Business in Russia: Individual Entrepreneurship, Self-Employment, LLC

Setting up a company is not the only way to do business in Russia. Individuals can also become an individual entrepreneur or self-employed. They have different taxation systems, possible amount of income, amount of employees that can be hired, etc.

WHAT BUSINESS CAN A FOREIGNER START IN RUSSIA?
Any foreigner residing in Russia on a legal basis (it means he/she must have any Residence Permit) is eligible to register as an individual entrepreneur and conduct business. And basically any person can become an owner of a Russian LLC, but cannot become the director, and any company must have a director. A foreign director must have a residence permit or work permit; to know more about it, reach out to our team. As for self-employment, it is available only for citizens of the Eurasian Economic Union countries - Armenia, Belarus, Kazakhstan and Kyrgyzstan; as well as Ukraine, the Donetsk People's Republic and the Lugansk People's Republic.

COMPARISON: MAIN DIFFERENCE
The main difference between these forms is that an individual entrepreneur and a self-employed person are liable for debts and obligations to creditors and counterparties with his/her personal property, while an LLC is only liable with its authorized capital. An LLC can be incorporated by several people who act as partners in the new enterprise, in contrast to an individual entrepreneur and self-employed person, where only one private person is the «owner». The share in the business is distributed among the partners in proportion to the share in the company. Let us say, if this/her amount is 50,000 rubles, and two of the partners contributed 20,000 each, and the third - 10,000, respectively, the first two will share 40%, and the third will receive the remaining 20%.

REGISTRATION AND CLOSING
To create a company, one should complete extensive paperwork, and closing an LLC takes no less than 6 months. Registering as an individual entrepreneur is easier, as well as deregister. The simplest procedure is to register as self-employed - through the Tax Service app, without any filing fees; and deregister takes place in the same manner.

TAXES
There are many nuances, but in short, things are like this:

Usually, if the income of an individual entrepreneur is less than 5 million rubles per year, the entrepreneur calculates the tax amount at a rate of 13%. If the annual income exceeds this amount, the entrepreneur must pay 13% of 5 million rubles and 15% of the amount over 5 million. And if you are not a Russian tax resident, you pay 30%. Entrepreneurs also must pay insurance premiums for him/herself and for the employees.

There are several taxation systems for companies, the two most common are simplified and general. The simplified is more advantageous, but applicable only to small firms. But even it has its own subsystems, which are impossible to be covered in one video. A company pays insurance premiums to different funds too.

The self-employed have one their own taxation system called «professional income tax» (4% when dealing with individuals, and 6, with legal entities), but their income must not exceed 2,400,000 rubles annually. They do not pay anything to any funds.

HIRED WORKERS
An entrepreneur can operate without hired workers; while an LLC is meant to have employees, which entails, in addition to taxes on the income received, insurance contributions to off-budget funds from the employees' wages. Self-employment, as the name suggests, does not involve employees at all.

INVITING FOREIGN WORKERS
Both entrepreneurs and companies have the right to invite employees from abroad, although this is a complex procedure. A self-employed individual cannot.

FINES
Fines imposed on legal entities are usually higher than on entrepreneurs or self-employed persons.

QUITTING BUSINESS
A legal entity can be sold if necessary, but individual entrepreneur or self-employed status is not considered an entity, you can only deregister. If you are a co-owner and want to withdraw from your LLC, sell your share to the other members or anybody else. By the way, if you were an entrepreneur, but your residence permit expired or was revoked, you will be deprived of this status too. Unlike a company, in this case you will not lose it.

IF YOU ARE NOT WORKING
Individual entrepreneurs pay mandatory insurance contributions (currently forty nine thousand five hundred rubles) every year, regardless of whether they were actually doing a business. Companies do not pay it if they do not operate; however, they are required to maintain accounting records, which will most likely require the involvement of a specialist, which will result in additional costs. As for self-employment, such businessmen do not pay anything if they do not have any income.

RESTRICTIONS
Individual entrepreneurs, unlike companies, can not engage in certain types of activities, such as selling alcohol. The self-employed have more restrictions, for example, they are not allowed to resell goods and sell mineral resources; some people are also prohibited to register as self-employed.
On the other hand, an LLC, unlike an individual entrepreneur or self-employed person, cannot «take money out of the cash register» at any time, since this is the company's income, and it must be spent only on necessary needs that must be documented.


Need legal help? Feel free to contact us:
Tel: +7 909 961-19-09
Email: legalsolutions@inbox.ru
Visit us: Moscow, Zubovskiy bulvar, building 4/1, office 308

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