Frequently asked questions
FREQUENTLY ASKED QUESTIONS IN THE SPHERE OF ENTREPRENEURSHIP, TRADE IN SERVICES, INCORPORATION, ACTIVITIES AND INVESTMENTS
Can any restrictions be applied in the mutual trade of goods?
Article 28 of the Treaty provides for the non-application by the Union Member States of non-tariff regulation measures in the mutual trade of goods within the framework of the internal market.
If such restrictions (provided that such measures are not a means of unjustifiable discrimination or a disguised restriction on trade) are required for national defense and security of a Member State, protection of human life and health, protection of public morals and public order, protection of animals, plants, or cultural values the Member States shall have the right to apply such restrictions (Article 29 of the Treaty).
What new guarantees have been established by the provisions of the Treaty in respect of persons of the Union Member States in the incorporation, activities and provision of services? What are specific features of national and other treatment provisions of the Treaty?
Section No. 15 of the Treaty guarantees the provision of national treatment (hereinafter – the national treatment), i.e. the provision to persons of other Parties (including nationals, individual entrepreneurs, suppliers and recipients of services, founders, subsidiaries and other controlled persons of the Parties) any conditions for the incorporation, activities and trade in services no worse than those provided to persons of their country, in respect of all measures. It was impossible, before January 01, 2015, to apply the national treatment for persons with foreign capital or subsidiaries created by persons of other Parties or with their participation. Now the national treatment is guaranteed to any legal entities and individuals, including branches and representations established or incorporated within the territory of the Union.
The Parties were not obliged to provide most favoured nation treatment (the most favoured nation treatment) to service recipients. From now on, the most favoured nation treatment is guaranteed to service recipients (i.e. the treatment is not worse than that provided to the recipients of the same services from third countries). If the measures imposed on third countries are treated more favourably than those imposed on the Member States, the state that has introduced such measure shall be obliged to automatically extend the same or no less favourable treatment to the parties. Previously it was impossible to apply the most favoured nation treatment to persons of one Party operating on the territory of the other Party, including through organizations established by them, opened branches and representations. Any Party could introduce any advantages in respect of third-country persons without providing the same preferences to persons of other Parties (including in case of their absence in the list of exceptions).
As from January 01, 2015 the most favoured nation treatment is guaranteed to any legal entities and individuals, including branches and representations established or incorporated on the territory of any of the Union Member States.
As from January 01, 2015 the lists, in respect of which the national treatment, most favoured nation treatment and other guarantees stipulated by Section No. 15 of the Treaty shall apply, are built on a “negative” principle (that is, if there are no horizontal and sectoral restrictions, all sectors of services and activities shall be free). This innovation not accepted by the WTO Agreements and Integration Unions, has increased only the number of services covered by liberalization. In this regard, a larger number of markets for the provision (consumption) of services, activities and investments has been opened up to entrepreneurs of the Parties.
Thus, Section No. 15 of the Treaty has exclusively set up, for the first time in the integration association history, the full-fledged national treatment, most favoured nation treatment, non-application of quantitative and investment restrictions, extending their effect to all persons of the Union Member States.
What documents contain lists of restrictions and exceptions? Are they exhaustive?
Paragraph 2 of Annex No. 16 provides for the delegation of powers to the Supreme Eurasian Economic Council for the adoption of individual national lists (hereinafter – the national lists), which allows mobile and step-by-step exclusion of “private" sectors of services and activities from the national lists, thus implementing the said rules of the Treaty on the EAEU.
Annex No. 2 to Annex No. 16 to the Treaty and the Decision of the Supreme Eurasian Economic Council dated December 23, 2014 No. 112 (hereinafter - Decision No. 112) contain a minimum set of horizontal restrictions and sectoral exemptions, including those from the national treatment, most favoured nation treatment, non-application of quantitative and investment restrictions.
Is it possible for the Member States to impose new restrictions, including on a non-discriminatory basis?
Article 66 of the Treaty on the EAEU provides for: 1) inadmissibility of derogations from the agreements reached and deliberalization of trade in services, incorporation, activities and investments; 2) consolidation of the current market situation; 3) stability and prohibition of deterioration of the treatment provided to persons of the Member States in the trade in services, incorporation, activities and investments.
This rule of law has been strengthened by the principle of “consistency” set out in Article 67 of the Treaty on the EAEU, which lies in the fact that when taking any measures, it’s unacceptable to worsen the conditions of mutual access compared to the conditions in force on the date of signing the Treaty on the EAEU (i.e. on May 29, 2015), and the conditions enshrined in this Treaty.
