OPENING AN OFFICE IN YUZHNO-SAKHALINSK, RUSSIAN FAR EAST
JANUARY 2000
AUTHOR: ELENA SABIROVA, BISNIS REPRESENTATIVE ON SAKHALIN.
INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND THE U.S. DEPARTMENT OF STATE, 2000. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.
SUMMARY. The large scale development of the offshore oil and gas fields in the Sakhalin region is the impetus behind the numerous foreign contractors and subcontractors establishing companies in the region. Branches, subsidiaries, representative offices, and joint-ventures are being formed to provide services to the oil and gas industry, to the local growing expatriate community and the general population. This report gives an overview of basic information that companies can use when opening an office in Yuzhno-Sakhalinsk, including information on office space and equipment availability, local business infrastructure, the local labor market, banks, and details on the procedure and documents necessary to legally register a corporation on Sakhalin. End Summary.
LOCAL LABOR MARKET
As is true across Russia, Sakhalin has a skilled and educated workforce, with many individuals possessing English language skills. Salary rates are some of the highest in the RFE (see details below). Though there are many people with English capabilities, it may be difficult to find employees fluent in English who also have a professional expertise in accounting, law, engineering etc. Engineering expertise is particularly difficult to find due to the lack of an engineering school in the region. Foreign companies operating on Sakhalin have already hired most of the people who have both the technical and English language skills.
General requirements for office managers and secretaries (receptionists) include higher education, good knowledge of English, computer skills, and experience. Translators and interpreters are also widely available, though you may have to search a bit more for technical or specialized types of interpretation that are in high demand.
The typical monthly salary ranges for Russian nationals working for a foreign company on Sakhalin are as follows:
Director, financial director or commercial director $1000 - $3500
Marketing specialists $800 -$1500 Accountants $700 - $1200
Auditors and staff lawyers $600 - $1500 Engineers of different levels $400 - $1000 Secretaries and office managers $400 – $1000.
Translators and interpreters are hired for $800 - $1500 per month, with per hour interpretation costing from $5 to $20, depending on the type of translation.
Payroll taxes, including payments to various funds and additional hardship differential for living in the Sakhalin region, considered a remote northern territory, can as much as double the pre-tax payments. Therefore, in salary discussions with potential employees it is important to specify what is included in the salary being negotiated.
There are several ways to find personnel. Two primary methods are to advertise the position in a local newspaper (a very popular way to find employees), or by relying on the help of local recruiting agencies. The recruiting agencies, however, are not numerous, as this is a new service in the local market. The American Business Center also maintains a file of resumes of personnel with different expertise that can be obtained for a fee.
OFFICE EQUIPMENT
All the equipment you may need for your office is available locally. Various brand names of everything from telephones to printers are available in stores, or can be ordered easily. However due to the region’s remoteness, local prices tend to be quite high. For instance, prices for computers in Yuzhno-Sakhalinsk may be 1.5 times higher than in Moscow, and some companies find it advantageous to do their office equipment shopping there. It can be less expensive to buy in Moscow than to ship from the U.S., as directly importing goods from the US subjects them to additional customs duties and other related costs.
Most locally available computers are not brand name computers. The only company that sells brand name computers provides Compaq equipment. A new computer (approximate configuration – PII/III – 450, 128 RAM, 8 –13 HDD, audio/video cards – 16 MB) costs in Yuzhno-Sakhalinsk about $1500, without a monitor, which can add up to another $300-400. UPS batteries are a must due to the frequent power outages.
TELECOMMUNICATIONS
Companies may need to install several types of lines for local, internal long distance, international and satellite communications, as well as use of the Internet. Sakhalin has only one large local telecommunication company that serves the general needs of the oblast. Formerly state-owned, it is now known as the JSC Sakhalinsvyaz. In general, international calls from local hotels cost about $5/minute and domestic long distance calls are $3/minute. Sakhalinsvyaz is the cheapest provider of international communications.
Installation time can vary from one week to a month. One of Sakhalinsvyaz's shareholders is the British company Cable & Wireless, which also owns two other companies on the island - Sakhalin Telecom and ST Mobile. The latter is currently the only company offering mobile phone services, and prices for its services are high.
Kriljon is a Russian-American joint venture, which provides international and long distance communications services, but their services do not provide access to general city lines. Sakhalinugol-telecom is similar to Sakhalinsvyaz in function, but they are a much smaller provider and were initially designed to provide telecommunication to coal mines (Sakhalinugol is a local joint stock company for coal mines). Also present on the market is Vostoktelecom, providing international communications very similar to Kriljon (without access to the local lines).
