How can a foreigner start a business in Russia

Nowadays, Russia is eager to be open for foreign investments. It tends to create favorable conditions for foreign business, including understandable and convenient conditions for starting a business. Any foreign national who decides to work in Russian will have to make a decision: which of the four existing ways of doing business suits them:

1. Establishing a Russian legal entity;
2. Buying a stake in an operating Russian enterprise;
3. Setting up a branch or representative office of a foreign legal entity;
4. Working with distributors.

Let us analyze these options in more detail and evaluate the conditions and opportunities that a foreign investor may have.

1. ESTABLISHING A COMPANY

A limited liability company (“OOO”, Rus. “ООО”) and a joint stock company (“AO”, Rus. “АО”) are organizational and legal forms of a legal entity that operates according to its own charter. Many points related to registering an AO and OOO are the same.

Therefore, we will consider the conditions, terms and cost of setting up a company using the example of an OOO, as the most common form of doing business in Russia. An OOO is responsible independently for its obligations, has a separate balance sheet and independently maintains financial statements. The operating scheme of an OOO will be familiar and understandable to a foreign investor in many respects.

I would like to note the advantages: A member of such a company is not liable for the debts of the entire company; their liability is limited to the size of their stake as a member. An OOO can apply a Simplified Taxation System (STS), which is beneficial to small and medium-sized businesses, since the State has provided a preferential taxation regime for this type of business. To establish an OOO, a foreign national or a foreign legal entity can be a 100% participant, i.e. sole proprietor.

Conditions: To found an OOO, you need a legal address, authorized capital (at least 10 thousand rubles), as well as a chief executive officer and chief accountant.

A foreign national who intends to become a founder of an OOO must legally reside on Russian territory, i.e. must hold a business visa or temporary / permanent residence permit.

Establishing procedure takes 5 business days from the date you apply documents to the date you obtain a certificate. The expenses include the costs of translation, notarization and sending documents, as well as a state duty of 4 thousand rubles.

If the founder is a foreign legal entity, it also must submit an extract from the register of foreign legal entities of the respective country of origin (or other proof of the legal status of the foreign legal entity that is equal in legal force).

Nuances: a foreign national, if they plan to hold any position in the OOO, needs a work permit. Obtaining such a permit in a general way takes a lot of time: first, a quota and / or permission to attract foreign labor is required, after which you can apply for a work permit, it can be obtained 30 calendar days from the date when you submitted required documents. However, these terms and conditions do not apply to highly qualified specialists who receive at least 167 thousand rubles per month before taxation.

When hiring such a specialist, you will also NOT need to obtain permission to attract foreign labor, to post a vacancy at the Employment Center, to provide a Russian language proficiency certificate, as well as medical certificates.

The optimal legal solution to speed up the OOO registration is to appoint a citizen of the Russian Federation as a CEO, who can be replaced by a foreign national after they receive all permits.

2. ESTABLISHING A JOINT VENTURE / INTRODUCING A NEW MEMBER INTO A COMPANY

Founding a joint venture (“SP”, Rus. “СП”) involves setting up a new company with participation of a Russian individual or legal entity in the authorized capital. In addition, a foreign investor may acquire a share in the authorized capital of a Russian company or become a new member of this company through an increase in the authorized capital.

Advantages: the Russian partner is aware of the market situation, understands the legislation and has the necessary knowledge and contacts in the industry for a confident start of a new joint venture. For their part, a foreign founder can, for example, ensure the import of industrial equipment, the analogues of which are not produced in Russia. In accordance with subparagraph 7 of paragraph 1 of Art. 150 of the Tax Code of the Russian Federation, such equipment is exempt from import tax.

Conditions: the procedure and costs are similar to those applicable when starting an OOO if an SP is established by Russian and foreign founders. If a foreign investor buys a stake in an operating Russian company or becomes a new member of this company by increasing the authorized capital, then the registration of changes takes 7 business days; the documents notarization, as a rule, costs about 15-17 thousand rubles. In addition, in the case of an increase in the authorized capital, a state duty of 800 rubles is also paid. Additional costs for translation, notarization and forwarding of documents will be required.

3. SETTING UP A BRANCH OR REPRESENTATIVE OFFICE

A branch and a representative office of a foreign company are separate subdivisions acting on the instructions of the parent company and performing all or part of its functions. The subdivisions are fully subordinate to the company that founded them, the parent company is responsible for the obligations.

Advantages of working through a branch / representative office in Russia:

☑ Branches / representative offices can open and close accounts in Russian and foreign banks, enter into transactions, sign contracts.
☑ Branches / representative offices are managed by appointed heads / CEOs of these separate divisions. The parent company, each branch / representative office separately, or one of them can keep accounting records for one or more divisions and submit documents to the Tax Service.
☑ Having set up a branch / representative office, a foreign company will be considered a non-resident anyway.
☑ When a branch / representative office in Russia rents an office, Value Added Tax is not included in accordance with the Tax Code of the Russian Federation.
☑ The parent company financially provides its branches and representative offices at the expense of property and assets. “Transfers” of such property and assets between the parent company and its branches/representative offices take place within the company itself, which is much easier than, for example, if the property is transferred from a foreign company to its subsidiary in the Russian Federation. This also applies to bank transfers. Thus, a foreign company will be able to more quickly transfer funds for expenses related to activities in Russia.

Conditions: To start working in Russia, branches and representative offices undergo an accreditation procedure, which lasts 25-30 working days and requires payment of a state duty of 120 thousand rubles.

Branches and representative offices are essentially a form of presence in the Russian market, popular with med-size and large foreign businesses. Turning to such branches and representative offices, Russian customers understand that they are turning to representatives of a well-known brand, reputation and reliability of which are well known.

For a foreign company, a branch/representative office in Russia unequivocally increases efficiency when interacting with Russian and foreign clients operating in the Russian Federation.

4. WORKING THROUGH DISTRIBUTORS

Working with distributors is the best, most cost-effective option for foreign small businesses. At this stage, the company does not yet have full-time employees in Russia and reliable mechanisms for marketing products. Therefore, a foreign company turns to distributors and concludes supply contracts with them. The company sells its products to a distributor, who then sells them in Russia.

Conditions: This form of work does not require founding a separate legal entity in Russia. One needs a reliable distributor and a legally competent supply agreement, which the parties will be guided by in their cooperation.

Thus, we have considered the main forms of foreign business entering the Russian market. The choice of working method depends on the size of the business, the intended goals, the specifics of the products, etc. In practice, small businesses usually choose to work in Russia through distributors. Medium-sized and large businesses choose to create an OOO or set up a branch / representative office. In world practice, these forms of doing business are also used, so in Russia the rules of the game are generally clear to foreigners.


The employees of our company have extensive experience and practice in these matters and are ready to professionally and promptly provide legal assistance and support for foreign business in Russia. Reach out to us:
Tel: +7 909 961-19-09
Email: legalsolutions@inbox.ru
Visit us: Moscow, Zubovskiy bulvar, building 4, room 308