Finally, based on paragraph 62 of Annex No. 16 to the Treaty, the Parties can no longer apply licensing requirements and procedures that nullify or impair the benefits of any business entity, have not been established by the legislation of the Party and have not been applied by such Party as of May 29, 2015.
Thus, only Section No. 15 of the Treaty has established for the first time in the integration association history:
the inability to deteriorate any current treatments established both in international agreements and national legislation at the date of entry into force of the Treaty on the Union;
the obligation to eliminate existing barriers and prevent new ones to national or supranational regulation of the trade in services, incorporation and activities.
How and what sectors of services do implement the rules of the single market for services?
Section No. 15 of the Treaty sets out the rules of the single market for services (hereinafter referred to as the “single market for services”), the procedure and stages of its formation for individual sectors of services, providing for liberalization plans.
By virtue of the Treaty, 43 sectors of services were approved by the Decision of the Supreme Eurasian Economic Council dated December 23, 2014 No. 110, where the single market for services has been functioning for the benefit of entrepreneurs since January 01, 2015.
These are such sectors as: services in the sphere of landscape; hunting management; leasing and renting; renting; services in the sphere of taxation; services for the application of software and data processing related to computer hardware; advisory services in the sphere of architecture and management; market research and public opinion polling services; placement and recruitment services; cleaning; photo services; services for organizing and conducting of negotiations and meetings, translation services; entertainment services.
Do any exceptions from the treatment as well as additional restrictive measures, including quantitative and investment measures apply to suppliers or service recipients, the services related to the sectors of the single market for services?
In accordance with paragraph 38 of Annex No. 16 to the Treaty the Parties shall provide to persons of any other Member State the right to delivery and receipt of services under the conditions specified in paragraphs 21, 24, 27, 29, 30 and 32 of the Annex No. 16, without restrictions, exceptions and additional requirements, except for the conditions and restrictions stipulated by Annex No. 2 to Annex No. 16 to the Treaty (horizontal restrictions: land ownership, state support; subsurface use and so forth).
Therefore, the following restrictions and exceptions shall not apply to service providers or service recipients, the services related to the sectors of the single market for services:
exemptions from the treatment and additional restrictive measures, including quantitative and investment measures (listed in paragraphs 30 and 32 of Annex No. 16);
any other restrictions and requirements, the use of which is stipulated by the Treaty, including the restrictions and requirements stipulated in paragraphs 15, 16, 17, 73 of Annex No. 16, paragraphs 6 and 7 of Annex No. 17 to the Treaty.
Is it required to establish a legal entity or representation or only a branch of a legal entity to render services (perform work) in the sectors related to the single market for services?
Pursuant to paragraph 38 of Annex No. 16 to the Treaty, each Party shall provide to persons of any other Party the right to deliver and receive services with recognition of supply permits received by service providers on the territory of the Member States where they are registered as legal entities.
That is, business entities of one Party are provided, within the framework of the single market for services, with the opportunity to render their services on the territory of another Member State without incorporating a legal entity.
In accordance with Annex No. 16 representations and branches are separate subdivisions of legal entities, not separate legal entities, for which reason it’s required to incorporate representations or branches to render services by one legal entity of the Party on the territory of the other Party in sectors of services related to the single market.
Should a person of one Member State obtain anew license or permit in accordance with the internal legislation of another Member State of the EAEU, in whose territory such person is going to carry out activities or supply services (including within the framework of the single market for services)?
Pursuant to paragraph 38 of Annex No. 16 to the Treaty, either Party shall, within the single market for services, grant to persons of any other Member State the right to deliver and receive services with recognition of permits received by the service providers on the territory of their countries.
At the same time, in the sectors of services not related to the single market for services, and other types of activities, in cases where one or another activity is subject to licensing or requires other permits in accordance with the legislation of the Party, persons in any Member State (including any entities established by them) shall also require obtaining the same permits as entrepreneurs-residents of this Party do. However, this rule does not apply if the Party has reserved sectoral or horizontal restrictions specified in Decision No. 112 or Annex No. 2 to the Treaty.
All Parties have enshrined in their national Lists (Decision No. 112) an “umbrella” exemption for all licensed activities with regard to mandatory requirements to incorporate a legal entity of this Union Member State. However, this restriction does not apply to the sectors of services listed in the list of sectors where the single market for services operates.
How shall the taxes (income tax, profit tax, VAT etc.) be paid within the framework of the single market for services?
Indirect taxes (excise duties, VAT) shall be collected in the Member State the territory of which is recognized as the place of supply of such service, i.e. according to the national treatment (paragraph 2 of Article 72 of the Treaty on the EAEU)
As for direct taxes levied on natural persons in connection with the employment of employees-residents of another Member State, the Treaty also establishes some rules according to which the income of such employees shall be taxed at the rates established in the Member State where the employee is employed (national treatment) (Article 73 of the Treaty on the EAEU).