Internet access can be purchased for about $200/month for 24-hour/day access. Internet providers are also becoming more creative in various customized packages depending on the customers' needs, as well as providing Internet access cards (for 5, 10, 15 hours of work).
Typical prices for mobile phones from ST Mobile are:
monthly fee – $45;
per minute – outgoing $0.38,
incoming $0.19;
long-distance and international calls – tariffs of Sakhalinsvyaz are applicable (major local long-distance provider) plus $0.76.
To rent a handset, the cost is about $32 per day (for 10 days or less), $25.20 per day (for 1-3 months), and $12.60 per day (for 3 months or more).
Local paging companies offer pagers, depending on model and manufacturer, for about $50 - $120 for the pager itself, plus a $13 monthly service charge.
WATER SUPPLY
BUSINESS SERVICES
Several companies and organizations provide business services for both Russian and foreign legal entities, including such services as accounting, due diligence, registration services, issuing invitation letters for a visa, translations/interpretation or finding an interpreter, business meetings organizing, etc.
1. PriceWaterhouseCoopers offers a range of financial services, as well as company registration.
2. Sakhalin Alaska Consulting Group offers search for partner, agent services, facilitating work with tax, customs and banks, company registration, governmental relations.
3. Interpre-Serve offers translations and other business support services such as search for driver, apartment, staff, etc., and carrel space.
4. Moore Stephens - Conversion of financial statements from Russian standards to IAS system and US GAAP; audit; tax consulting; business plan and investment projects preparation.
5. American Business Center Yuzhno-Sakhalinsk provides business support services as mentioned earlier. The Center also maintains a listing of local Russian auditors.
6. The local Chamber of Commerce is capable of doing basic due diligence research on local companies as it maintains non-official information files on many companies.
EXPRESS MAIL
Timely mailing of documents from the island is another challenge that a company may face due to the remoteness of the region and the variable schedules of many of the air carriers. Unfortunately, even with all of the local express mail services available, it can take up to a week to send something to the U.S., depending upon the schedule of the air cargo flights.
DHL is available locally, costing approximately $100 to mail 100 grams to the U.S. Another system, GarantPost, charges $30 for a package up to 0.5 kilograms (17.5 ounces), for a package of up to 2 kilograms (70 ounces) – about $50. It takes a week to send a package to the U.S. by GarantPost – all parcels and letters are delivered via Moscow, regardless of the final destination. Even if the destination is Siberia, the letter goes to Moscow first.
BANKS
The local banking system is still recovering from the August 1998 financial crisis in Russia. Several large Moscow-based banks closed, and new ones entered the local benking scene. Currently, the banks on Sakhalin include State Sberbank, Bank of Moscow, Rosbank, Dalnevostochny Bank (Far Eastern Bank), Tikhookeansky Bank, Bank Iturup, Sakhalin-West Bank and Bank Dolinsk. Since the 1998 crisis, local banks do not accept traveler's checks. It typically takes one to three days to conduct a money transfer of funds between Sakhalin and the U.S.
The Bank of Moscow issues several types of Visa cards and Eurocard/Mastercard, as well as accepts the same types of cards from clients. Several supermarkets and shops, as well as Sakhalin Telecom call-boxes, also accept plastic cards. Opening a bank account in the Bank of Moscow is free of charge. Rosbank also offers accounts free of charge, it accepts Visa and Master Cards for payments, and plans to begin accepting Diner’s Club in January 2000.
Dalnevostochny Bank works closely with the National Bank of Alaska, which can make it easier for a U.S.-based company to deal with it. The fee for opening a ruble account is 1000 RUR (about $38), and for a hard currency account – $100 for legal entities. Individual accounts (any type) are free of charge. In the future, other types of accounts may also be free of charge. The bank accepts Visa cards for payments. Unique from other banks, sample account contracts are available from Dalnevostochny Bank in English.
Tikhookeansky Bank is a small bank currently owned primarily by the Japanese Michinoku Bank (89% of shares). Visa cards are accepted. Currently, Tikhookeansky is charging $38 (1000 RUR) for opening a ruble account and $150 for a hard currency account, but these tariffs will be reconsidered soon.
Iturup bank does not handle credit cards. Opening of accounts is free of charge.
Sakhalin-West Bank opens accounts free of charge, but it does not handle credit cards (except for local ones used in certain local shops). Sakhalin-West has the largest branch network throughout Sakhalin.
