Starting a Business in Russia
Not So Complicated as Many Think
Let’s be clear. This article is not about registering a branch or representative office of a foreign company. If you want to do this, then you work for a company with the resources and capital to employ an army of experts to do the necessary. But if you are considering leaving the corporate womb to branch out on your own and maybe want to turn a hobby into a career, then this should help you.
More than most places, doing business in Russia demands ambitious entrepreneurial types who thrive on challenge, chaos and adventure. You will require stamina, fortitude, perseverance and patience.
There are two ways a foreigner can legally engage in business here. One is to be registered with the tax authorities as an individual entrepreneur, but only if you have a residence permit (see here). The other way is to own, individually or with partners, a company.
I am still surprised at the number of expats who are mistakenly convinced they need a Russian partner to legally register a business here. One of the most liberal aspects of Russian legislation is that from the time private enterprise was enabled here in the perestroika era foreigners have had the same rights as Russians to own companies.
Some of the early entrepreneurs, like Derk Sauer who founded Independent Media, now publisher of three newspapers and a dozen glossy magazines, and literally thousands of others, have built model business empires.
So how easy is it?
In 2000, I walked up the stairs to a suburban law office which had advertised ready made companies for sale in the Russian language Uslugi I Tsena magazine. I chose a vague sounding name from a list which included some names for construction and investment companies and, after a side trip to a Notary to witness my signature on several documents, within hours I was the duly registered sole owner, general director and chief accountant of my own company. I received a registered office address, company registration certificate, a company seal, two Russian bank accounts with cheque books, registrations with the local tax and social security offices, and a VAT number. It cost $600. The same package today will cost around $1,000 from a wide array of lawyers advertising their services in Usligi I Tsena, Iz Ruk v Ruki and by internet spam.
Beware of any who do not have an office and offer to meet you in a cafe or metro station.
Many types of businesses, from restaurants to tour agencies, require additional licences from different regulatory authorities. Ask the lawyer you are dealing with about these.
The type of company I bought was a ZAO – a closed joint stock company. Since March 2004 the shares of all joint stock companies have to be registered with the Federal Service for Financial Markets, so most ready-made companies are in the form of an OOO, a limited liability company. You can also have an open joint stock company, OAO; but this form is usually adopted by entities with more than 50 participants (shareholders) and a ZAO can be converted to the OAO form.
Partnerships are another legal form of enterprise in Russia, but Ernst and Young cautions against these because of the unlimited liability of the partners in a general partnership and of the general partner in a limited partnership.
The alternative to the fast and easy route of a ready-made company is the made-to-measure process incorporating a company from scratch, with the name of your choice and with tailor-made by-laws and company charter. It is possible to do it yourself, but unless you speak fluent Russian, have unlimited time and boundless patience it’s better to entrust a lawyer to do it for you. The process takes about six weeks and you can expect to pay from $2,500 up to $5,000, including registration fees for the service.
A common error of expats is to appoint a Russian, whom they don’t know very well, as general director of the company in the belief that he becomes the man in the hot seat for tax inspections and other dealings with the Russian bureaucracy. Russian law and practice cedes considerable authority to the general director. Unless specifically restricted by company by-laws he may, for example, open and close bank accountants, borrow money and pledge assets, hire and fire personnel, authorise third parties through powers of attorney, and sign contracts and other documents binding on the company. All without the need for board of directors’ resolutions!
Better by far to avoid the tears of hindsight and sign up for the general directorship yourself.
One thing you are definitely going to need help with is your corporate and payroll tax administration. Many firms, including the lawyers who can help you form a company, offer tax and payroll services, and for small start-ups they can be very cost effective.
In conclusion, the swiftest way to get into business in Russia is to buy an off-the-shelf company for $1,000. After you are making money, budget another $1,500 or so to have your by-laws reviewed, your charter and even your company name amended.
Don’t mess with the tax and payroll taxes. At 24% and 26% respectively, they are now in line, or better than, much of western Europe.