Starting a business in Russia

Tired of the endless loop of finding work only to boost your CV? Maybe the time is right to set out on your own and start a business. If you are a foreign individual or company looking to start actively doing business in Russia, what do you need to know and what do you need to do to get started? What options do you have in terms of how to structure your business?

This guide covers the essentials for starting up a business in Russia, including:

How to start a business in Russia

There are a number of things to consider and processes to go through if you are an individual or company thinking of starting a business in Russia. You need to start off with basic considerations such as whether you can legally operate as a business in Russia.

You also need a business idea that is likely to work, before moving onto practical considerations such as choosing a legal structure, drawing up documents, joining the Russian company register, and opening up a Russian bank account for your business.

Immigration status

The first thing to do if you are a foreigner wanting to start a business in Russia is to make sure your immigration status allows you to trade in the country. Will you need a business or work visa or a residency permit? See the below section on business visas in Russia for more information.

Business plan for conducting business in Russia

Secondly, do you have a feasible idea and have you researched the market to assess whether your business is likely to be successful in Russia? Before launching into any business venture, it’s a good idea to draw up a business plan to answer all of the questions about whether your business idea is likely to not only get off the ground but sustain itself in the long-term. Successful Russian entrepreneurs know that it’s all well and good having an innovative idea, but not all business ideas succeed in practice so it pays to plan properly.

Download business plan templates and look at sample business plans from various industries. You can also check a website such as this one which maps businesses in Russia. You can search the site by business category or name.

Legal structure

If you can start a business in Russia and are confident that your business idea works, the next step is to decide on your business legal structure. Information on options available is in the section below on Russian company types.

Choosing company name and address

You need to choose an appropriate trading name for your Russian business (ensuring that you don’t choose a name that someone else has already registered) along with an address to register your Russian business at.

Foundation documents

In accordance with Russian legislation, the founders of the business need to draw up the foundation documents (charter and founding agreement). The process for this will vary according to which legal structure you choose, but should include the following:

• full company name (plus any abbreviation it will use in business transactions)
• names and signatures of the company founders
• the amount and nature of shareholder contributions (cash or in-kind)
• rules for the running of the company
• legal responsibilities
• details of any directors, if applicable

For Limited Liability Companies and Private Joint-Stock Companies, the minimum legal capital requirement is R10,000 per individual, with 50% at the point of registration and the remainder paid within the first 12 months.

Joining the Russian company register

Once the company documents are drawn up, incorporate your Russian business by sending the following documents to the registration office of the Federal Tax Service (FTS):

• registration application form including notarized signatures (cost of R200)
• copies of foundation documents
• proof of legal status of business founder(s)
• receipt of the state registration fee (which costs R4000)

A copy of the registration application form is available on the FTS website.

You can find your local FTS office here.

Once these documents have been sent, the FTS makes a decision within five working days. They either approve your business to the State Register or refuse the registration. A list of grounds for refusal is available in article 23 of the Federal Law no. 129-FZ.

If your business in Russia is accepted, this process also registers the business for tax purposes. You will receive the following documents within 7 days of the submission of your application:

• the Incorporation Certificate (or Certificate of State Registration) for your business
• Tax Certificate
• Tax Identification Number for the business
• copy of your foundation documents with the mark of registering authority
• Extract from the Common State Register of Legal Entities

Make a company seal

This is the official mark of the business and is produced by a professional company. Company seals are no longer a legal requirement in Russia following a change in the law in 2015, however many Russian businesses still have seals. The cost for producing one is R500.

Open up a bank account for conducting business in Russia

Once you have all the official documents from the FTS, you can open a local business bank account. You need a notarized copy of the signatures (cost of R200 per person) for the account. To open a business account in Russia, you will need the following:

• Incorporation Certificate and Tax Certificate from the FTS
• Founding documents of your business
• Your Russian business license (if applicable for your business)
• Notarized signatures
• Documents confirming the identity and authority of the signatories of the account

Once you have completed these steps, you are free to start the running of your Russian company which will inevitably involve a lot of organizing, marketing, etc. Where the hard work really begins! The steps above should take around 18-21 days in total to complete.