The National Bank of Alaska (NBA) has developed a correspondent bank relationships with several Russian banks in the RFE, including Dalnevostochny, as mentioned above, and Sakhalin-West Bank. NBA offers import/export financing, letters of credit, documentary collections/remittances, foreign exchange services and wire transfers.
PROCEDURES FOR COMPANY REGISTRATION
The following is basic information on issues regarding the company registration on Sakhalin, but should not be considered legal advice. It is highly recommended that companies obtain professional legal and tax counsel to chose the appropriate form of registration for your company's activities in order to ensure that all of the necessary documentation is provided in the correct form and order.
There are several types of companies that can be registered:
1) A Representative Office of a company is not a legal entity and is not allowed to carry out any commercial activity. A representative office has privileges on taxation, such as the non-payment of VAT on locally purchased goods.
2) A Branch of a Representative Office, which has the same status as above.
3) The legal and tax status of a Joint Venture varies depending on the nature of business and all advantages\disadvantages for that must be discussed with a qualified legal council. Joint ventures are subject to all Russian taxes.
4) The Company Branch can carry out commercial activities, but it is not a separate legal entity and acts on behalf and in the person of its founder. Subject to all Russian taxes.
5) A Subsidiary of a company in comparison with a Branch is a legal entity and has to have the independent Statutes. It can be registered under any type of legal form (joint-stock company, limited partnership, etc.)
Most of the documents listed below (in particular the ones marked with an asterisk *) will need to be notarized and have an Apostille attached. Apostilles can be obtained from your state's Secretary of State office. They will also need to be translated into Russian and legalized by a Russian Consulate or Embassy.
Depending on the type of registration your company will be pursuing you may have to submit some or all of the following documents. Additional documents may be requested.
1. Certificate of Incorporation or Certificate of Existence. Original or notarized copy of the Founder or JV Foreign Participant *
2. Founder or Foreign Participant Charter. The purpose is to ensure that the regulations of the foreign entity allow it to establish a subdivision/entity in Russia for determined activities *
3. A document of solvency. Bank letter of reference confirming that the company is a reliable client of such and such a bank, and is solvent *
4. Board Resolution (or Minutes of a Board meeting), authorizing the establishment of a company’s subdivision or subsidiary in the Russian Federation or authorizing the company to participate in such and such a JV *
5. Power of Attorney for a person, appointed as a Director of the subdivision/entity, which will authorize the appointed Director to act on behalf of the company, to manage the new subdivision/entity and to represent the entity in all Russian governmental and non-governmental bodies *
6. By-laws/Charter of a new subdivision/entity, which must contain the following Articles *:
- Legal name of the subdivision/entity (as it will be displayed in the registration certificate and on the stamp of the subdivision/entity);
- Legal address of the subdivision/entity (as it will be displayed in the registration certificate and registered in all the relevant bodies);
- Purposes of establishment;
- List of activities, which the entity is assigned to perform (it is recommended to make this list as comprehensive as possible and to include any activities that the subdivision/entity may participate in);
- Director’s authorization, duties, responsibilities, and his/her relations with the Founder/Foreign participant;
Note: This document may be done in Russian and signed in Russia by the Director, acting under the Power of Attorney issued by the company, if the Director understands Russian. In this case, an Apostille is not required.
7. Application letter
8. Receipt of registration fee payment
9. Charter of the Joint Venture, in English and Russian. It should be translated and notarized
10. Joint Venture Agreement between the Russian and Foreign partners in English and Russian. Should be translated and notarized
11. Two reference letters executed by the Russian business partners of the company
12. Confirmation of legal address in Sakhalin
13. Application letter (with indication of the RO name, date and location, legal address, purposes, number of expatriates, and existing Russian business partners).
TERMINOLOGY
A. Apostille (for members of the Hague Convention of 1961 only)
Official verification of a document’s legal power made by the Secretary of State. Apostille may be obtained for any document that has been notarized prior to being Apostilled. Pursuant to the 1961 Hague Convention’s provisions, a company may be provided the translation and legalization of the Russian version in Russia, if the documents are supplied with an Apostille.
B Russian Consular Verification of Translation.
If the document has already been translated into Russian, the translator should sign it. Then the Russian Consulate or Embassy will legalize the translation in order to certify that the translation is true and accurate.
Registration Procedure
1) Legal base for registration in Sakhalin Oblast.
