Doing Business in Russia

Doing business in Russia has long endured negative stigma including accounts of corruption and
unlawful criminal gangs (see video below). Those wise enough to look through theses often
embellished stories, nevertheless, have profited from Russia's vibrant economy which has seen
a decade of growth averaging over 6% per annum.

The current prospects for business in Russia remain just as bright. According to economic
forecasts, the annual growth of consumption is 1.7-1.8% per year, largely due to a new middle
class that will constitute 50-55% of the population by 2010.

Although we are by no means business specialists, we have put together a general overview of
business in Russia. Since legal and financial complexities can often be a barrier to those
considering new business ventures, our goal is to put things in layman's terms and provide links
to the best, most relevant resources. This information, nonetheless, is not exhaustive and we
encourage use of professional business consultants before making any important financial
decisions.

Doing Business in Russia

1. Types of Business Entities
2. Registering a New Business in Russia
3. Paying Taxes in Russia
4. Russian Business Culture
5. Business Directory

1. Types of Business Entities

There are several options available to foreigners who want to start a business in Russia. These
include...
a. Register with state authorities as an individual entrepreneur (commonly referred to as a
sole proprietorship).
 ○ This is not a legal entity but an extension of the individual, meaning you are
personally liable for all obligations of the business, including debts.
○ Can be a suitable option for those providing consultations or similar types of
service.
○ Once registered as an individual entrepreneur, you become a Russian tax resident
and must submit a Russian Personal Income Tax Declaration.
○ Russian Tax Residents (employed or operating under a sole proprietorship) are
required to submit a report of their work (and other) income received in Russia.
○ If you live in Russia for less than 183 days (non resident status) you still must
report income received in Russia, but should be subject to exemptions when
paying income tax at home, thanks to Double Tax Treaties between Russia and
your country of residence.
○ The deadline for submission of personal income tax in Russia is April 30 of the
following year.
○ As of 2006, personal income tax rate is 13% for residents and 30% for non-
residents. (more Russia tax info below)

b. Use a Representative Office (RO) or Branch to establish a presence in Russia.

○ Representative offices and branch offices are not regarded as legal entities. They
only act on regulations of the legal entity that created them.
○ A representative office only represents the interests of the foreign legal entity
while a branch is established to carry on the Russian business activities of the
foreign legal entity in its own name.
○ Representative offices and branch offices of Russian companies do not need to be
registered by the state, however it is necessary that they be registered with both
the tax authorities and the social funds in the place of their location.
○ The management of a foreign legal entity must annually file a report on its
activities with the State Registration Chamber of the Ministry of Justice of the
Russian Federation.

c. Finally, foreigners may create a Russian legal entity in the form of a Limited Liability
Company (LLC), a public or a private Joint Stock Company (JSC), or a Partnership.
○ The LLC and JSC can be founded by an individual or by a legal entity (either
foreign or Russian).
○ Creating a legal entity provides greater protection than registering as an individual
entrepreneur (sole proprietor) since assets and liabilities of the LLC and JSC are
legally isolated from those of the founder.
○ It is possible for one individual to create a legal entity. When registering under
sole ownership, however, the founding document, or Charter, differs from a
typical corporation. In such a company there is no management body such as the
 Board of Directors. All decisions are taken by the sole founder, and as a result,
procedural requirements such as the General Meeting do not apply.
○ Foreign individuals and foreign companies can be founders and shareholders in
any number of companies.
For more information, look at this comparison table provided by VFBS, which outlines the main
types of legal forms you can choose to start your business in Russia.

2. Registering a New Business in Russia

To keep it simple, we've used an example provided by The World Bank. The example is for a
standardized company (a private LLC) set up in the city of Moscow.
1. Notarize foundation documents.

2. Deposit capital in the bank and get a proof thereof.

3. Pay registration fee.

4. Register with the Federal Tax Service of the Russian Federation (former Ministry of
Taxation) at the local level for concurrent tax registration and registration with the State
Pension Fund, the State Fund of Social Insurance and the State Fund of Compulsory
Medical Insurance ("Funds").

