STARTING A BUSINESS IN RUSSIA A GUIDE TO HELP YOU GET STARTED Rantalainen Accounting Services Ltd MK-LAW Ltd Member of the GGI - Geneva Group International
Content General Information Russian Market Russian Labor Law Audit Requirements by RAS Custom & Currency Control How to start a business in Russia Choosing the form of your business Registering a company Establishment Setting up the systems Russian Accounting & Tax Calender Running a business Rantalainen & MK-Law Services Useful links 2
General information Russian Market The Russian Market is currently ranked 62 nd on the list Ease of Doing Business by the World Bank Group. The Russian Federation is continuously easing up the process of starting a business in Russia. However, it is still currently a very long and formal process with many steps which have to be completed in the right order. The Russian Market is one of a kind and the following things can come as a surprise when starting a business in Russia: Form before substance is highly implemented The reporting demands are set by the authorities and affect all processes in accounting, HR & Tax reporting. Mandatory to have a Russian bank account and an official address Restrictions on operations between residents and non-residents Liability for violation of currency law All salaries must be paid twice a month Reporting year January 1st December 31st. - New legal entities: Date of registration to December 31th or if registration after October 1st until December 31th next year. If the authorities consider any of the registration documents unsatisfactory then those need to be corrected which can prolong the process even further. Therefore it is highly recommended to have someone local to guide you through the steps and to ensure that all requirements for establishing and maintaining a company in Russia are fulfilled. 3
Russian Labor Law The Russian Labor Law regulates everything regarding the workforce in Russia. Regardless of legal status or origin of the employer or employee - The law applies to all labor relations in Russia. General information about workforce: Average minimum wage: July 2016 7500 RUB/Month (~ 103 EUR) - The average minimum wage during year 2000-2016 is 2876.31 RUB/month (~39 EUR/month). - Can vary depending on the city/region Normal workweek (hours): 40 Vacation days per year: 28 Strict rules about overtime. Maximum working days per week: 6 Maximum length of probationary period (months): 3 All work agreements must be conducted written and individually Maximum length of fixed-term contract (months): 60 The Russian legislation demands companies to keep good books of their employees labor details and records. The following permissions are mandatory when hiring a foreigner in Russia: 1. A General Permission: Permission for the employer to use foreign workforce 2. A Personal Confirmation: Permission for the foreign citizen to work in Russia Furthermore, it is important to apply and receive the right visa corresponding the purpose of the stay. 4
Audit requirements by RAS: The company is obligated to conduct a statuary audit if it fulfills any of the following criteria's : 1. Open joint stock company (OAO) 2. Listed company 3. Banks, insurance companies and professional participants of the securities market 4. The financial statements shows that the company exceeds following limits: Sales> 400 million rubles (EUR 546,7690) Total assets over > 60 million rubles (EUR 820,154) 5. Publishes its consolidated financial statements 6. The state interest in the entity's capital is at least 25 % 7. Other cases when federal laws require mandatory audit. Annual financial statements are submitted to the Federal State Statistic Service by 31 March and to Tax authorities by 28 th of March of the year following the reporting period. 5
Customs & Currency Control Customs Law: The Customs relationship is governed by the Customs Code, Law No 31-FZ and the Federal Customs Service regulated all imported goods. General rule: The general rule is that goods may be imported and exported by all entities but representative offices and branches of foreign legal entities may only import for personal use. This leads usually to adaption of a temporary importation regime. In these cases there may be some relief, total or partial, for custom duties and VAT. Currency Control Law: Currency Control is regulated but the Law on Currency Regulation and Control no 173-FZ. General rule: General rule is that Russian residential companies and individuals are not allowed to carry out transactions in foreign currency. For non-russian residential companies and foreign national individuals is allowed with some restrictions. Info: The Financial and Tax accounting must be carried out in rubles and the foreign currency transactions are converted into rubles. Info: Some goods require license. Import customs duties are based on a classification code and the country of origin of the goods but are usually 5 %, 10 % or 15 %. 6