- RF President’s Decree #2270 of December 22, 1993 “Amendments to taxation and interrelation between different level budgets”;
- Sakhalin Region Governor’s Decree #16 of January 16, 1995 “Amendments to Oblast Governor Decree #62 dated February 16, 1994 “On legal entities registration fee”;
- Sakhalin Governor Decree #480 dated October 16, 1996 “Accreditation of foreign legal entities representative offices in Sakhalin region”.
2) Registration fee payment. Registration fee is $2,500 for Representative office accreditation and $1,500 for Branch office registration. Fees should be wired to the Region's bank account.
3) State registration. All documents translated and notary legalized shall be submitted to the juridical subdivision of the Department of Foreign Economic Relations, Sakhalin Oblast Administration.
4) Registration with the Regional Statistic Committee. A specific statistic code will be assigned to the Company. The registration fee is RR185.
5) Registration with the Tax Inspection, inclusive:
- Application to register a company with the local tax Inspectorate, including a document signed by a Representative of the company that confirms all the information about the company (bank account number, social insurance code and Federal ID number, information about an official auditor of the company and information about appointed Director of the company branch)
- submission of tax registration forms by the official Representative of the company
6) After the tax ID number is assigned to the company, registration with the regional Pension Fund, Social Insurance Fund, and Medical Insurance Fundcan begin.
7) Opening a bank account. Each Fund issues a special confirmation that the company has been registered. These forms, two bank sample signature cards and registration documents copies should be submitted to the chosen bank. One of the bank’s sample signature cards should be notarized. After all the documents are submitted, the bank and the company will sign an Agreement on each account.
After the bank accounts are opened, the State registration body issues a permanent Certificate of Incorporation.
It is necessary to make four sets of notary legalized copies of documents, which are then submitted to the Tax Inspectorate, Pension fund, and the bank, with one copy retained for your files.
The American Business Center has a full time specialist who can assist you with both registration documents and procedures.
CONTACT INFORMATION
BUSINESS SERVICES
PRICEWATERHOUSECOOPERS
32 Kommunisticheski Ave.
Yuzhno-Sakhalinsk, Russia 693009
Tel/Fax: 7(4242) 727-463; 727-344
Int’l Tel: 7(50985) 62-177
Mr. Valery Bespalov, Representative
INTERPRE-SERVE
36 Dzerzhynskogo St.
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(42422) 34-975
Fax: 7(4242) 742-704
Mr. Mark Jimmerson, Director
SAKHALIN ALASKA CONSULTING GROUP
P.O. Box 111861
Anchorage, AK 99511
Tel: 1(907) 522-2600
Fax: 1(907) 522-2602
Mr. David Parish
Email dparish@alaska.net
MOORE STEPHENS
32 Kommunistichesky Ave., # 229
Yuzhno-Sakhalinsk, Russia 693009
Tel: 7(4242) 727-326
Fax: 7(4242) 727-021
E-mail: mssakhalin@yahoo.com
156 Lenin St., Office 23
Yuzhno-Sakhalinsk, Russia 693000
Yuri Yevgenjevich Bimayev, President
Tel/Fax: 7(4242) 722-548
AMERICAN BUSINESS CENTER YUZHNO-SAKHALINSK
32 Kommunisticheskii Pr., # 517A,
Yuzhno-Sakhalinsk, Russia 693000
Tel/Fax: 7(4242) 727-124, 727-125
Int’l tel.: 7(509) 95-1545
Int’l fax: 7(509) 95-1540
E-mail abcsakh@fraec.org
Mr. Michael Allen, Director
employment center
283a Lenin St.
Tel.: 7(42422) 31-195, 30-493, 34-807
Fax: 7(42422) 35-233
Contact: Ms. Svetlana Nikolayevna Konovalova, Chief of the Department
ALO RECRUITMENT AGENCY
154 Lenin St., # 401
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(4242) 725-526
OFFICE RENTAL
Sakhincentr - Interoffice
32 Kommunistichesky Ave.
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(4242) 727-016
Fax: 7(50995) 1332
Mr. Mikhalil Mikhailovich Ryabtsev, General Director
Michinoku Building
234 Lenin St.
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(4242) 721-407
Fax: 7(4242) 721-402
Mr. Mikhain Yurjevich Tranichnikov, Head of the Commercial Department
COMMUNICATIONS
JSC Sakhalinsvyaz
220 Lenin St.
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(4242) 722-520
Fax: 7(4242) 771-420
E-mail: sakhalinsvyaz@sakhalin.ru
Mr. Alexander Pavlovich Mazunin, General Director
ST Mobile (A Cable and Wireless Company)
213A Komsomolskaya St.
