3 legal ways to start a business in Russia, if you are a foreigner

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Thinking about registering a company in Russia, but not sure how to go about it? We’ve got you covered – here’s a list of things you should know prior to making any big decisions.

Luckily, the procedure for setting up a business in Russia has been actively simplified by the government. Today the process usually takes just three days and is not significantly different for a foreigner compared to a Russian citizen. Let’s take a look at what legal options there are:

1. Registering an individual enterprise

The easiest and cheapest option is to register a business as an individual entrepreneur. According to lawyer Alexei Tarasov from the Moscow-based European Law Services, to register such a business you would need to submit a notarized translation of a passport, a document specifying place of residence (i.e. residence permit or temporary residence permit), and a receipt of a state fee payment (800 rubles or $14).

Three days after submitting an application with the public services center, you will receive an excerpt from the Unified State Register of Individual Entrepreneurs and will be able to work in Russia.

“This particular form of business gives foreign nationals legal rights and responsibilities but means that he or she will be held responsible for the business’s duties with his or her property,” Tarasov says. “Yet this legal status means a lesser level of administrative duty if compared to other legal entities. On a positive note, it also frees a person from an obligation to maintain accounting records and gives an opportunity to use the earned money as one pleases, without paying an additional tax on revenues.”

Selling such a business will be possible (but only as property held by a foreign citizen) and it will be easy to liquidate it legally, but getting rid of the debts will not be easy. After the liquidation, the debt repayment will remain the owner’s obligation.

2. Founding a Limited Liability Company (LLC)

Setting up a LLC will take a little more time and resources. The application should be submitted to the relevant tax body and will require a legal address (it might be a personal address), a charter, and a minimum starting capital of 10,000 rubles ($172). One should also specify a general director of the future firm (this might be a foreign national) and be ready to regularly prepare and submit monthly accounting reports. It will also be mandatory to set up a bank account for the firm and manufacture a seal.

“To register a LLC, foreign nationals need to provide a notarized passport translation and have a translator accompany him or her at the Federal Tax Service, if they don’t speak Russian,” says Alexander Arakelyan, a lawyer at BGP Litigation. “The validity of his signature will be notarized and the application will be forwarded to the registrar together with all necessary founding documents and a registration fee of 4,000 rubles ($69).”

Registering a business as a LLC would mean that all revenues will be subject to 13 percent tax (if a foreigner received a status of Russian tax resident) or 15 percent – if a person doesn’t have a taxpayer status.

“As compared to individual entrepreneurship, a LLC will not hold its owner responsible for its rights and obligations, of course, if they were not responsible for making it bankrupt,” says Tarasov. “So in this legal entity the founder will be able to simply sell his share.”

3. Buying a stake in an existing firm

If a foreign national decides to buy a share in an existing business, then they will need to register the deal with a notary and provide all necessary documents to the relevant organization, according to Arakelyan.

Prior to making such a decision, one should think about checking the firm’s accounting records and examine the charter that specifies the rights and obligations of the company’s owner, Tarasov recommends. “Only after this check one can decide to buy this company or not,” he says.

What to keep in mind?

Starting a business from scratch is not that hard and anyone has a right to do it, but if one needs to mark their presence on a particular territory it might be a good idea to buy a stake in an existing firm - believes Sergei Voronin, lawyer and managing partner at the “Pravovoye resheniye” company.

“Regarding the second option (buying a stake), one should decide the scale of the potential involvement in a working business and take into account the sector in which the company operates,” the expert points out. “If the decision has already been made then one can consider two ways of contributing to the business: Firstly, it might be a financial contribution and, secondly, it can be an intellectual property or material investment.”

According to Voronin, it is common for foreign companies to be registered in Russia as branches of foreign corporations or small private businesses. “If a company is set up by a foreign entrepreneur it is usually either an individual entrepreneurship or a joint company with other stakeholders (LLC). If we talk about a Russian branch of an international company, it is usually a LLC,” he explains.

“First and foremost, one should examine if there are any limitations for foreigners doing business in an area you are interested in. Then, it would be useful to explore if there are any limitations or conditions in your homeland on doing business in Russia (for instance, related to cooperations with business in Crimea),” Voronin warns.

Unfortunately, there will always be risks connected to finding a right partner in Russia or doing business in the country. Any of the above options do not ensure that problems will not occur, lawyers note.

What is important is to learn and study Russian laws and constantly follow any updates, says Voronin. “If a foreigner doesn’t fully speak Russian then it would be a good idea to hire a translator or a representative in Russia that will take care of company’s activities, especially if a foreign owner cannot stay there permanently,” he recommends.

It’s also important to note that there are many specialized firms that offer guidance and help in registering a company. So, if you don’t want to spend too much time on unravelling red tape, it might be a good option to hire a lawyer to take care of the paperwork.

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