7 questions about opening a business in Russia

According to a report fr om the United Nations Department of Economic and Social Affairs, the Russian economy will grow in 2017 for the first time since 2014, its inflation rate will drop, and the foreign business community will again see Russia as a country with economic potential. According to expert data, 68% of investors already in Russia plan to strengthen their presence on the Russian market.

We would like to expand a little bit more on these statements by sharing with you a brief review we have prepared based on the questions that our foreign clients have frequently asked us over the past few years.

Is it difficult to start a business in Russia?

In 2017, Russia ranked 26th in doing business ranking for offering favorable conditions to set up companies. Foreign companies can do business in Russia by opening a representative office or registering a branch. Branches or representative offices are officially accredited by the Federal Tax Service within 30 working days. If a foreign national decides to start his/her own business in Russia by opening a Limited Liability Company (OOO), he/she will need to register OOO with the Federal Tax Service. This can be done within 3 working days.

Russia also ranked 9th in doing business ranking for registration of ownership titles. To register ownership titles, it is necessary to register with the Federal Tax Service, the Russian Pension Fund and the Social Insurance Fund. Administrative barriers can be overcome, but only with a good knowledge of civil, tax and administrative law. The financial cost of opening a business in Russia is below the OECD average. For example, the state duty for registering OOO is RUB 4,000 (just over EUR 60).

Are taxes high in Russia?

Taxes in Russia are not higher than in most European countries. Some taxes, in particular personal income tax, are significantly lower: VAT is at 18% and personal income tax at 13%. At 20%, Russian profit tax rate is one of the lowest in Europe. Moreover, special tax regimes offering incentives to investors are put in place for various industries and in various regions.

Is it difficult to make sense of Russian accounting?

Russian accounting and tax accounting laws do change more frequently than in Europe and the United States. Minor changes are introduced virtually every month. We compile a quarterly digest of the amendments introduced to accounting and tax laws, and it is typically 50-60 pages long.

It is necessary to regularly monitor these changes so as to avoid penalties. It is also worth preparing for inspections from tax authorities, labor, fire, and consumer rights federal services despite the government’s effort to reduce the number of regulatory checks. For example, companies with revenues under RUB 800 million per year and staff of up to 100 people will not be subject to scheduled inspections from 2016 to 2018. Professional outsourcers can help foreign companies make sense of all other tax and accounting questions in Russia. Outsourcing companies usually specialize in assisting foreign companies so they efficiently handle all issues related to the opening or running of businesses in Russia.

Is it difficult to find professional employees and reliable suppliers in Russia?

According to the Federal State Statistics Service, the average monthly salary in Russia dropped below USD 450 in 2016 and was lower than the average salary in China. Surveys show that the Russian population is well educated: more than 95% of the economically active population completed secondary education compared to 78% in Germany, 76% in the UK and only 30% in Spain. Despite these figures, it can take up to three months to fill a vacant position.

It is still difficult for foreign companies which are unfamiliar with the Russian market to choose a reliable supplier despite the government’s efforts. For example, the Federal Tax Service has put in place a system of automated control over companies’ operations, which has resulted in the reduction of up to 15% of potentially unfair suppliers. Strong players, in particular service providers, receive international quality certificates and are audited by foreign certified companies. This is always a good guarantee for foreign companies which may require their services in Russia, for professional teams providing outsourcing services are indeed able to check quickly whether counterparties are reliable or not or quickly find the right employee thanks to their own database and established contacts.

Where does Russia stand on electronic document management?

In 2017 electronic document management will have been used in Russia for 23 years, and legally valid electronic documents will celebrate their 5th anniversary. Electronic document management is widely used in state agencies and Russian corporations.

Which regions are leading in Russia in terms of development and economic activity?

The regions in Russia have begun developing more and more every year thanks to state programs for investments and support of natural characteristics of territories. Novgorod, Kaliningrad, Voronezh, Kaluga, Ivanovo, Yaroslavl, Nizhniy Novgorod regions, as well as Tatarstan, Bashkortostan and Chechnya are the leading regions in terms of trade development.

What about competition in Russia?

According to a study conducted by Brandz, consumers are more careful, especially when they purchase expensive items. Whether a purchase is made from a foreign or a Russian manufacturer is irrelevant. The market is open to new technologies, innovative solutions, and this is exactly what international companies are willing to offer.