5. Notarize Registration Certificate, Tax Payer Identification Number Certificate and Bank
SignatureCard.

6. Open the company bank account.

7. Inform Ministry of Taxation of the Russian Federation of the company bank account
number and obtain a special letter of confirmation.

8. Register the company with Moscow Center of Quotation of Work Places.

3. Paying Taxes in Russia

Updated October 2007

Russian Income Tax for an Individual

• Russia has a uniform income tax of 13% for residents (on most types of income).
Dividend income for residents is 9%.
• Non-residents pay an income tax of 30% for all types of income.
• A resident is defined as one who spends 183 days or more per year in Russia in a
calendar year. Russian tax residents must pay income tax on worldwide income.
• Non-residents (fewer than 183 days/year in Russia) pay income on work in Russia, plus
property and investment income made within Russia.
• An employer is obligated to deduct, each month, the amount of tax and national insurance
due from a salaried worker.
• A self-employed individual is obligated to make advance payments on income tax that
will be offset on filing an annual report. In the case of a new business, the advance
payments will be calculated on the basis of the business owner's estimate. The advance
payments will be made at least 3 times per year.

Russian Corporate Tax

• The standard rate of Russia corporate tax is 24%.
• The tax on company profits is made up of 2 rates:
○ 6.5% Federal Tax
○ 17.5% Regional Tax
• Small/medium companies and individuals meeting certain criteria can choose an
alternative "simplified tax system".
• The simplified tax system substitutes profit tax, individual tax, VAT and property tax.
The tax rates are 6% of the profit, or 15% of "profit before expenses".

Russian Capital Gains (for an individual)

• Like tax on regular income, the tax rate for capital gains is 13% for a resident and 30%
for a foreign resident.
• Russian tax residents are exempt from tax for the sale of real estate or other assets that
have been held for 3 years or more.

Russian Capital Gains (for a corporation)

• The standard rate of tax for a corporation is identical to the tax on its regular income.
• A capital loss on the sale of a fixed asset may be offset against income in the following
years. The offset is spread over the remaining useful life of the asset that has been sold.
 • There is no cost inflation adjustment for capital gains.

UST - Unified Social Tax

• UST consists of contributions to the Pension Fund, Social Security Fund and Obligatory
Medical Insurance Fund.
• As of January 1, 2005 the rate for employers is 26%, up to an annual ceiling of 280,000
Rubles.
• For income of 280,001 to 600,000 Rubles the employer pays an additional 10%.
• For income greater than 600,000 Rubles the employer pays an additional 2%.

VAT - Value Added Tax

• In general, revenue originating from the supply of goods, works and services in the
territory of the Russian Federation and from the import of goods is subject to an 18%
value added tax unless specifically exempted by the Tax Code.
• VAT is imposed in Russia if the products or services are consumed or used in Russia.
• Exemptions are granted for exported goods or services used outside Russia.
• VAT is imposed on imports or services used in Russia.

Reporting Dates and Payment

• The tax year in Russia is the year ending on December 31.
• An individual whose income is from a wage is not obligated to file an annual return. The
employer deducts tax from the employee and transfers it to the Tax Authority every
month.
○ An individual who is self-employed is obligated to make 3 advance payments: on
July 15, August 15 and Nov. 15.
○ A self-employed individual must file a return by the end of the month of April
following the end of the tax year. The balance of the tax due, after filing the
annual return, is to be paid by July 15.
• It is compulsory for a limited company to submit the financial statements by March 30.
○ During the course of the year, the company is obligated to make advance monthly
payments. Prepayments are based on the profit in the previous quarter.
○ Small businesses are not obliged to make advance payments.
○ Fines are imposed on the submission of returns after the date prescribed.

Detailed Russia Tax Links and Resources

• Paying Taxes in Russia - The World Bank
• Overview of Taxes on Income and Transactions
 • Federal Tax Service (translated to English with Google)

4. Russian Business Culture

Russian business culture is quite distinct from that in western nations. This is due largely to a
history of collectivism, which has shaped a nation where co-operation and collaboration are
standard practice in businesses, and where fierce competition, even amongst rival companies, is
not as prevalent.

