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You've probably come across a lot of intimidating information: exorbitant setup costs, stories of tax raids, and that word "mafia" that seems to never go away. Organizing and running business at the territory of the Russian Federation has long been associated with corruption, red tape and high level of criminalization. Those entrepreneurs wise enough to ignore these, quite often farfetched stories, have considerably profited operating on this market. Russia’s vibrant economy has seen a decade of significant growth in recent years averaging over 6% per annum. Today’s prospects for it remain bright, according to the latest economic forecast the growth of consumption will continue at the rate of 1.7-1.8% annually, mostly thanks to the middle class which is rapidly growing and will form up to 50-55% of the society by 2011.

Now that you or your company has decided that the benefits outweigh the risks and it is finally time to enter the Russian market. You'll probably wake up at least once a week wondering why you chose Russia, but if you are willing to apply solid business principles and take a long-term position, Russia is one of the best places to be.If you are determined to set up your business in Russia, next question to be asked where will it be based? Do you want to open a representative office in Moscow , Saint-Petersburg or somewhere else?

Company formation could take a lot of time and be quite complicated, therefore you shouldn’t do it without an experienced reliable assistant. First of all, you should select the legal form, to register company in Russia you choose one of the following forms: OOO, ZAO, OAO, Branch, and Representative Office. The legal form that you will choose for the new entity will much influence your business activity. We will help you to decide which form is appropriate for the company registration in Russia.

Secondly, you should appoint/hire the Head of the branch/representative office. So you will need work permits, visas and legal consultations.

Next step for business formation is the registration of the new legal entity. It is quite long and complicated process. Also you will need to open a bank account; we will help you to choose the most suitable bank for you, the best conditions for convenient work. Please mind that we also can do accounting for you. Accounting in Russia is one of the internal corporate activities that can easily be outsourced. Our secure computer software and IT infrastructure insures that bank transactions are safe, while allowing the client to stay in control of the account.

As soon as your new legal entity or office in Russia is registered, even if you have no employees yet, you should decide how to handle your financial accounting, pay taxes and prepare all necessary financial and management reports. Without a doubt, Russia represents a unique opportunity for both local and international businesses. However, it's no secret that the Russian tax authorities have an aggressive reputation.

We can offer a complete turn key range of services for formation of companies in Russia (new company formations). From advising on the most efficient legal structure, company registration and managing your daily accounting operations, we help you get it right the first time. Our clients are 100% ensured against fines or penalties being levied against them by the Russian tax authorities arising from our mistakes.

We bare the risks, so you don’t have to.

Types of Russian legal entities

Russian corporate law, governing the rights and obligations of shareholders discussed below, applies as to shareholders of a joint stock company ("JSC") and as to participants of a limited liability company ("LLC"). Shareholders always have the power to amend the company's internal rules and bylaws, change its authorized capital, elect any members of the board of directors, approve annual reports, decide on reorganization and liquidation.

Parent company liabilities

Usually a participant's liability is limited to the extent of the capital he/she has invested in the company. However, in the event of the bankruptcy of a company, a "parent" may be held liable by a company's creditors if the parent's actions caused the subsidiary to become insolvent.

A "parent company" is defined quite widely and includes control not only by reference to ownership, but also contractual or other relationships that allows a shareholder to determine the decisions of the company.

Joint stock companies JSC)

A joint stock company is one of the most commonly used Russian legal entity forms for business.

A joint stock company consists of shareholders and may engage in various forms of commercial activities envisaged by its charter documents, naturally under the condition that such activity is not prohibited by Russian corporate law or other legislation, subject to licensing where applicable. A joint stock company may contract, undertake legal activities, acquire property, and sue and be sued. A joint stock company may be either "open" ("OJSC", “OAO” russian abbreviation), meaning publicly held , or "closed" ("CJSC"-“ЗAO” russian abbreviation), meaning privately held . Both these forms may issue common or preferred shares and debentures. Both forms are subject to statutory reporting requirements and regulatory restrictions, but the requirements for public disclosure are not so strict for CJSCs.

In the organizing documents no provision can be made to prohibit a JSC shareholder from selling his/her shares.

Minimum charter capital and contributions

For an OJSC, the statutory minimum charter capital is RUB 100,000 (approximately USD 4,2552), and 10,000 RUB (approximately USD 425) for a CJSC.

Different classes of shares are allowed; dividends and voting rights are equal for each share in a class. Shares in a joint stock company are considered "securities" under the Russian law and must be registered with the Federal Service for Financial Markets at the time of issuance.

Board of directors of a JSC

The board of directors of a JSC is responsible for the overall management of the company's activities. The responsibilities of the director(s) normally include all powers not specifically delegated to the realm of the general meeting of shareholders or other management bodies. Though, these responsibilities may be specifically limited by the company's charter document or other applicable laws. Directors have broad fiduciary duties, and may be held individually or jointly liable for damages to the company resulting from their misconduct.


