large private courier companies would become responsible for declaring the VAT and customs value of goods they import on behalf of non-resident merchants. They will pay the amount directly to the tax authorities on behalf of their e-commerce seller customers.
Such delivery agents will have to register as ‘authorised operators’, must be established for over two years, and operate an advanced IT system configured to the Russian customs systems. They will have to provide a guarantee to the tax office of €1.5 million to enter the scheme. A pilot scheme will run from May to December 2018.
And, as mentioned earlier, the country’s Ministry of Finance has imposed new duty charges on many cross-border e-commerce purchases. Private individuals were historically allowed to import goods for private use without paying tax or duty, as long as the value did not exceed €200 including freight costs. The new duty-declaration and customs-clearance system sees import taxes levied on any individual in receipt of goods worth more than €1,000 (US$1,233) or weighing more than 31kg in any one monthly period. Under current proposals, the threshold will drop to €500 from 1 January 2019, before settling at €200 from 1 January 2020.
Check with your customer to ensure they are not near their monthly limit before shipping goods.
Significant delays can take place on imports to private addresses. Where imposed, the red tape can be arduous. Strictly speaking the private importer must provide:
- The full name of the consignee (First, Middle and Surname)
- Their passport number and its date of issue
- Tax ID (INN)
- Consignees residential (registered) address.
- A purchase order confirmation (copy)
- A power of attorney (brokerage agreement with UPS Russian Federation) signed by the importer.
- A copy of proof of payment (bank statement regarding payment for the shipment)
- Importer’s guarantee letter in the original that the monthly threshold is not exceeded.
- Duty and taxes payment (if applicable)
International couriers are not able pay Duty/Tax on a private customers behalf. It is mandatory that the customer pays duties and taxes to customs personally.
All this means while most western couriers are happy to ship to business addresses (though not to private buyers at a business address) they may not ship to private households. Check with your chosen courier.
2018 World Cup
British and other international companies were invited to bid on $20 billion of contracts as Russia geared up for the Cup. These included opportunities in design and construction, project management, transport planning, security equipment, venue fit out and stadiums operations management, fan fests and hospitality.
Contact [email protected] for more information on remaining opportunities for the 2018 World Cup.
What can football fans send?
British visitors to the World Cup must sign up for a FAN ID. FAN ID is an innovation of Russia as host country of the World Cup. It is a personalised identification card, which should be received by every person who bought a ticket for the 2018 World Cup matches. FAN ID gives the right to free travel on special trains to the host cities of the tournament, as well as on public transport (buses, trolleybuses, trams) and airport express on the days of matches. For foreign citizens FAN ID gives the right to visa-free entry to the territory of Russia during the tournament.
Items you can’t take into stadiums:
- sporting gear or equipment, including bicycles, skateboards and scooters; unless used for the transportation of people with impaired mobility
- flags or banners larger than 2m x 1m50;
- food or beverages of any kind, including alcoholic beverages;
- thermos bottles or any kinds of flasks;
- Baby strollers are permitted inside a stadium but must be stored in a dedicated left luggage area.
- work tools of any kind;
- All animals are prohibited at stadium grounds, except for registered guide dogs.
- promotional materials of any kind;
- unwieldy objects or bags, if they exceed 158cm
- umbrellas longer than 25cm when folded.
Other items most fans are less likely to try and take in include:
- weapons of any kind, whether intended for self-defence or otherwise,
- devices used for the scattering materials (such as pneumatic crackers);
- materials of extremist, offensive or discriminatory nature;
- anything that could be used to cut or stab;
- aerosol spray canisters;
- any items resembling any prohibited objects in appearance, or any replicas or equivalents thereof;
- umbrellas longer than 25cm when folded.
- any dyes;
- any substances in powder form;
- any liquids in containers larger than 100ml
Delivering into cup venues
Organisation of the World Cup has been put in the hands of local logistics organising committees (LOCs). LOC Logistics provides freight forwarding and logistics services for all companies working directly with FIFA. Any other businesses and stakeholders must make their own logistics arrangements, at their own cost, if logistics support is required. Non-FIFA related organisations may choose a logistics operator of their own, or work with the official service provider: Kuehne+Nagel.