Structure and Hierarchy

• The hierarchical structure is widespread in Russian business.
• Even though a hierarchical structure is common, most employers still seem to promote a
flexible and democratic work environment, where everybody has a voice.
• Showing respect for seniority and recognizing the hierarchical structure is vital for
establishing and maintaining strong business relationships.
Work Relationships in Russia
• Relationships between business partners and co-workers in Russia tend to be somewhat
more personal than in the west where distance and formality are the norm.
• Things like hugging after a meeting or asking about personal matters such as family are
considered acceptable during business dealings.
• Meetings often involve drinking vodka, eating sweets, and talking about everyday life.
• In situations of conflict try to avoid taking an official stance and remember that Russians
are people orientated and will respond to a more personal approach.
Business Practice in Russia
• Business cards are essential. If possible, ensure that one side is printed in Russian and the
other in English.
• It is perfectly acceptable to bring a gift to your first meeting. Popular gifts include
chocolates, a local souvenir from your home country, or an item that displays your
company logo.
• Russians aren't always punctual. Don't be alarmed if a business partner is 10-15 minutes
late for a meeting.
• Generally, the head of the organization should open a meeting, and introductions should
be made in order of importance.
• Although many principal concerns are discussed in an informal environment, final
negotiations will be conducted in the office.
• Signing documents is an essential business practice in Russia. As a rule, Russians have
little faith in unsigned agreements.
5. Business Directory

Doing Business in Russia - Overview

• Doing Business in Russia - The World Bank

• PricewaterhouseCoopers Russia

• Doing Business in Russia 2007 (pdf) - Baker & McKenzie

• Russian Labor & Migration Legislation

Legal & Financial Services

• VISTA Foreign Business Support

• Alinga Consulting Group

• Alps & Chase Foreign Business Consulting

• White & Case

• Law Offices Egorov, Puginski, Afanasiev & Partners

• Dewey & LeBoeuf LLP

• Baker & McKenzie

• Allen & Overy LLP

Banks & Financial Institutions

• Alfa-Bank

• Sberbank

• Guta Bank

Russian Trade & Business Organizations

• Russian Chamber of Commerce and Industry

• Moscow Chamber of Commerce and Industry

• Saint Petersburg Chamber of Commerce and Industry

 • American-Russian Business Council

• Canada Eurasia Russia Business Association

• Mid-Atlantic - Russia Business Council

• The Russian Academy of Business

• U.S.-Russia Business Council

Business Services & Resources - Russia & CIS

• Alliance Media's Small Business in Russia - business information resources designed
especially for non-Russian-speaking businessmen.

• Russian Standard, Ltd. - provides exporters to Russia with all types of mandatory and
voluntary certification for most products, ranging from nutritional supplements and foods
to medical and oil equipment.

• Outsourcing-Russia - Non-profit Russian portal serving Russia's offshore software

development companies and international companies seeking information about Russia
IT resources.

• Rusmarket Business Portal - Business Directory for Russia, Ukraine and the CIS.

• RIN Project Yellow Pages - Detailed directory of over 350,000 organizations in Russia
and the CIS.

• The Moscow Business Telephone Guide - Business directory serving not only Moscow,
but the entire Russian market.

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Most of the information below has been provided by the Russian law firm VISTA Foreign
Business Support (www.vfbs.ru).

