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Expats Owning and Operating a Business in Russia

Author: Jim Newham
Submitted: January 2015

One of the most desirable characteristics for businesses operating abroad is the stability of the foreign country. This cannot be guaranteed in Russia, where the rule of law does not always apply, partly because upholders of the law and other authorities themselves can be capricious. Corporate asset-grabbing, or reiderstvo, is rife, and the legal system does not provide an adequate framework to protect businesses and keep them secure. Companies planning to operate in Russia will need to be aware of these risks and accept them.

If you are an expat wanting to start your own business in Russia, the first step is to ensure you have the legal right to live and work in the country. For more information on this, see Immigration – Working for Expats in Russia. Although there are no general restrictions to expats wanting to start a business in Russia, some specific industries are off limits, including those related to strategic sectors, credit and insurance establishments and gas supply. Nevertheless, as with other aspects of Russian life, there is a lot of bureaucracy to wade through in order to start a business.

 

Business Plan

The Russian market is very competitive; therefore it is vital to have a good business plan before starting your own business. When writing your business plan, make sure to research which businesses already exist in your field and determine your potential customers, partners and competition. Your business plan should set out your business objectives, target market, commercial strategies, potential obstacles and financing projections.

 

Setup and Registration

Although things have improved, the forbidding bureaucracy of the Soviet days is something that has not quite left Russia yet. The process of setting up a business in Russia is complicated and it is beyond the scope of this article to address it fully. For more details on starting a business in Russia, see the Company Formation Russia website.

Briefly, you must first complete two copies of the company registration form P1101. This then then has to be notarised and tax stamps bought for each copy. A notary is also required to draft the company charter. You then need to deposit the starting capital into a temporary account and pay registration fees; this can only be done at a branch of Sberbank. You will then need to register with the Federal Tax Service and complete several other formalities. Ensure you keep all your records and invoices, else you may have to start the whole registration process again.

 

Legal Structure

Another important step is to decide which legal structure is best suited for your business. The legal structure will determine the nature of your legal, financial and tax obligations. The two most common business types in  Russia are self-employed (individual entrepreneur), partnership and limited liability company.

Self-Employed

The advantage of setting up your business as a self-employed person is that you have full ownership and control over the business, and that all after-tax profits are yours. On the other hand, you are personally liable for all the losses your business makes, and have additional responsibilities, such as keeping business records. To register as an individual entrepreneur, you must have either a temporary or permanent residence permit.

Partnership

The business partnership in Russia comes in two forms, full partnership and limited partnership. For a full partnership, there is no minimum requirement of starting capital, nor a minimum number of partners. Each individual can only be in one partnership, however. Management of the partnership is performed along lines agreed by all partners.

For a limited partnership, there is a minimum starting capital level, but it is only at R10,000 (about €200). One partner must agree to have unlimited liability; the others may all then have limited liability.

Limited Liability Company

A limited liability company is the most suitable structure when investment is coming from abroad only. Again, the minimum starting capital is R10,000. There can be  a maximum of 50 shareholders with this type of company. The liability of each shareholder is limited to the amount of their stake in the company.

Other Structures

Other legal structures in Russia include joint stock companies, which can be either open or closed. The closed joint stock company is best for investments between foreign and Russian partners. Note that there are two systems of taxation for businesses in Russia: traditional and simplified. Most small companies can opt for the simplified system. For more details on tax matters, see Taxation.

 

Employing Staff

If you want to employ someone – including yourself – to work in your business you will have to register as employer at the local tax office. Online registration is possible. However, in certain cases expat business owners must register by telephone or in person.

As employer, you will have to ensure that your business complies with Russian labour regulations. You should familiarise yourself with different types of contracts, minimum wage requirements, equal opportunity policies, work permits, insurance payments and recruitment options.

 

 

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