Premier Vision Special Edition Tax Free Shopping in Russia Contents

Tax Free shopping introduced in Russia 03

Premier Tax Free enters Russian market 04

GDP and Travel & Tourism growth: 2010 to 2020 05

Travel & Tourism Market Size vs Arrivals 06

Arrivals to Russia by nationality 07

EUR vs RUB exchange rates 08

RUB vs CNY exchange rates 09

Premier Vision | 2 Tax Free shopping introduced in Russia

Introduction Russian furs, caviar and football From the 14th June through to the 15th July, Russia will host the FIFA World Cup for the first time. Matches are set to This special edition of Premier Vision set to boost sales and provide be held in Moscow, St. Petersburg, Rostov-on- Don, Sochi, focusses on the exciting opportunity economic stimulus Yekaterinburg, Saransk, Kaliningrad, Nizhny Novgorod, Kazan, presented by Russia joining the list of Volgograd, and Samara. In a ‘Russia Briefing’ update by Dezan Shira & Associates, a destinations that are eligible for Tax Free spokesperson states:1 The Deputy Head of the Russsian Federal Tax Service, shopping. 2018 is also set to see the United Timur Maksimov, stated that the Tax Free system will go Arab Emirates join this list, followed by other “Russian furs and caviar are obvious choices for foreign live in all cities hosting the 2018 World Cup matches before primary destinations markets in the Middle tourists, however, Russia also has a thriving electronics its start, with this list expected to increase over time. This industry and is well known for its high fashion, jewelry and East. announcement followed the signing of a decree for the watches as well as its excellent sea food. There will be introduction of the Tax Free shopping program by Russian A tax refund of up to 18% on goods in plenty of choices for foreign travelers to take advantage Prime Minister Dmitry Medvedev. excess of 10k Rubles (approximately €130), of this tax refund scheme, and will help boost the Russian for countries outside the Eurasian Economic economy as well as provide bargains. The Ruble has The Travel & Tourism industry is estimated to represent just Union (EAEU), is set to further ignite inbound dropped to half the previous value of the Euro and Dollar, under 5% of Russia’s GDP. This compares to an average of and an additional 18 percent discount means there will be 11% for the main destination markets in Europe, and c.9% for tourism to Russia and stimulate retail sales. significant bargains to be had.” the top 10 global economies. Therefore, the introduction of This compares to the introduction of VAT in Tax Free shopping should provide an economic stimulus to an the United Arab Emirates this year at a rate Furthermore, they highlight the potential savings in the ailing economy, with significant opportunities for retailers in of 5%, although this is likely to increase in table below: this market. Saving after Tax time. Commodity Purchase Price (US$) Refund 1 https://www.russia-briefing.com/news/ Full Length Mink russia-offers-18-discounted-tax-free Illustrating the the attractiveness of Russia 8,750 1,575 as a destination choice, 2016 saw c.18m Coat -shopping-foreign-visitors.html/ Alena Gorchakova 7,800 1,400 tourist arrivals in 2016 that would have been Earrings

eligible for Tax Free shopping. This rivals 1ct Yakutia Diamond 3,750 675 France for Tax Free eligible tourists of c.23m and, with the influx of overseas visitors 1kg Ossetra Caviar 2,400 432 Alena Akmadullina expected for the upcoming World Cup, it is 1800 324 predicted that Russia’s tourist arrivals will Dress increase to just under 19m in 2018. Strela Russian Watch 527 95

Premier Vision Special Edition Premier Tax Free enters Russian market

Premier Tax Free issues first To further support this new market, Premier Tax Free has appointed Andrey Silantiev as the Country Manager for electronic Tax Free form in Russia Russia. Mr Silantiev joins from Deloitte and will provide on the ground support to Merchants. 12th April – Premier Tax Free, a leader in multi-currency payment processing and the management of tax-free Patrick Waldron, CEO of Premier Tax Free, says: “The shopping for international tourists, has issued its first processing of this Tax Free Form brings to an end almost Electronic Tax Free Form in Russia. The Form was issued in two years of hard work to make this new market a reality. Central Moscow on 11th April by a store owned by BOSCO di We are excited about the opportunities and products that CILIEGI Group. we will be able to develop with key Russian stakeholders and pioneers within the digital payment space, to further This historic process follows the announcement made by enhance the shopping opportunities available to the the Government of Russia in 2017 of legislation allowing international traveller”. shoppers from outside the Eurasian Economic Union (EEU) to save up to 18% when spending a minimum of 10,000 1 http://welcome2018.com/en/journal/materials/moskva- ozhidaet-do-1-mln-bolelshchikov-v-dni-chm-2018/ Roubles on a range of goods including fashion, technology and jewellery. This was one initiative to promote tourism 2 http://www.scmp.com/lifestyle/fashion-luxury/ in advance of and following the upcoming FIFA World Cup, article/2134088/how-russias-red-tourism-luring-wealthy- chinese-visitors where it’s estimated over one million fans will travel to the country’s capital1. Gary Byrne, Director of New markets Worldwide in Fintrax Group, parent company of Premier Tax Free commented: “According to recent data, one million Chinese tourists visited Russia in 2016 where they spent US$2 billion2, highlighting the scale of the Tax Free market now this legislation is in place. “Premier Tax Free has been instrumental in the launch of the Tax Free shopping services now available, through working closely with the Government, regulators and potential Merchants for almost two years. Following issuing this Electronic Tax Free Form, our innovative Premier Online VAT refund system will be rolled out to qualifying Merchants on a daily basis.”

