Starting a business in Russia comes with a slightly different set of rules than in most other countries. Foreigners looking to start their business in Russia or invest in Russia need to take care of immigration policies before thinking of doing so. There are also a lot of taxes in Russia which are either different or in addition to the regularly known types of tax implications.
Another differentiating factor is that there are a lot of business etiquette that are given a lot of importance in Russia. All prospective business owners and investors must be familiar with these, whether they are citizens of Russia or Foreigners. There are a lot of platforms where detailed information about every step and requirement is laid out so that entrepreneurs and investors can conduct in-depth research about various aspects of starting a business in Russia and running it smoothly.
Foreign citizens must ensure that they receive a business visa, work visa, or permanent residency in Russia before they can establish a business or invest in Russia. We will be dealing with many more aspects in the next few sections to start a business in Russia.
A distinguishing feature in Russia when looking to start a business is that businesses need to create their company seal. It is required to have a unique business seal used on all important documents. There is also a long list of foundational documents to be procured before registering the company. These include company names, names and signatures of the founders, shareholding divisions, names of directors, legal structure, and rules for business conduct. Business owners and Investors must also understand the structure of the company they will establish as the obligations for each differ.
Process of setting up a business in Russia
Starting a business in Russia starts with coming up with an idea and creating a realistic business plan. A business plan is crucial as it would help sort out many details like getting credit, budgeting, and so on. Your business plan must contain what your idea is, how you plan on starting it, what kind of market you will cater to, what is your expected cost of producing the product or service that you plan on selling, the resources you would require, the number of people you would hire, the number of funds possibly needed and what kind of profit margins you are looking to start with. It should also contain the plans for expansion.
Deciding upon the legal structure of the company is the next step. There are six types of companies recognized in Russia, including:
- Limited Liability Company: A Limited Liability Company (OOO) is one that can have up to 50 shareholders, each of whom needs to contribute a minimum of R10,000 to become a shareholder. They are each liable to pay the company’s debts up to the capital amount registered by each. All of the shareholders need to pay 50% of their contributions before the registration of the company.
- Sole Proprietorship: This, as the name suggests, is a business owned by a single person who is solely responsible for paying off all debts and completing all obligations related to the business. This also includes freelancers. There is no minimum capital share requirement for this kind of business.
- Joint-Stock Company: A Joint-Stock Company can be of two types: OAO (public company or ZAO (private company). A ZAO is quite similar to an LLC in terms of structure. The OAO is different because the minimum amount of capital is R100,000 per shareholder, and there can be over 50 shareholders. The shares can also easily be transferred to the public.
- Partnerships: Partnerships are of two kinds in Russia: general and limited partnerships. In a general Partnership scenario, partners’ assets may be used to cover debts and other obligations. In a Limited Partnership, there are two types of partners, general partners who are fully liable and limited partners who are only liable to fulfill their contribution share.
- Branches of Foreign Companies: Branches of foreign companies are situated in Russia but are considered a foreign entities. They are not considered a separate entity from their original branch. They are free to conduct commercial activity despite not being considered a resident.
The next step is coming up with the name of the company and the location where you would set up shop. Once all this is done, and you have selected the legal structure, completed all formalities, and collected all the Foundational Documents, you need to register with the Federal Tax Service (FTS).
This way, you can get your company registered. If your application is approved, the company will also be registered for tax purposes. Upon successful registration, you will get certain documents like the Company Incorporation certificate, Tax Identification Number, Tax Certificate, copy of the Foundation Documents, and other legal documents.
You need to have a company seal to start a business in Russia. Upon receiving the FTS documents, company owners must ensure that they open a Russian Business Bank Account. This would require signatures (costing about R200), an incorporation certificate, and other FTS acquired documents.
After this, all that is needed is hiring employees. However, in Russia, background checks and personal and corporate security are taken extremely seriously. This is where HR experts like Zimyo come to the fore with their exhaustive range of services, including payroll management.
Before hiring employees, business owners and investors must also consider some very important factors like:
- Need: When starting a business, you need to assess the need for help at a particular time and hire people accordingly. Hiring too many people when not needed may not be the best move for a new business.
- Cost of Employee: Salaries, paid vacation time, pensions, and other costs of an employee are important factors to consider while hiring them. This is also important for ensuring you stay within budget and can hire enough help for the current needs of the business.
- Plan of Expansion: Are you planning on expanding your business to cover more areas or increase services? If so, you would want to hire employees accordingly to have enough room to expand.
Hiring Employees in Russia
Here are some of the essential aspects of hiring employees in Russia: –
- Trial Period/Probation Period: The Russian Labor Code has determined that the maximum duration of probation cannot exceed 3 months. In a few employment categories like CEOs and such, the probation can extend upto 6 months. The employer needs to mention the duration of the trial period in the written employment contract and cannot exceed this time even through a discussion with an employee.