How to Start a Business in Russia This process can be divided into four different categories which all build upon each other: 4 Running a business in Russia 3 Setting up the systems HR Accounting Taxation Reporting 2 1 Registration & Establishment Choosing the company form 7
1. Choosing the form for your Business 1/2 When choosing the form of your business you are making a decision on which legal presence you are taking with your business which will affect all your activity in Russia The decisions you are aloud to make, taxation, financial accounting an reporting, customs, currency control, employment and application of international treaties only to name a few aspects. It is therefore important to choose the right form of Business. These are the principal Corporate Legislations: Civil Code of Russia Law no 14-FZ on Limited Liability Companies Limited Companies Act Foreign Investments Act There are a lot of different forms to conduct business in Russia but these are the most common once: Limited liability company (OOO) Joint Stock Company (AO) A. Open (OAO) B. Closed (ZAO) Branch office Representative offices The following actives require special permissions and/or licenses: Banking, Insurance, Investment, Customs Brokerage, Transportation, Logistics, Vehicles, Aircrafts repair and maintenance, Education, Medicine and pharmaceuticals, Production of medical equipment, Education, Telecommunications, Notary services, Construction and Maintenance of dangerous objects, All activities related to weapons(non-strategic), drugs and poisons, Travel agency, Some other similar activities It is forbidden to own and sell strategic objects, weapons and ammunition and nuclear products. 8
1. Choosing the form for your Business 2/2 Limited Liability Company (OOO) Joint Stock Company (AO) Branch Representative Definition Share capital divided into the participation interests. A. Open (OAO): Shares of the company are allocated on the public basis. B. Closed (ZAO) : Shares can be allocated only among the shareholders or strictly definite persons. Same as representative, but e broader range of activity. Establishment of one of the before mentioned legal entities, as a wholly owned Russian subsidiary. Commercial activities aloud Marketing activities aloud YES YES YES NO YES YES YES YES Own legal entity YES YES NO NO Can create subdivisions YES YES NO NO Minimum share capital 10 000 RUB (~138 EUR) A. OAO: 100 000 RUB (~138 0 EUR) B. ZAO: 10 000 RUB (~138 EUR) Shareholders 1-50, if exceeds must be changes in to OAO. A. OAO: Not limited B. ZAO: Not over 50. If exceeds must be changed to OAO. Negative Issuance of new shares is a long and complicated process. Quarterly reports mandatory Obligated to maintain a Register of Shareholders Must pay Securities Tax.. Must have reserve fund (5% of founding capital) If the business contains such activity that require licenses s that are issued only to Russian legal entities. If it is expected that significant import activity will take place If plans to hire a significant number of expatriates Positive Falls outside scope of Russian securities legislation. Less regulatory burden for OOO than AO. Lower cost of using additional participations. 7.7.2017 Fewer obligations concerning: Administrative Tax Accounting Considered non-resident for currency control purposes. Fewer obligations concerning: Administrative Tax Accounting Considered non-resident for currency control purposes. 9
2. Registering a company (OOO or AO) The registration process must be done in this following order. It is good to have a notary contact available since most of the documents needs to be notarized: 1. Drafting and notarizing the foundation documents Statement of company s management (appointing director/legal representative in Russia) Articles of association of the company 2. Depositing the share capital in a Russian bank An accumulative bank account Proof of the deposit 3. Registration fee payment 4. Registration to tax Authorities Can only be done if registration payment made and they have proof of it Documents needed: decision of the founders meeting, charter, notarized registration application and receipt of payment 5. Notarize Registration Certificate, Tax Payer Identification Number and Bank signature Card You will get these after step (4) Documents needed: certificate of registration Taxpayer identification number, Charter, notarized, Documents which confirm approval of signatories 6. Open permanent Company Bank account Inform then the Federal Tax Services and you will get a confirmation letter 7. Register the company with: Registration with the Pension, Health and Social Security funds. 8. Register seal with the local Registration Chamber 10