Russian company types

There are a number of different legal structures to choose from for a Russian business. You’ll need to determine which one you will opt for before you move forward with most of the steps in the section above. Full details of legal business structures and their features are available in the Civil Code and companies law of the Russian Federation – Federal Law 14-FZ (Limited Liability Companies) and Federal Law 208-FZ (Joint-Stock Companies). The six main types of Russian companies are:

Limited Liability Company (OOO)

This is the most common type of business in Russia. An OOO can have a maximum of 50 shareholders who need to contribute a minimum of R10,000 each (50% payable on registration). Shareholders are jointly liable for company debts up to the registered capital amount.

The management structure consists of 1) general meeting (the highest body that meets at least once a year) and 2) board of directors (oversees general business activities). In some cases, an executive committee may also be formed.

Any Russian or foreign individual (or company) can be a founder or shareholder of any number of Russian OOOs, although to be a board member or director you will have to have the necessary visa and/or residence permit to live in the country if you are a foreigner. An OOO is a Russian legal entity that can conduct any form of activity not prohibited by the Russian Federation. They will need a license to conduct any licensed type of activity.

Joint-Stock Company

This can be either open (OAO) or closed (ZAO). The ZAO is a private Russian company and is very similar to the OOO. The OAO is a public company. The main differences are that an OAO can have more than 50 shareholders, shares are freely transferable to the public (rather than just between shareholders), and the minimum requested capital contribution is R100,000.

The management structure and shareholder liability of both types of joint-stock company are similar to the OOO.

Partnership

Partnerships are often more suitable for small businesses in Russia. There are two types of partnership in Russian business:

• General partnership – where two or more individuals (or companies) have equal rights and liabilities based on a partnership agreement. Unlike with limited liability and joint-stock companies, personal assets can be used to cover debts with a general partnership. Management is shared between partners and the business capital is detailed in the partnership agreement.
• Limited partnership – where the partnership has two types of partners. General partners who are fully liable for debts and profits, make the main decisions and can cover costs with personal assets; and limited partners who are only liable up to their contribution to the business capital.
• Sole ownership – this is for individuals starting a Russian business on their own. Details are in the below section on freelancers and self-employed.
• Branch – a subdivision of a foreign company based in Russia and entitled to conduct commercial activity. Not considered a separate legal entity from the overseas company and treated as non-resident More details in the section on foreign companies registered in Russia below.
• Registered Office – a subdivision of a foreign company based in Russia with the purpose of representing company interests in Russia, but not allowed to undertake commercial activity. Not considered a separate legal entity from the overseas company and treated as non-resident More details in the section on foreign companies registered in Russia below.

The rules of doing business in Russia

> Personal and corporate security is a major issue in every city. Background checks of employees and subcontractors are critical.

> Reimbursement of business losses, legal remedies for fraud, and recovery of damages are almost non-existent. Use Russian legal counsel for safeguarding your interests. Intellectual property laws are in their infancy.

> Business is hierarchical. Find out who’s who before a meeting and do business with the decisionmakers. Business cards are essential.

> Russians are addressed by their name and father’s name carried by all Russians rarely by the family name. For example – Alezander Petrovich – which translates literally to Alexander son of Peter.

> Russians like direct talk. Underline the profitability factor early in the meeting, but remember they consider too much compromise as a sign of weakness. Often the final deal is not final; you may strike a better bargain by holding out a bit more. When a deal is struck, businesspeople seal it off with a glass of vodka.

> Punctuality is not a strong point of the Russians, but they expect foreigners to be punctual.

> When dealing with bureaucrats, patience is a virtue. In government offices, small gifts and money can work wonders. It is important to know how the official and unofficial systems work.

> Corruption and petty theft is rampant, even amongst employees. It is good to be cautious.

> An expat needs to be flexible with his Russian colleagues. To get the best, motivate them, allow them to feel secure, and voice their feelings. Sell your ideas to your Russian colleagues, don’t force them.

Remember learning how to unlock the human potential of Russian employees is critical for a foreign firm to be successful in Russia. Sometimes the company atmosphere, non-monetary benefits and a guarantee of a stable future is more important for a Russian than the salary.

Etiquette and social custom

At home you see a very different side of the Russians you know at work. It is an honor to be invited to a Russian home and there are certain rules to remember when you visit a Russian home for the first time:

> Bring a gift when invited. Wine, cake, chocolates and flowers are common choices. Flowers should be given in odd numbers and avoid yellow roses, which are a sign of separation.