At all times accounting records are kept in roubles and according to Russian accounting rules (records may also be kept in parallel according to any other desired accounting standards, e.g., IFRS).

Dividends may be paid quarterly, semi-annually, or annually. The decision to pay dividends is made and discussed at the shareholder meeting, but the amount of dividends can only be stated by the director or board of directors. Dividends are determined based on the financial statements prepared under Russian accounting and reporting standards.

Limited liability companies (LLC)

LLC is also a well-spread form of corporate organization. LLCs are often adopted by foreign companies to conduct wholly-owned businesses in Russia3.

The minimum charter capital for an LLC is 10,000 RUB (around 425 USD).

The Limited Liability Company law provides for many similar provisions to those in the Joint Stock Company Law.

A notable distinction between LLCs and JSCs is the division of the capital of a LLC into "participations" or units, which are not considered securities under the Russian law, unlike shares in a JSC which are in fact securities.

Unlike in a JSC, the sale of participation by a shareholder of an LLC can be restricted in the charter. Als well, unlike a JSC, a participant may withdraw from an LLC at any time, demanding the LLC (remaining participants) to provide him/her with a portion of the net assets of the LLC proportionate to his/her interest in the LLC.

Limitations on the sale of participation interests or preferential purchase rights or on the approval process for a transfer of participation may be included in the charter of an LLC.

Dividends and voting rights are determined by the participants in the Charter, although some restrictions on voting rights exist in the Limited Liability Company Law.

State fees

The Tax Code defines a state duty as a fee charged on organizations and individual enterpreneurs for taking certain legal actions. The table below illustrates some of those legal actions and corresponding state duties.

Legal action

State duty

Registration of a legal entity

RUB 2,000 (USD 85)

Accreditation of a subsidiary of a foreign entity

Registration of rights to real estate (FLE/RLE)

Registration of rights to transportation facilities


RUB 60,000 (USD 2,553)

RUB 7,500 (USD 319)

From RUB 100 (USD 4) to RUB 400 (USD 17)

From RUB 10,000 (USD 425) to RUB 100,000 (USD 4255).

Registration procedure (LLC, CJSC)

The state registration of legal entities is performed by the State Pension Fund, the State Fund of Social Insurance and the State Fund of Compulsory Medical Insurance through the Federal Tax Service of the Russian Federation at the local level. The federal Tax Service is in charge for the coordination of registrations of all sorts. The newly established legal entity is granted a main state registration number (OGRN) and the taxpayer's identification number (INN), the relevant certificates are issued. The documents confirming the registration with the above-mentioned Funds are sent to the newly established legal entity by mail. If the company ,for some reason, needs confirmation of its registration with the Funds right after the registration procedure, it should apply to the Funds directly. Usually it takes up to 5 days to complete tax and state registration and 1-2 days to obtain registration documents with the Fund for an already registered legal entity (if the application was done in person by one of the founders). The time for mail delivery may slow down the process a little bit, for up to 4 weeks. Tax authorities nowadays only directly accept the documents for state registration when filled out personally by one of the founders of the company. If the documents are filed personally by the founder it is possible to receive a registration certificate under the power of attorney, otherwise the registration certificates are sent to the address of the newly established company by regular mail, and that might take longer.
You will be required to provide the following documents for registration:
- Decision of the founders meeting;
- Charter (2 copies);
- Registration Application, notarized;
- Payment receipt.

If a foreign founder is involved, a large number of documents needs to be apostilled (or legalized), translated and notarized, which usually means that the registration process can take a lot longer than the above mentioned period. "Express" company formation services are advertised everywhere, but some caution has to be taken in selecting such services.

Sometimes only when a change to the constituent documents is required and the change is rejected by the tax authorities due to an earlier failure in the registration process. Resolving such issues can be more time-consuming and costly than the proper registration of the company in the first place.

Off-the-shelf companies are widely in circulation, though it is not quite advisable to found a company in such manner. There are always inherent risks, including potential liabilities, mostly regarded to tax issues, involved in acquiring an off-the shelf company that may have been used for undisclosed purposes. Furthermore, in some cases the change in ownership of a company, involving more than 20% of the shares, requires prior approval from the Federal Antimonopoly Service at all times. In all cases, any alteration in ownership must be registered, that can take almost as long as the formation of a new company it-self.

The tax authorities sometimes implement a number of requirements, and failure to comply with may even lead to the rejection of the application. In addition, recently the tax authorities stopped issuing the original of the Charter (Articles of Association) which is filed for the state registration. Only a certified copy is issued. As a result, if the company has to file the copy of the Charter with any other state authorities, another copy of the Charter has to be requested by the tax authorities every time. The copy is usually issued within 5 working days and you will be charged around 400 RUR.