In addition, the issues of direct taxes are envisaged in international agreements on avoidance of double taxation the Parties participate in.
Pursuant to paragraph 28 of the Protocol on the procedure for levying indirect taxes and the mechanism of control over their payment for exports and imports of goods, performance of works and provision of services (Annex 18 to the Treaty) indirect taxes when performing works and rendering services shall be collected in the Member State, whose territory is recognized as the place of supply of works and services (except for the works on processing raw materials supplied by the customer, imported to the territory of one Member State from the territory of another Member State with the subsequent export of refined products to the territory of another State).
When performing works and rendering services the tax base, rates of indirect taxes, the procedure of tax collection and tax preferences (tax exemption) shall be determined in accordance with the legislation of the Member State, whose territory is recognized as the place of supply of such works and services. The territory of the Member State shall be recognized as the place of supply of such works and services if:
1) these works, services are directly connected with any immovable property located on the territory of this Member State.
2) these works, services are directly connected with any movable property, vehicles, located in the territory of this Member State;
3) any services in the sphere of culture, arts, studying (education), natural education, tourism, recreation and sports are provided in the territory of this Member State;
4) the taxpayer of this Member State purchases:
consulting, legal, accounting, auditing, engineering, advertising, design, marketing services, information processing services as well as scientific research, development and technological works;
works, services for the development of computer programs and databases (software and information products of computer technology), their adaptations and modifications, maintenance of such programs and databases;
any staffing services, if the staff works in the purchaser’s place of business.
The provisions of this subparagraph shall also be applied upon:
transfer, granting, assignment of patents, licenses and other documents certifying the industrial property rights protected by the State, service marks, trademarks, trade names, service marks, copyrights, related rights or other similar rights;
renting, leasing and lending movable property on other grounds, except for renting, leasing and lending vehicles on other grounds;
provision of services by a person involving another person on his/her own behalf for the main contracting party of the agreement (contract) or on the behalf of the main contracting party of the agreement (contract) to take part in performing works and rendering services stipulated by this subparagraph;
5) the work performed, the services are rendered by the taxpayer of the Member State, unless otherwise stipulated by subparagraphs 1 – 4 of this paragraph.
In accordance with Article 148 of the Tax Code of the Russian Federation (hereinafter – the Tax Code) the territory of the Russian Federation shall be recognized as the place of supply of works (services) performed if:
1) the works (services) are connected directly to immovable property (except for aircraft, sea ships and internal navigation ships as well as spacecraft) located on the territory of the Russian Federation. Such works (services), in particular, shall include civil engineering, assembly, construction and erection, repair, restoration works, the planting of trees and shrubs, lease services;
2) the works (services) are associated with movable property, aircraft, sea-going and inland ships on the territory of the Russian Federation. Such works (services) include, in particular, assembly, erection, processing, thorough revision, repair and technical maintenance;
3) the services actually performed on the territory of the Russian Federation in the sphere of culture, arts, education (instruction), physical culture, tourism, recreation and sports;
4) a buyer of works (services) operates on the territory of the Russian Federation.
If the taxpayer performs, renders several types of works and services, the taxation of which is governed by Section XVII “Taxes and taxation” of the Treaty, and where realization of some works and services is of auxiliary nature with respect to realization of other works and services, the place of supply of auxiliary works and services shall be recognized the place of supply of principal kinds of works and services.
Similarly, paragraph 3 of Article 148 of the Tax Code defines the place of supply of works where an organization or individual entrepreneur are engaged in carrying out several kinds of works (services) and the realization of some works (services) is of auxiliary nature with respect to realization of other works (services).
According to Article 148 of the Tax Code the place of activity of the buyer shall be considered the territory of the Russian Federation if the buyer is actually located on the territory of the Russian Federation on the basis of state registration of an organization or individual entrepreneur, and if such is not available - on the basis of the place indicated in constituent documents of the organization, the place of management of the organization, seat of its permanent executive board, location of its permanent representation (if the works (services) are rendered through this permanent representation), place of residence of the natural person. The provision of this subparagraph shall apply to:
transfer, granting of patents, licenses, trademarks, copyrights or other similar rights;
rendering of services (performing of works) for developing computer software programs and databases (software and information products of computer technology), their adaptations and modifications;
rendering consulting, legal, accounting, auditing, engineering, advertising, marketing, education services, information processing services, and also in the performance of research and development works. Engineering services shall include engineering and consulting services in the development of a production process and sale of products (works, services), preparation of civil engineering and operation of facilities in industry, infrastructure, agricultural and other objects, predesign and design services (drafting of feasibility studies, the design engineering and other similar services). Information processing services shall include services in the collection, generalization and systematization of information files and furnishing the user with the results of this information processing;
outstaffing if the personnel works at the buyer’s place of business;
leasing of movable property, except for ground motor vehicles;
rendering services of an agent who on behalf of the principal participant of the contract would hire a person (organization or natural person) to render services stipulated by this subparagraph.