Premier Vision | 4 GDP and Travel & Tourism growth: 2010 to 2020

Source: WTTC The first half of the decade saw a lower rate of growth in the Travel & Tourism sector versus total GDP, however, it is predicted that there will be a growth premium in the Travel & Tourism sector in the second half of the decade. However, the gains in the Travel & Tourism sector are predicted to see a recovery to the proportion of GDP that was seen at the start of the decade. Total GDP growth Travel & Tourism growth

5.0% 6.0% 4.0% 4.5 4.0 4.0% 3.0% 3.6 3.9 4.1 2.0% 3.1 3.4 2.0% 3.5 2.1 1.0% 1.8 1.8 0.0% 1.5 1.2 1.3 1.2 0.6 0.0% -2.0% 0.8 -1.0% -0.1 -4.0% -2.0% -4.2 -3.0% -6.0% -2.8 -5.7 -6.1 -4.0% -8.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Travel & Tourism growth premium Travel & Tourism % of GDP

4.0% 2.7 2.6 5.4% 5.3 21 2.2 1.5 5.3% 2.0% 1.0 5.2 5.2 5.2% 0.0% 5.1% 5.1 -2.0% -1.1 -3.2 5.0% 4.9 4.9 -4.0% -2.7 4.9% 4.8 4.8 4.8 4.8 -6.0% 4.8% 4.7 4.7% -8.0% -7.8 4.6% -10.% 4.5% -10.2 -12.0% 4.4% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Premier Vision Special Edition Premier Vision | 5 Travel & Tourism market size vs arrivals

Source: WTTC & Oxford Economics Relative to the main European destination markets and significant developed economies, there is significant headroom to increase the sector beyond the current c.5% of GDP that the Travel & Tourism sector currently represents. However, the number of Tax Free eligible arrivals rivals that of the main European destination markets, with strong gains predicted.

Travel & Tourism Size and % of GDP Tax Free Eligible Arrivals Forecast: 2018

18.0% 8.0% Spain 14.2% Russia 6.7% Italy 6.2% 16.0% 7.0%

14.0% UK 10.8% Germany 10.8% 6.0% Spain 4.8%

12.0% Italy 11.1% 5.0% Germany 4.2% 10.0% 4.0% 8.0%

Russia 4.8% France 8.9% Y - growth2018 3.0% 6.0% Travel and GDP % of Tourism Travel

2.0% UK 3.5% 4.0% France 2.9% 1.0% 2.0%

0.0% 0.0% 0 50 100 150 200 250 300 350 400 450 0 5 10 15 20 25 30

Travel and Tourism GDP (bn) Number of arrivals (m)

Premier Vision Special Edition Premier Vision | 6 Arrivals to Russia by nationality

Source: Oxford Economics Declines in arrival numbers predominantly attributable to decline in numbers from Ukraine. However, arrivals from China have registered continued gains, and are predicted to continue to post gains of between 7-10% per annum between 2018 and 2020.

23,152

21,801 20,877 21,066 20,027 19,773 18,576 6,745 9,375 17,930 17,902 17,407 6,194 7,431 15,995 9,327 7,479 Ukraine 5,788 1,322 7,585 Finland 8,162 1,310 1,021 1,377 7,601 5,315 1,667 China 932 1,072 Poland 1,155 1,560 1,349 1,574 806 Azerbaijan Arrivals (K) Arrivals 966 1,447 1,475 1,156 713 1,256 1,307 Uzbekistan 1,372 1,227 1,243 Germany Mongolia Moldova Estonia Latvia 3,418 3,517 3,653 4,043 3,821 3,493 2,926 2,715 2,599 2,838 3,152 Rest

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Premier Vision Special Edition Premier Vision | 7 EUR vs RUB exchange rates

Source: Oanda Following two years of weakness in the Ruble, 2017 represented a resurgence in its value and in outbound travel and tourism. This resulted in a renaissance in Tax Free shopping sales across Europe. Recent weakness in the currency has resulted in a return to declines in tourism and Tax Free shopping sales.

100.0

90.0

80.0 70 - 90 Range

70.0

60.0

50.0

40.0

30.0 2010 2011 2012 2013 2014 2015 2016 2017 2018

Premier Vision Special Edition Premier Vision | 8 RUB vs CNY exchange rates

Source: Oanda Conversely to the impact to Russian outbound tourism, inbound tourism attractiveness for Chinese tourists has been enhanced by increased purchasing power and propensity to spend. This is due to foreign exchange fluctuations and the depreciation in the value of the Ruble. The introduction of Tax Free shopping is expected to provide a multiplier effect opportunity for retailers in Russia, with the propensity for incremental spend significantly enhanced as a result of the accretive arbitrage opportunities of Tax Free shopping savings.

0.25

0.23

0.21

0.19

0.17

0.15

0.13

0.11 0.08 - 0.12 Range 0.09

0.07

0.05 2010 2011 2012 2013 2014 2015 2016 2017 2018

Premier Vision Special Edition Premier Vision | 9 Part of the Fintrax Group

Fintrax Group Holdings Headquartered in Galway, Ireland Email: [email protected] | Web: premiertaxfree.com/business

If you would like to know more about Tax Free Statistics, please get in touch with your Premier Tax Free representative.