Applying for Registration Certificate, Tax Payer Identification Number Certificate and Bank Signature Card.

For a LLC with the number employees less than 50, generally the General director and Chief accountant do have a signature right.

You will be requested to provide the following documents:

  • Notarized registration certificate;
  • Notarized Taxpayer Identification Number (INN) certificate;
  • Notarized Charter;
  • Documents confirming authority of the signatories (decision on the founders on appointment/election of the Director etc.), notarized.

Foundation expenses (LLC, CJSC)

The state fee for registration of a RLE (LLC or JSC) is 4,000 RUB (roughly 130 USD) must be transferred to the account of the State Tax Inspectorate, and add some small extras. It’s highly advisable to use Sberbank’s branches to carry out this sort of payment since the tax authorities are familiar with the payment order issued by the Sberbank and in case of the payment order issued by any other bank the Inspectorate may request some additional confirmation that the payment was actually completed.

The professional fee for the process of collecting documents, preparing all charter documents and presenting them to the Russian registration authorities typically range from 350,000 up to 550,000 RUB ( 15,000 up to 25,000 USD), depending on complexity of the case.

How long it takes. Registration period

The local tax authorities finalize the submitted charter documents, their state of tax registration and then forward them for registration with the social funds and Federal Service for State Statistics without the confirmation of the company being already registered. The registration processes take up to 2 weeks.

Registration of a branch or representative office (RO)

In stead of participating on the Russian Market as a legal entity, a foreign company may choose to establish a presence in Russia through a representative office (RO) or branch . A RO is authorized to conduct certain "preparatory and auxiliary" activities for its head office. A Branch, on the other hand, is able to conduct all the activities which the head office itself could perform, including the execution of sales contracts. A foreign company may also maintain a RO or Branch and a wholly or partially-owned subsidiary in Russia.

A RO or Branch of a foreign company, operating in Russia is not regarded as a separate legal entity but as part of the same legal entity as the head office of the RO or Branch. Therefore, a RO or Branch is not subject to the same legal requirements as a Russian legal entity. In addition, the application of tax rules to non-residents of Russia may vary from their application to Russian legal entities depending on whether or not the RO or Branch constitutes a taxable presence in Russia. The currency regulations apply differently to representative offices and Branches of foreign companies than they do to Russian legal entities.

Any new RO or Branch of a foreign parent company must be recognized by the appropriate government authorities through the process called "accreditation".

A foreign legal entity is obligated to register with the tax and other authorities depending on the number of days in the calendar year during which the foreign legal entity has a presence in Russia.

Each RO or Branch of a foreign company must be individually accredited. In general, each RO or Branch is responsible for its own tax and other filings.

All ROs or Branches of one foreign legal entity in Russia are allowed to file one consolidated VAT return. Furthermore, if the activities performed by different representative offices or Branches of one foreign legal entity in Russia constitute a part of one technological process, Russian profit tax can be calculated for all ROs and Branches of the company on a consolidated basis.

Accreditation fees

The state fee for the registration of a branch or RO is 60,000 RUB ( 2,553 USD), plus 500-2,000 USD, depending on the period of registration: one, two, three or five years of your presence in Russia. A RO or branch can be accredited for up to five years, and the state fee for registration depends on the accreditation duration: 1,000-2,500 USD, plus some small extras. The professional fees for the entire process of collecting documents, preparing organizational documents and presenting the documents to the Russian registration authorities typically range from 350,000 to 500,000 RUB (app. 15,000 up to 22,000 USD)

Typical registration period

It normally takes something 3-6 weeks to get a RO or Branch accredited. This process requires a large volume of documentation to be prepared, authorized and, in many cases, notarized and certified. As a result the total time required can therefore exceed the registration period stipulated by the authorities.

Parent liability

A RO or Branch is a legal part of a foreign company and therefore its oversea head office bears unlimited and full responsibility for the obligations and actions of the RO or Branch working on the Russian Market.

Representative office or branch tax status

Any branch or RO constitutes a taxable presence in Russia for the parent foreign company, naturally depending on the actual activities carried out by the RO and the availability of protection offered by an applicable double tax treaty ("DTT").

According to the terminology of russian tax authorities, a foreign company has a "permanent establishment" if it conducts certain business activities in Russia through its RO, branch or other permanent body, based within the territory of the Russian Federation and used for such business activities on a regular basis. Domestic rules for the determination of a "permanent establishment" are similar to those outlined in the OECD Model Tax Convention. A Branch or RO, as a result of the scope of its legal authority and consequent activities always constitutes a taxable presence.