The form of legal presence in Russia influences all aspects of activity including possibility for
making deals and tax consequences of the deals, financial and tax accounting and reporting,
possibilities under customs, currency control legislation, ability to employ foreign nationals,
repatriation of income, application of international treaties and many others. Therefore, particular
attention must be paid to Russian business modeling to be made PRIOR setting up legal presence
in Russia.
There are several forms for a foreign investor to start business in the Russian Federation. Foreign
investor may set up (or register) a Russian legal entity in the form of limited liability company,
joint-stock company (which can be private or public) or partnership. The other way is to register
a representative or branch office of a foreign company in Russia.
In order to get more information on the different types of entities that you can establish in Russia
see the Comparison Table below:
Table 1: Starting Up a Business in Russia - Legal Entities
Russian legal entity Subdivision of a foreign company

Limited Private joint stock Representative Branch

liability company (PJSC) office (RO)
company
(LLC)

Legal Status

LLC and PJSC are Russian legal entities. RO and Branch of a foreign legal entity
They may conduct any form of are not considered as a separate legal
commercial activity, provided it is not entity. RO and Branch are subdivisions of
prohibited by the Russian legislation. a foreign company. They are considered
For conducting any licensed type of as Russian non-resident entities for
activity it is necessary to obtain currency control purposes
license. RO is a subdivision Branch is a
The number of of a foreign legal subdivision of a
shareholders/participants in PJSC/LLC entity that foreign legal entity
can not exceed 50. Any Russian and represents the that may conduct
foreign companies and persons may be company’s commercial
founders and shareholder in any interests in Russia. activity.
number of Russian companies. The ROs officially are
company may be established by a not allowed to
single founder, as long as the founder undertake
is not a company owned by a single commercial
legal entity or individual. Some activity, in Russia.
peculiarities exist for the companies
with single founder. For more detailed
information please see Sole
ownership .

Registration and Accreditation

ROs and Branches may be accredited at

Registration is done by the Tax authorities,
which keep the United State Register. several state bodies, such as State
Company also shall be registered with State Registration Chamber (GRP), Chamber of

Committee for Statistics and three non-
budgetary funds (Pension fund, Obligatory
Medical Security fund and Social Security
fund)*. Please also see Registration process
and list of documents
Trade and Commerce and various
Ministries of the Russian Government,
although the Consolidated State Register
of ROs and Branches is kept by GRP. ROs
and Branches also shall be registered
with the Tax authorities, State Committee
for Statistics and three non-budgetary
funds (Pension fund, Obligatory Medical
Insurance fund and Social Security fund).
Please also see Registration process and
list of documents

Registration and Accreditation duties and charges

Registration duty is 2000 rubles (~70 Accreditation Accreditation

USD). charges of the GRP charge of the GRP
There are also charges for registration depend on the term for 1, 2, 3 and 5
of company’s seal, registration at State for which a RO is set years accreditation
Committee for Statistics, which amount up is 60,000 rubles
in general to no more than ~80 USD. 1 year – 1000 USD (~2150 USD).
2 year – 2000 USD There is also a
3 year – 2500 USD state duty which is
also 60,000 rubles
(~2150 USD).

Authorized capital

Minimum authorized capital for LLC There is no Under the Federal

and PJSC is 10,000 rubles (~370 USD) requirement for the law there is a
At least 50 per 50 per cent of the authorized capital. requirement to
cent of the authorized capital form assets, but
authorized capital shall be paid-up the amount is not
shall be paid-up within 3 month stipulated.
prior to the upon the
company’s registration.
registration.

Management structure

LLC and PJSC have a three-tier For both the RO and B ranch an executive
management structure consisting of (1) body (Head of RO or Branch) should be
the general meeting, (2) the board of appointed by the foreign legal entity.
directors, and (3) the executive body**. Such executive body acts pursuant to the
General meeting is the highest Power of Attorney issued by the foreign
management body and it must meet at legal entity.
least once a year.
Board of Directors effects general
supervision of the company’s business
activities which are not referred to the
competition of the General meeting
Executive body of a company may be
represented by both an individual and
collegial body. The executive body acts
pursuant to the Charter document and
doesn’t need a POA.

Shares/Units

Authorized capital is divided into Non applicable

shares/units which represent rights and
obligations of a shareholder/participant
in accordance with their participations
in the authorized capital.

A unit is not a A share is a security.

security. Open subscription is
The units can prohibited
be sold to The shares allotment
anyone, but shall be registered
there can be with the relevant state
stipulated right body.
of priority for
the unit
purchase.