Deliveries are scheduled by the Master Delivery Schedule (MDS) – an IT management solution, which is used to control the entire inbound and outbound Stadium traffic.
Delivery vehicles must meet strict criteria. Trucks must have their cargo bay separated from the driver’s cab with a physical partition. Passenger vehicles carrying light cargo can access stadiums only if they have a valid Vehicle Access Parking Permit (VAPP.) The Driver and any accompanying passengers must be accredited.
As courier agents will not have access to Stadiums during Security Regime periods (e.g. match days), LOC Logistics will regularly deliver parcels and correspondence to the final consignees at Stadiums. Courier deliveries must meet the following criteria:
- Cargo dimensions of not more than 60 cm X 70 cm x 150 cm;
- Cargo weight of not more than 31 kg;
- No prohibited items;
- No private or confidential deliveries.
Courier deliveries outside the Security Regime period when a match is scheduled can be organised directly to Stadiums
Kuehne+Nagel will use a Central Warehouse in Moscow, as well as in other host Cities. K+N also organises the provision of material handling equipment, such as forklifts, scissor lifts, pallet jacks and trolleys; as well as central supply kits and packing materials, onsite.
A walk in Gorky Park? Doing business in Russia
If you are thinking of builder closer ties with Russia than simply shipping items into the Russian Federation, there are many potential benefits to such a move – but be prepared to face a substantial amount of red tape.
One way to reduce bureaucracy is to sell directly into Russia or appoint a local distributor. UK companies choosing direct sales or using a Russian distributor are:
- not subject to Russian taxes
- don’t need to establish a presence in Russia via any corporate structure
- not responsible for Russian customs processes, taxes and fees
Setting up a Russian office
To avoid the increasingly strict regulations on e-commerce sales into the Russian Federation from overseas, several British companies have appointed distributors or even, like Next, opened their own Russian operation. Representative offices are accredited for 1 to 3 years. They can only carry out activities aimed at generating profit, such as market research. They can use rouble and foreign currency bank accounts and transfer funds without restrictions.
UK companies can choose to establish a presence in Russia through a Russian subsidiary. The most common business structures in Russia are:
limited liability company (OOO in Russian)
closed joint stock company (ZAO in Russian)
open joint stock company (OAO in Russian)
Many UK and international businesses are wary of doing business in Russia, particularly in sectors where they fear the Russian state might intervene and seize assets. However, Russian legislation gives foreign investors a number of advantages to provide stability and legal protection for their businesses in Russia. The main advantages include:
- recovery of damages resulting from illegal actions, or the activity of government authorities, local government bodies or officials
- protection of property from seizure, including nationalisation or requisition
- protection from negative changes in tax and customs legislation during the payback period of an investment project
- the right to an unimpeded transfer of profits, income and other monetary sums from investments
The UK and Russia have signed a double taxation convention.
Value Added Tax (VAT) is applied at a standard rate of 18%. A preferential VAT rate of 10% is applied to:
- medical goods
- books and magazines
- food products
- children’s clothes
There is an import VAT exemption for ‘technological equipment that has no equivalent produced in Russia’ according to a government approved list. The listed equipment generally also qualifies for a 0% rate of customs import duty.
Profits are taxed at a maximum of 20% on net income. Personal income tax is paid at a flat rate of 13%. You are considered a Russian tax resident if you live in Russia for over half a year in 12 consecutive months. Non-residents are also subject to personal income taxation on Russia generated income.
And last of our top tax tips for Russian trade is that Import customs duties are collected based on the classification code and the country of origin of the goods being imported. In the majority of cases, they are 5%, 10% and 15%.
As we said at the beginning, doing business with Russia is not for the fainthearted – but the opportunities its rising e-commerce market and this summer’s World Cup brings are too good to miss, if you don’t mind the extra paperwork.
And our final advice? One uniquely Russian rule to be wary of if you are thinking of bringing something tasty back with you after the World Cup: you can’t take more than 250g of sturgeon caviar out of Russia back to Britain!