- Leave and Holidays: Holidays and Leave come in various forms. In Russia, employees get 11 public holidays per year. Apart from that, they also get paid holiday time of 28 days as a standard. However, employers can choose to give extra paid time off to their employees.
In Russia, there is no paid sick leave; however, there is a sick leave allowance which means that employees can claim insurance for sick leave. T
he amount of allowance they get varies on the duration of service and their salaries over the previous years. The allowance is capped at R2301 per day. The rate of allowance can be 60%-100% of the employee’s salary. This claim is made from the Social Insurance Fund.
- Maternity Leave: Expecting mothers are entitled to receive 140 days of paid maternity leave in regular pregnancy and 170 days’ paid leave in case of multiple pregnancies. In addition to that, they also get extra paid leave days from the employer until the newborn child turns 18 months old. This additional leave is known as childcare leave. The Social Security Fund handles this, and the payout is calculated every year.
- Termination of Services: Employees are entitled to severance pay in case of termination of services. The amount of severance pay is determined based on the reason to terminate. In case of an employee’s inability to work or his refusal to change positions within the company, the amount paid is equal to two weeks’ pay. In case of redundancy or liquidation of the company, the amount is equal to one month’s pay plus an additional two months of pay while the employee tries to find another job. If an employee fails to attain a job at this time, they can get a letter from the Employment Fund requesting another month’s pay from the employer.
- Pension: Russia has statutory pension insurance funded through the employer’s contributions and the State Pension Fund. The employer contribution is ordinarily between 3%-5%, but it can go higher for higher positions. The more generous employers can also go higher and usually, this rate is capped at 5%-10%. Employee contribution to this usually ranges between 2%-3% of the pensionable income.
- Work Hour Norms: Russia has set the maximum working hours to 40 hours per week per employee. This amounts to 8 hours of work per day. If an employee is working beyond the maximum duration, overtime would be considered. Employees are entitled to receive 150% of their regular wages for the first two hours and 200% for the following hours.
How easy is it to conduct business in Russia?
The Russian Federation ranked at no. 28 in terms of ease of doing business. This is measured upon several parameters and for around 100 countries.
- Starting a Business: Russia ranks at number 40 in terms of ease of starting a business in Russia. It secured a score of 93.1 on a scale of 100. This was achievable because there are just 4 steps to start your business in Russia, and it takes about ten days to complete it all.
- Managing Permits: Managing permits is quite straightforward in Russia. There is a clear-cut list of permits that need to be procured, and the officials in all government departments are very efficient in completing their bit of the procedure. As the entrepreneur, you must ensure you have all the documents before getting permits to avoid refusals.
- Getting Electricity: Russia secured the 7th rank in getting electricity to start a business. Electricity is a necessity, and in Russia, it merely takes 41 days to get electricity. New businesses need to complete two short processes to get an electricity connection in Russia.
- Getting Credit: On the parameter of getting credit, Russia ranks number 25 with an 80 out of 100. Getting credit depends upon the procedures and rate of acceptance of the applications. There are many more applications filed in Russia to secure credit for business every day than are accepted.
There can be various reasons for the refusal of granting credit in Russia, and it is up to the business owners and investors to find out the grounds for refusal for their particular case.
- Managing Payroll: Various resources and businesses can hire professionals to help manage payroll. As your company grows, you can also employ an HR department that will take the load of managing payroll and other employer-employee activities. This is where an experienced HR agency like Zimyo.
- Paying Taxes: Russia ranks number 58 on the parameter of paying taxes. Taxes in Russia are categorized into three types: Federal, Regional and Local. Federal taxes are more general and include taxes like VAT, Individual Income Tax, Social Unified Tax (a type of social tax in Russia), and many more.
Regional and Local taxes are those which concern themselves with personal assets. They include corporate property tax, vehicle tax, gambling tax, regional taxes, individual property tax, and land tax. Property tax in Russia is found in many variations and across multiple categories.
- Enforcing Contracts: Russia ranks 21 in terms of enforcing contracts. It can take roughly 337 days to have things streamlined and running smoothly. There are a lot of systems in place to enforce contracts; however, the procedure is quite time-consuming.
- Resolving Insolvency: Russia stands at the 57th position to resolve insolvency. It can take about two years to resolve insolvency in Russia and can also cost quite a lot. While there are specific liability divisions, it is not always simple to resolve these issues due to various factors.
By following all of the steps mentioned above in an organized manner and conducting proper market research before starting a business in Russia, entrepreneurs, businessmen, and investors can save a lot of trouble and get everything done efficiently.
There are a lot of systems in place, so hiring professional help to guide you through the various procedures can be extremely helpful. Many agencies and companies work to help businesses by streamlining all the processes in a logical flow to make things simpler. You would need to provide the necessary documentation and iron out formalities.
Zimyo is a leading HR and Payroll management services provider in Russia with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.