Yuzhno-Sakhalinsk, Russia 693016
Tel: 7(42422) 55-569
Fax: 7(4242) 462-805
E-mail: mobile@sakhalin.ru
Mr. Roderick Stanley, General Director
Sakhalin Telecom Mobile (A Cable & Wireless Company)
213A Komsomolskaya St.
Yuzhno-Sakhalinsk, Russia 693016
Tel: 7(4242) 461-000
Fax: 7(4242) 461-029
E-mail: s_telecom@sakhmail.sakhalin.ru
Mr. Pavel Akhmanajev, General Manager
Kriljon Company
32 Kommunisticheskii Pr., # 616
Yuzhno-Sakhalinsk, 693000
Tel: 7(4242) 727-440
Int’l Fax: 7(50995) 1642
E-mail: kriljon.marketing@snc.ru
Contact: Mr. Anatoly Tonkonogov, Director
Banks
BANK OF MOSCOW
32 Kommunistichesky Ave.
Yuzhno-Sakhalinsk, Russia 693009
Tel: 7(4242) 727-070
Fax: 7(4242) 727-503
Mr. Alexander Parkhomenko, Head of the Department for Interbank Operations and Securities
ROSBANK
37 Chekhov St.
Yuzhno-Sakhalinsk, Russia 693000
Tel/Fax: 7(4242) 726-110; 726-108
Mr. Druzhinin Maxim Yaroslavovich, Head of the Financial Department
DALNEVOSTOCHNY BANK
40 Dzerzhynskogo St.
Yuzhno-Sakhalinsk, Russia 69300
Tel/Fax: 7(42422) 33-113
Ms. Yelena Nikolayevna Ponizovskaya, Currency Control Department.
TIKHOOKEANSKY BANK
40 Dzerzhynskogo St.
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(42422) 33-929
Fax: 7(42422) 34-429
Ms. Annastasya Petrovna Prokofjeva, Chief Accountant.
ITURUP BANK
32 Kommunistichesky Ave.
Yuzhno-Sakhalinsk, Russia 69300
Tel/Fax: 7(4242) 727-311
Ms. Yana Vladimirovna Lee, Acting Head of the Department For Foreign Currency
SAKHALIN-WEST
24 Pobedy St.
Yuzhno-Sakhalinsk, Russia 693000
Tel: 7(4242) 742-465
Fax: 7(42422) 51-692
Ms. Olga Vladimirovna Sokolova, Chief Specialist
NATIONAL BANK OF ALASKA
P.O. Box 100600
Anchorage, AK 99510
Tel: 1(907) 265-2625, 265-2134
Mr. Mike Rzeszut or Mr. Ben Barrera
EXPRESS MAIL
DHL
32 Kommunistitcheskii Ave., #228, 230
Yuzhno-Sakhalinsk, Russia
Tel: 7(4242) 727-340
Fax: 7(4242) 727-515
MAJOR REGIONAL DEPARTMENTS INVOLVED IN REGISTRATION PROCESS
DEPT. OF FOREIGN ECONOMIC RELATIONS
Sakhalin Oblast Administration
32 Kommunisticheskii Ave., # 236
Yuzhno-Sakhalinsk, Russia
Tel: 7(4242) 727-494 (secretary); 727-090 (lawyer)
REGIONAL STATE STATISTICS COMMITTEE
68 Kommunisitcheskii Ave.
Yuzhno-Sakhalinsk, Russia
Tel: 7(4242) 742-191
OBLAST TAX INSPECTORATE
14 Karl Marx St.
Yuzhno-Sakhalinsk, Russia
Tel: 7(42422) 35-351
CITY TAX INSPECTORATE
105A Lenin St.
Yuzhno-Sakhalinsk, Russia
Tel: 7(42422) 36-451
Tax payers’ registration office: 7(42422) 36-530
PENSION FUND, REGIONAL DIVISION
27A Kommunisticheskii Ave.
Yuzhno-Sakhalinsk, Russia
Tel: 7(4242) 722-288
SAKHALIN REGIONAL FUND OF COMPULSORY MEDICAL INSURANCE
23 Dzerzhinskogo St.
Yuzhno-Sakhalinsk, Russia
Tel: 7(42422) 36-838 (registration office)
SOCIAL INSURANCE FUND
Sakhalin Regional Branch
113 Mira Ave.
Yuzhno-Sakhalinsk, Russia
Tel: 7(42422) 33-266