Documents which confirm the place of supply of works (rendering of services) are:
1) a contract with foreign or Russian persons;
2) documents confirming the fact of performing works (rendering services).
Which of the 4 methods stipulated in Annex No. 16 to the Treaty can be used to supply construction services within the framework of the single market for services?
Construction services within the single market for services can be delivered in any way possible at the discretion of the service provider:
· 1) from the territory of a Party into the territory of any other Member State (transboundary, for example: services in engineering spheres in terms of design work and consulting services for architectural and engineering design works; services in the sphere of urban design, including services for development projects and field management programs, studies on environmental impacts and economic assessment of programs of urban development; services in the sphere of landscape architecture, including: planning and design of the aesthetic park landscape, commercial land lots, land for housing; preparation of plot plans, working drawings, specifications; preparation of sketches of the terrain; preparation of cost estimates for the proposed planting and creation of objects such as paths, fences and parking lots);
2) on the territory of a Party by the person of that Party to the service recipient of another Member State (abroad consumption);
3) by the service provider of one Party by incorporation on the territory of another Member State (by means of commercial presence)
4) by the service provider of one Party by the presence of its natural persons of that Party on the territory of another Member State.
For example, by sending a construction team to construct any objects for a short period (including on the basis of a consortium agreement or other similar agreements); if the service is rendered for more than 30 days, it’s required to establish a branch or representation for taxpaying purposes. Otherwise, the regulatory and law enforcement authorities can qualify this activity without opening a branch or representation as illegal business activity.
What additional permits should be obtained on the territory of the receiving Member State (recipient) within the framework of the single market for services, except for the “automatically” recognized building permit as a business activity?
Each participating country has its own list of individual permits, without which the construction cannot be started, and if started cannot be continued.
For example, any permits to perform building activities are recognized automatically, while a permit for earthworks shall be obtained from the authorized authority of the Member State.
In the Republic of Kazakhstan these permits are listed in the Law dated May 16, 2014 “On permissions and notifications” (notification on commencement of construction and installation works shall be issued by the authorities of state architectural and construction control of local executive bodies, issuance of architectural planning assignment, approval of reference design, decision on performing complex of works on post-utilization (demolition), facility commissioning certificate by the acceptance committee, examination of pre-design (feasibility studies) and design (design specifications and estimates) documentation on construction irrespective of sources, etc.).
The Republic of Belarus has a single List of administrative procedures carried out by the state authorities and other organizations in respect of legal entities and individual entrepreneurs, approved by the Resolution No. 156 of the Council of Ministers of the Republic of Belarus dated February 17, 2012.
What documents received on the territory of one Party, are to be certified for the use on the territory of the other Party, required for incorporation and activities, including the provision of services?
The Treaty contemplates the possibility of the Member States to provide effective administrative cooperation between the competent authorities, thus eliminating the need to certify documents.
In accordance with paragraph 3 of Article 68 of the Treaty, competent authorities of a Member State may request competent authorities of other Member States, as under the agreements concluded, to provide any information related to the jurisdiction of the latter and required for the effective implementation of the requirements, stipulated in Annex No. 16 to the Treaty, including regarding permits issued by the competent authorities and types activities for which the permits have been issued.
Based on the requirements of paragraph 38 of Annex No. 16 to the Treaty, the professional qualifications of the staff of the service supplier shall be recognized automatically, i.e. there is no need to certify documents related to incorporation, permits, qualifications obtained in one Member State for their submission to perform activities in another Member State.
As for the remaining sectors of services, the requirements for certification of documents related to the provision of services shall be determined by the legislation of the Party in whose territory the incorporation and activities are planned to be carried out before the implementation of liberalization plans.
In order to enable workers of the Member States to conduct labour activities in the state of employment, education certificates issued by educational organizations (educational institutions, organizations in the sphere of education) of the Member States shall be recognized without carrying out by the state of employment the procedures of recognition of education certificates determined by their legislation (Article 97 of the Treaty).