2. Establishment The company can start operating after the registration process. It is good to consider also the following things when starting a business in Russia: General Manager contracts Local recruiting Work permits for employees Acquiring business premises / legal address Other insurances Getting trademarks and domain names Setting up full banking operations Financial funding 11
3. Setting up the systems The Russian system puts a lot of reporting requirements on a company. Therefore it is good to make sure that you have a reliable and local accountant to make sure that the all the reports is correct and arrive on time to the authorities. The reporting can be divided into: 1. Human Recourses Payroll accounting and HR-documentation Preparation of all HR documents demanded by Russian law 2. Accounting RAS, IAS, IFRS Annual financial statements All daily accounting: Invoicing, accounts receivable control, business trip and expense reporting, accounting of fixed assets Accounting software set-up and maintenance 3. Taxation Calculation and reports of all type of taxes to Russian authorities 12
Russian accounting & tax calender I Q 25 th VAT 20 th Average personnel amount declaration 20 th Employee mandatory pension insurance declaration (monthly) Employee mandatory pension insurance declaration (quarterly) 25 th 1 st : Land Tax 1 st : Car Tax 25 th Unemployment/accident declarations (monthly) Declaration of wages (withholding tax form 2-NDFL) 20 th 20 th Declaration of wages (withholding tax form 6-NDFL) IV Q 31 st 25 th 20 th 1 st 25th 1 st 1 st 25 th 1 4th 20 th 28 th : Tax declaration 30 th : Tax fixed assets 31 st : Financial Statement II Q 15 th Confirmation of main operation to social insurance authorities 25 th : VAT 28 th : Tax declaration 30 th : Tax fixed assets 25 th :VAT IIIQ 28 th :Tax declaration 30 th : Tax fixed assets 30 th : Tax fixed assets 30 th : Tax fixed assets III Q 25 th : VAT 28 th : Tax declaration 13
4. Running the business When the business is established the focus will switch to day-to-day business. At this stage it is of a high value to have expert services at hand if problems occur. Your accounting partner can also assist you with controller services to make sure that you stay up to date. Controller-service Management Company services Tax consulting Internal audits Consultation in accounting, reporting and taxation Financial statements Consultation regarding transfer pricing 14
Rantalainen & MK Law Services Rantalainen and MK-Law can provide services with everything that has been brought up in this presentation. Rantalainen Accounting Services Rantalainen has a strong international experience and network to offer. We have over 80 partnership companies abroad Apart from accounting and payroll services, we also offer reporting and administrative services to international companies and their subsidiaries in Finland Rantalainen is a member of Geneva Group International (GGI). GGI is a global Alliance of independent professional firms We provide our services in several languages including Finnish, Swedish, English, German, Russian, Spanish and Estonian MK-Law Ltd Attorneys at law MK-Law Ltd is a member of the Finnish Bar Association and adheres to the Code of Conduct of the Finnish Bar Association in all its activities. Attorneys at law MK-Law Ltd offers legal services to corporations conducting business operations in or related to Russia. The current stage of the operations does not matter, as we may assist alike with drafting appropriate contracts for selling to or buying from Russia, with planning and executing a market entrance, or with winding down or selling a business. 15
Links Useful links when starting a business in Russia Federal Tax Service of Russia: https://www.nalog.ru/eng/ The Russian Government: http://government.ru/en/ Ministry of Foreign Affairs: www.mid.ru The Central Bank of the Russian Federation: www.cbr.ru Federal Service for State Registration: www.rosreestr.ru Federal Customs Service: http://eng.customs.ru/ 7/7/2017 16
Contact & Information Jussi Ala-Risku (Finnish, English, Spanish) +358103216746 jussi.ala-risku@rantalainen.fi Natalia Nikiforova (Finnish, Russian) +358103216730 natalia.nikiforova@rantalainen.fi Jan Långstedt (Swedish, Finnish, Russian, English) +358400538022 jan.langstedt@mklaw.fi 7.7.2017 17