Entering into Contracts with Foreign Companies in 2025
In the context of sanctions and changes in currency regulations, concluding agreements with foreign companies requires special attention. This article examines key aspects ranging from applicable law selection to tax obligations.
1. Determining Applicable Law
According to Article 1186 of the Russian Civil Code, the law governing the contract is determined by:
- Provisions of the Russian Civil Code;
- Russia’s international treaties;
- Laws and customs recognized in the Russian Federation.
In practice, parties most often choose the law of one of the contracting parties’ countries (Article 1210 of the Civil Code) or the law of the country where obligations are performed. If jurisdiction is not specified, courts will apply the principle of closest connection (paragraph 2 of Article 1186 of the Civil Code).
For Russian companies, choosing Russian law is preferable as it is more predictable and familiar. When selecting foreign law, it is necessary to involve specialists with relevant expertise.
2. Payment Arrangements
When concluding a contract, parties should agree on:
- Specific payment currency (e.g., USD, not just “dollars”);
- Payment methods (letter of credit, escrow, SWIFT);
- Payment terms and schedule;
- Allocation of banking fees.
Failure to specify the currency in the contract may lead to the bank refusing to process the payment under currency control regulations.
3. Essential Contract Terms
The contract must include:
- Full details of the parties
- Clear definition of the contract subject
- Price and payment terms
- Contract duration
- Liability for breach of obligations
It is advisable to use international standards (Incoterms 2025, UNIDROIT Principles) and clearly specify force majeure provisions.
4. Counterparty Due Diligence
Prior to signing the contract, the foreign partner should be verified through:
- The Register of Accredited Branches (RAFP) of the Russian Federal Tax Service;
- State registers of the company’s country of registration;
- International databases (Open Ownership, Europages).
Particular attention should be paid to identifying the company’s beneficial owners.
5. Tax Implications
Tax obligations depend on:
- Place of supply of goods/services (Article 148 of the Russian Tax Code);
- Existence of international tax treaties.
For example, when services are provided by a foreign company to a Russian entity, VAT is payable in Russia.
When entering into contracts with foreign companies in 2025, it is recommended to:
- Choose Russian law unless there are compelling reasons to apply foreign law
- Clearly specify currency and payment terms
- Thoroughly verify counterparties through official registries
- Consider tax consequences of the transaction
Professional legal review of contracts helps avoid significant financial risks.