Workers of a Member State applying for employment in educational, legal, medical or pharmaceutical spheres in another Member State shall undergo the procedure of recognition of education certificates determined by the legislation of the state of employment and shall be admitted to such educational, legal, medical or pharmaceutical activities in accordance with the legislation of the state of employment
Documents on scientific and academic degrees issued by the authorized authorities of the Member States shall be recognized in accordance with the legislation of the state of employment.
Employers, customers of services shall have the right to request certified translations of education certificates into the language of the state of employment and as well as for the purpose of verification of education certificates of workers of the Member States if it is required, they shall have the right to submit requests, including by reference to information databases, to educational organizations (educational institutions, organizations in the sphere of education) that have issued the education certificates and obtain appropriate responses.
The mechanism for certifying documents shall be determined by international conventions and national legislation of each Member State.
Neither Section XV nor Annex No. 16 to the Treaty contemplate the obligation to certify documents required for incorporation, activities and trade in services in a special manner. That is, the documents required for incorporation, activities and trade in services should only be provided subject to applicable legal requirements of the Member States for their persons.
Can a person of a Member State participate in tenders in full parity with local construction companies of the other Party, including state and municipal tenders?
Any construction firm of a Member State can participate in non-state (non-municipal) tenders in full parity withlocal construction companies in part of general construction works since it will be affected by the national treatment without exceptions (according to the Decision No. 110 dated December 23, 2014 general construction works are included in the List of sectors of services where the single market for services has been formed since January 1, 2015).
Any construction firm of a Member State can participate in non-state (non-municipal) tenders in full parity withlocal construction companies in terms of construction works on particularly dangerous and technically complex objects, since it will be affected by the national treatment without exceptions (according to the Decision No. 112 of the Supreme Eurasian Economic Council dated December 23, 2014, exemptions for construction works are not included).
Any construction firm of a Member State can participate in non-state (non-municipal) tenders in full parity withlocal construction companies since it will be affected by the national treatment stipulated by the Protocol on the procedure for regulating procurement to the Treaty (Annex No. 25).
How and based on what legislation can the Parties’ persons be held to account, including within the framework of the single market for services (i.e. without incorporation as a legal entity)?
In the case of a legal entity incorporated by persons of the other Party, such legal entity and its staff shall be held fully liable under the legislation of the Party in whose territory the offence was committed when carrying out the activity.
The Code of Administrative Offences of the Russian Federation dated December 30, 2001 No. 195-FZ provides for the possibility to apply enforcement actions both to legal entities and natural persons (including foreign nationals), and to representations and branches.
Article 1.4 of the Code of Administrative Offences of the Republic of Belarus provides for the application of administrative sanctions to foreign nationals and stateless persons on the territory of the Republic of Belarus, as well as foreign legal entities on the usual terms with nationals and legal entities of the Republic of Belarus.
According to Article 34 of the Code of Administrative Offences of the Republic of Kazakhstan dated July 05, 2014 No. 235-5:
foreigners, foreign legal entities, their branches and representations and stateless persons who have committed administrative offences on the territory of the Republic of Kazakhstan, as well as on the continental shelf of the Republic of Kazakhstan, shall be administratively liable on common law grounds;
structural subdivisions (branches and representations) of foreign and international non-profit non-governmental organizations shall be administratively liable for violations of the legislation of the Republic of Kazakhstan on public associations as legal entities.
Are representations and branches of service providers from other Member States subject to inspection by any controlling (supervisory) authorities of the Parties?
Various controlling (supervisory) authorities of the Parties shall have the right to inspect branches (representations) established by persons of other Union Member States, if their activities are carried out on the territory of the relevant Member State.
The Law of the Republic of Kazakhstan dated January 06, 2011 No. 377-4 “On state control and supervision in the Republic of Kazakhstan” provides for individuals, legal entities, including state authorities, branches and representations of legal entities, including foreign ones, as audited entities.
In addition it provides for the obligation to obtain information and documents from foreign countries which are essential to the audit.
Thus, the Ordinance of the President of the Republic of Belarus dated October 16, 2009 No. 510 “On improvement of control (supervisory) activities in the Republic of Belarus” provides for inspections of organizations, their separate subdivisions which have Payer’s Identification Numbers, representations of foreign organizations. At the same time, inspections of representations of foreign organizations are prohibited for two years from the date of their establishment.
The Federal Law dated December 26, 2008 No. 294-FZ “On protection of rights of legal entities and individual entrepreneurs when exercising state control (supervision) and municipal control” does not separate branches and representations of foreign legal entities as audited ones. However, pursuant to paragraphs 21-26 of Annex No. 16 to the Treaty (providing for the national treatment with regard to all measures of the Member States) the Federal Law dated December 26, 2008 No. 294-FZ applies to branches and representations of foreign legal entities incorporated on the territory of the Parties.