Accounting and Tax Compliance

Companies shall file accounting and There is almost no distinction between a

tax reports with the tax authorities on
a quarterly basis. Reports on VAT shall
be filed every month. For more
information please see Reporting
compliance table
Branch (or taxable RO) and Russian legal
entity in terms of tax compliance. RO
which carry out auxiliary and marketing
activity also should submit reports on
their activities and possible income and
all reports related to payroll and social
taxes. Reporting is generally done every
 quarter with exception for VAT (monthly)
to the special Tax inspectorate, which
deals only with RepOffices and Branches.
For more information please see
Reporting compliance table

Foreign Staff

In order to employ foreign citizens a RepOffices and Branches of foreign

company shall obtain Employment
permit. Afterwards every foreign
employee shall obtain personal work
permit. A work visa is also required. For
more detailed information please see
Employment of foreign citizens
companies have to obtain Employment
permit. Every foreign employee also has
to obtain personal work permit. A foreign
employee visa (subtype of work visa) is
required. For more detailed information
please see Employment of foreign
citizens

* Effective 1 January 2004, the registration procedure for Russian legal entities is
simplified by the introduction of a “one window” approach to the process and Tax
authorities are responsible for the registration procedures.
** If there is one founder in the company the management structure differs from
the structure owned by several founders. See the information on Sole Ownership

Sole ownership.
As it was mentioned before Limited Liability Company or Private Joint Stock Company can be
founded by an individual (Russian or foreign) or by a legal entity.
The founding document at Sole ownership company is a Charter. Such company doesn’t have
some management bodies such as General Meeting of the Founders. There is no Board of
Directors. All the decisions are taken by the sole founder. Accordingly legislative requirements
on calling of the general meetings, and other procedural requirements do not apply to such
company. The management of the company is done by issue of written decisions of the fonder. If
the fonder is also a General Director in the company the decisions are made by issuance of
orders.
At the same time such company is a separate legal entity, its assets are legally isolated from the
assets of the founder.

Formation of a Russian legal entity. General information.

Stages of registration of a Russian legal entity:

1. Registration at the Tax authority 5-7 working days

2. Registration at the State Committee for Statistics. 2-5 working days
3. Making of the seal of the Company. 2-5 working days
4. Registration at non-budgetary funds (Pension Fund, Social Security Fund,
Obligatory Medical Security Fund) is done by tax inspectorate
5. Opening of the bank account depends on the bank
6. Registration of the shares issue with the Federal Services for Financial Markets*
24-30 working days
*Is applicable only to Private and Public Joint Stock Companies.

List of documents required from a company – non-resident:

1. Certificate of Incorporation or extract from the Trade Register of the country of

origin.
2. Memorandum and Articles of Association.
3. Resolution of the Company’s executive (managing) body upon the appointing of
the Head of the new company or Power of Attorney to the person authorized by the
Company.

Documents mentioned above require Consulate legalization or apostille

with notarized translation to the Russian language.

List of documents required from a foreign individual:

1. Passport
2. Russian visa (if any)

Representative and Branch office accreditation. General information.

Stages of accreditation:
1. Accreditation with the accreditation authority 14-21 working days
2. Producing the seal 2-5 working days
3. Registration at the State Committee for Statistics 2-5 working days
4. Registration at the State Tax Inspectorate 5-7working days
5. Registration at non-budgetary funds is done by tax inspectorate
6. Opening of a bank account depends on the bank

List of documents required from a foreign legal entity:

1. Memorandum and Articles of association of a foreign legal entity (charter, bylaw).

2. Certificate of Incorporation of a foreign legal entity or Extract from the Trade

Register.
3. Letter of introduction provided by a Bank that serves for a foreign legal entity in
the country of incorporation that proves its solvency.
4. Resolution of a foreign legal entity about opening of the Representative or Branch
Office and appointing of the Head.
5. Power of Attorney given to the Head of the Representative or Branch Office.
6. Certificate of registration with Tax authorities with Tax Code of a foreign
company (or its analogue in the country of its establishment).

Documents mentioned above require Consulate legalization or apostille

with notarized translation to the Russian language.

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