> Don’t shake hands or kiss across the threshold of the doorstep as this brings bad luck. Remove your gloves before shaking hands. Take off your shoes before entering the house.

> Both the guest and host should dress well.

> Traditionally a guest will be directed to a table laden with food and drinks immediately upon arrival, though the influences of ‘European’ behaviour are becoming increasingly evident. At the table you should participate actively in conversation.

> Accept all food and alcohol. Russians enjoy their drinks; if you decline, do so tactfully.

> Russians have a particularly unique form of toasting. Take part and learn it, as you should give toasts when entertaining.

> Often the host will talk about his travels, prized possessions or achievements. They might even bring out family albums. Be sure to show your appreciation. More often it is a way of opening up to a guest. Russians can take criticism and are great satirists.

> Dinners go on late into the night and there is often lot of drinking and loud talking. Don’t expect too much of formalities. Remember the best of the house is on the table, give it the due respect.

Russian entrepreneurs and self-employed sole traders in Russia

Individuals working freelance or self-employed can set themselves up as a sole ownership. This is common for those with small businesses in Russia. There is no minimum capital share requirement in this type of Russian business and the sole trader takes all the decisions and is free to use profits as they wish once personal income tax payments have been made. As with partnerships, personal assets can cover debts.

Individuals can also set themselves up as an individual entrepreneur (self-employed person) which means that they don’t have to form a legal entity as a sole proprietor. The process for setting yourself up as a self-employed person is the same as for starting up a Russian business apart from not having to draw up founding documents. You will still need to register with the FTS and will receive a state registration and tax certificate.

Foreign companies registered for work in Russia

Companies registered outside Russia can set up a subdivision inside the country either as a branch (if wanting to engage in commercial activities) or as a representative office (if wanting to represent company interests).

These subdivisions are not considered as separate legal entities from the overseas company although they still need to be registered for tax purposes with the FTS. There is no requirement to form assets for representative offices. With branches, there is a requirement although the amount is not stipulated in Federal Law. There are no shares. The foreign company in both cases should appoint an executive body for the purpose of managing the subdivision.

You can read more about setting up an offshore company, which is registered, established, or incorporated outside of your country of residence, in our helpful guide. This outlines the major pros and cons you need to consider, including privacy and reduced tax liability. It also explains how to register, establish, or incorporate your offshore business.

Business in Russia: visas

You will need to have a residence permit and the required visa (if applicable) to become self-employed, start a Russian business or hold a position in a company (e.g., partner, director, board member) where you are involved in regular decision-making. Those with temporary as well as permanent residence permits can apply to start a Russian business. Non-residents can be shareholders of Russian companies.

If you want to start up a business in Russia and you don’t have residency, you can apply for a Russian Work Visa to come and work as self-employed if you can obtain an invitation from the Russian General Directorate of Migratory Affairs (GUVM). If you are looking to start a business in Russia that might generate revenue and create jobs, you can apply for a Russian Business Visa.

Foreign investors have equal status with locals apart from certain restrictions that apply to banking and insurance sectors, some land purchase restrictions and some investments in economic entities of strategic importance. See more here.

See our guide to Russian visas and Russian work permits for more information on visa requirements.

Taxes and accounting for Russian businesses

The reporting year for tax purposes in Russia is 1 January to 31 December. New Russian businesses who are established before 1 October in any year are required to submit a tax return for that year. Businesses that start after that date submit their first return the following year.

All Russian businesses are required to keep properly recorded accounts for tax and auditing purposes. Limited Liability Companies and Joint-Stock Companies need to file reports to the tax authorities every quarter and VAT reports every month. Subdivisions of foreign companies are treated the same as Russian legal entities in terms of tax and accounting compliance.

Corporation tax in Russia is 20% and VAT is 18%. There is no threshold for VAT (20).

See our guide to taxes in Russia for more information.

Employing foreign staff in Russia

To employ foreign staff in Russia, you will need to obtain an employment permit from the GUVM who issue according to quotas. Once this has been secured, employees will need to obtain a work permit and visa from the GUVM.

Useful resources

• Russian Ministry of Industry and Trade
• Russo-British Chamber of Commerce
• Russian Trade and Economic Development Council
• Russian Investment Agency
• Russian Direct Investment Fund
• VISTA Foreign Business Support
• Russian Agency for Small and Medium Business