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Establish your own company in Russia

Establish your own company in Russia

When you want to establish your business in a foreign country you surely wish to avoid all the hidden dangers and hassles and get this process done as smoothly as possible. Russia is not an exception here and you should know a few facts that will definitely help you choose the best possible direction for the development of your business in Russia.

Forms of Representation
A foreign company has a few options of its representation in Russia.
1. Representative office
2. Affiliated Branch
3. Russian Company

The founders of the Russian company can be foreign citizens or foreign companies. Officially such company is referred to as "Company with 100% of foreign investments".

You can choose between the following business entities:

• OOO, or LLC (Limited Liability Company)
• ZAO, or CJSC (Close Joint-Stock Company)
• OAO, or JSC (Joint-Stock Company)

Now, the question is what form of representation you as a business owner should choose.
A Representative Office can only exercise auxiliary functions such as marketing research, promotion, exhibitions and trade shows participation, sign contracts on behalf of the foreign company. A Representative Office is not permitted to engage in business and it is not a separate legal entity.
An Affiliated Branch can conduct its business and operations consistent with Russian law on behalf of the parent company. For certain kinds of operations licensing is required. Certain restrictions apply to customs clearance of goods but nothing not manageable.

A Russian Company has the right to conduct its business and operations consistent with Russian law, including but not limited to production, rendering of services, trade, and commercial activities.
If you choose to establish a Russian company you should know that you can form either form a Russian company with 100% of foreign investments or can have a Russian partner, even purchase a Russian company.

The most attractive business entities for companies with foreign investments are CJSC and LLC. The head of the company can be both a Russian or a foreign citizen. At the same time you should take care of work permit in Russia. The company registration is a standard procedure that does not depend on the nationality of the company's founder. This procedure is a subject to amendments, so the best way to receive an updated list is to consult the tax office of the city where you plan to establish your new company.
The process of company's registration takes around three weeks.

LLC seems to be a choice of many foreign investors. It is a fast, simple and an effective way to enter Russian market. The number of founders (participants) can be from one to 50. They can be all foreign, all Russian, or mixed. The minimum authorized capital is 10,000 Rubles as of 2011 but it is subject to change.

Your newly-established LLC is a Russian company which means that it is liable to the taxation in accordance with laws and regulations of the Russian Federation. At the same time the imposition of tax is also governed by Russia's international commitments in respect with double taxation elimination.

Currently there are various taxation systems for LLCs, such as:

• simplified taxation scheme
• traditional taxation scheme
• unified tax on imputed income
• unified agricultural tax

Traditional taxation scheme includes VAT (18%), Income tax (20%), Property tax (2.2%), Uniform social tax (26%).

Less complex is simplified taxation scheme. You don’t have to pay VAT and Uniform social tax. Besides, you can choose the tax rate:

• income as tax base (6%)
• income minus costs as tax base (15%)

This is the most favorable taxation scheme for LLCs. As for the other two, they only apply to certain kind of business operations and companies.

Employees and Salaries
Now, that you have your company registered and your taxation scheme chosen, you have to hire employees for your company. The most logical choice is to hire local experts and specialists. Here are a few things that you might want to consider.

• Level of salaries varies greatly in Moscow, Saint Petersburg and other Russian regions.
• There is an established by law minimum monthly wage. It varies by a region but more or less it is the same everywhere. Currently (September 2011) the minimum wage is 4,611 Rubles per month. In Moscow, however, it is 10,400 Rubles, in Saint Petersburg – 7,300 Rubles.
• At the same time you should consider another index, minimum living wage, which amounts to around 7,000 Rubles on average.
• As already mentioned average salary varies greatly upon the region but that in no case means that

specialists in regions are less qualified.

If we compare salaries in three Russian cities, for example, Moscow, Saint Petersburg and Novosibirsk on average, we will see the following picture:

Moscow – 40,500 Rubles
Saint Petersburg – 27,600 Rubles
Novosibirsk – 18,500 Rubles

If we compare some industry sectors then we will see, for example, that average salary in sales in 2011 amounts to 22,500 Rubles, in Engineering – 35,000 Rubles, in Marketing – 39,000, and in HR – 35,000 (based on data of online portal Of course you should understand that salaries in these sectors will be higher in Moscow and then definitely lower, let's say, in Novosibirsk.

As you can see the level of salaries is different across Russia. Surprisingly it can be different even within one region, or one city. At the same time, people always seek for new opportunities, and foreign companies have a special appeal to Russians even now when the number of such companies has grown significantly. Some would work in a foreign company (or a company managed by a foreign expert) for less money if they see future prospects and opportunities to grow together with the company.

To sum up, the best possible way to establish a company in Russia depends on your objectives and goals. If you have come for long here and want to establish long-term contacts as well as to simplify your entry into the new market, LLC is probably the best business entity for your enterprise. Choose your taxation scheme wisely, and remember that you will be able to change it at some point if you have a feeling that you had chosen wrongly. When hiring local specialists, pay attention to their experience and degree. Usually degrees received from state universities are more valuable than those from private institutions. And more than anything trust your guts. Russians have a saying "If you do something in a hurry you will end up with people laughing at you." With other words, slow and steady wins the race. Weigh all pros and cons and go ahead, Russian market offers unique and exciting opportunities that will pay off if you start your journey the right way.


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