Business in Russia
Before undertaking business activity in Russia, it is necessary to choose which type of legal entity to form. The type of company form will influence all activity of the company, which includes financial and tax reporting, customs as well as currency control. Therefore, an investor should pay special attention when determining the appropriate corporate form since this will help to achieve goals that are set while meeting all legal requirements. However, luckily the Russian government has simplified the procedure of setting up a business!According to the Russian Commercial Code there are six forms of business entities from which four entities are used by foreign investors and owners. These four most common business forms are Limited Liability Company, Joint Stock Company, Branch or Representative Office and Sole Proprietorship.In most cases there is no need for a local partner when establishing business in Russia, however there are certain industries such as energy and telecommunications which have certain restrictions when it comes to full foreign ownership.Foreign nationals in Russia can act as sole proprietors. The sole ownership in Russia doesn’t require a minimum share capital and it is the basic form of business in Russia. The founder is taking all the decisions necessary to the good function of the entity and can use the profits after submitting the personal tax income declaration to the tax authorities.
As a standard, foreign companies that are established as a permanent entity and earn profits from Russian sources are liable to pay 20% Russian corporate tax on earnings. Both local and foreign companies are subject to the same Russian corporate tax rate. However, foreign companies only pay Russian taxes if they have a permanent organization or an administration board and earn profits from Russian sources.
Russian residents are liable to personal income tax on their total income received in a calendar year. Non-residents are taxed on income received from sources in Russia. The personal income rate is 13% for all types of income received for residents, for non-residents 30%, although with few exceptions.
Standard VAT rate is currently 18%. Reduced rate for goods for children, food products and drugs is 10%. Sale without VAT is for export. Foreign companies that provide certain cross-border services to Russian customers are required to pay 20% VAT in Russia.
In Russia, the special economic zone (SEZ) is an area with a special legal status and various economic benefits designed to bring Russian and foreign companies into sectors that are considered as a priority in the Russian economy. Examples of SEZ types are industrial/developmental zones, technical/innovational zones, tourist zones and logistic zones. Since 1 January 2018, there are 21 special economic zones (9 industrial, 6 technical, 5 tourist and 1 logistics). In Moscow area there are technological special economic zones called "Technopolis", "Dubna" and "Istok".
The regulation of employment in Russia is governed by the Labor Code of the Russian Federation, which applies equally and must be complied with by both the executives and the employees. Russian labor laws apply to foreign nationals and foreign businesses in Russia in the same manner as to domestic entities. All regulations related to minimum guarantees, employment benefits and compensation supersedes any agreement between the employer and employee. The employee-sided nature of Russian labour legislation makes employment in Russia complex.
Expats are liable to pay resident Russian taxes and social charges only if they stay in the country at least 183 days during a calendar year. Your employer will typically arrange for your registration with the Russian tax office and secure your social security number. Self-employed workers will need to arrange their tax registration and Russian social security number themselves. The employer deducts and pays to the budget personal income tax from the gross salary (13% for resident or 30% for non-resident) as a tax agent. Social taxes are paid by employer.
In the condition of an employer-terminated agreement as a result of redundancy or liquidation, two months’ notice is given along with a two months’ salary severance payment to the employee.
Termination of the employment agreement by the employee may be carried out by providing two weeks’ written notice to the employer, which is a basic right under the Labor Code that cannot be overridden by contractual terms.
The Highly Qualified Specialist (HQS) program was introduced in 2010 and allows companies in Russia to employ foreign national workers with various benefits including a simplified application process and exemption from quotas.
BEING AN EXPAT
Expats wishing to work in Russia must apply prior starting work for a temporary residence (consequently a work permit) or a permanent residence (no work permit needed). It may be arranged either with the Russian employers while residing outside of Russia. Alternatively, expats may enter the country, look for work, and then leave the country to process the visa.
Foreigners looking to reside in Russia will have to brace themselves for a lengthy apartment-hunting. Expats are advised to seek out real estate agencies when looking for an apartment.
Foreign nationals are obliged to pay contributions towards the Russian social security system if they reside and work in Russia for more than 183 days in a calendar year.
Moscow is the main city for expat communities; a significant portion of foreign population is employed in international industries situated in the city. Another popular city among the expats is St Petersburg.