Opening a Bank account

Both rouble and foreign currency accounts can be opened right after company’s registration. The following documents are required for opening a bank account: filled out application form, notarized copy of the Charter, notarized copy of the founders’ decision of establishing a LLC (or other) and notarized copy of the foundation agreement between the shareholders. In order to deposit the required capital you must open so-called accumulative bank account for the name of the legal entity that is due to be registered. Terms and conditions can vary, depends on the bank, mostly opening an account takes more than just one day because the procedure of the client-bank acceptance is complicated.

The bank details must be supplied to the Ministry of Taxation within 10 days from date of opening. Make sure to obtain a letter of confirmation.

Payment of charter capital

For any LLC, 50% of the charter capital must be paid up front to the state registration and the balance must be paid within the period indicated in the foundation agreement (but not longer than one year from the date of its state registration).

In the case of a JSC, 50% of the charter capital must be paid within three months after its state registration and the balance within the period indicated in the foundation agreement (but not longer than one year from the date of its state registration).

Charter capital contributions can be made in cash or transferred from the bank account.In the first year of operation the balance must be fully paid.

The least number of shareholders

As the matter of fact only one shareholder is normally required. Under a certain rule, if a sole participant or shareholder of a Russian company (LLC or CJSC) to be formed is itself a company currently owned by only one participant or shareholder, it is obligatory that the Russian company to be formed must have at least two participants or shareholders. A Closed Joint Stock Company founded by more than 50 shareholders must be converted into an Open Joint Stock Company. A Limited Liability Company with over 50 participants must be converted into an Open Joint Stock Company or into a manufacturing cooperative.

Net assets contribution

If the company’s volume of net assets is less than the minimum charter capital required by the law and it lasts for two consecutive years, such legal entity is subject to liquidation. If the shareholders do not proceed with a voluntary liquidation them-selfs, government authorities may petition the court to liquidate such company and creditors may demand early termination or compensation for their losses. In practice, forced liquidation is rare and most of the companies are complying with their payment obligations.

If the volume of company's net assets on its balance sheet fall below its stated capital, a reduction in stated capital to net asset value is required.

For any JSC the amount of its net assets on the balance sheet is determined on a quarterly or annual basis and disclosed in the quarterly and annual financial statements submitted to the Russian tax authorities.

In the case of LLC, no requirement is stated in The tax law for reporting the company's net asset position to the authorities.

Taxation of corporate profits

Taxes may be categorized as follows:

  • Federal taxes (1): These are applied throughout the Russian Federation at
    uniform rates, VAT;
  • Federal taxes (2): These are applied throughout the Russian Federation at tax
    rates determined by the Tax Code but which may be reduced by the regional
    government authorities in respect of the portion of such taxes going to the
    regional budget, e.g., corporate profits tax;
  • Local/regional taxes: These taxes are determined by the Tax Code and the
    local or regional government authorities and are collected entirely locally or
    regionally, e.g., property tax (a regional tax) and land tax (a local tax).

The above tax structure can result in different tax burdens in different locations.

Tax base calculation

Usually, taxable profit is calculated as income less deductible expenses based on tax accounting data.

Generally, income is determined on an accrual basis. The cash basis is only allowed if average sales proceeds for four consecutive quarters are less than 1,000,000 RUB ( 42,550 USD).

Expenses are recognized deductible if they are incurred to generate income and also if they are economically justified and duly supported with certain documents. The documentation requirements in Russia are generally regarded as more onerous and burdensome than in many other countries.

A foreign legal entity is not subject to corporate profits tax on its net business income unless its Russian presence creates a "permanent establishment". If a "permanent establishment" does exist, profits tax may only be levied on the part of the profit of the foreign legal entity which relates to operations of its Branch or RO operating on the Russian Market.

Profits tax is levied at the individual rate; there is no provision for fiscal unity or group relief.

Tax rate

Any russian source income such as rent, royalties, interest and dividends as well as international transportation income received by a foreign legal entity, is subject to withholding tax.

Though there is no withholding tax on the repatriation of profits from a local Russian office (Branch or RO) to the head office.

Withholding taxes may be reduced or even eliminated if the recipient is a tax resident in the country entering in the double tax treaty with Russia.

There is a list of certain Russian double tax treaties and the withholding tax rates applicable under these treaties to dividends, interest and royalties.

In the absence of appropriate documents supporting treaty relief, the payer of such income must withhold tax. If tax is withheld even though treaty relief is available, a refund claim may be filed by the foreign recipient. This is, however, a time-consuming process and there can be no certainty that the refund will ultimately be payed.

The profits tax rate is generally 24%, that includes 6.5% for the federal budget and 17.5% for the regional budget.

Filing a tax declaration

All taxpayers are obliged to file their annual corporate profit tax declarations and pay the tax reflected therein by 28 March of the year following the reporting year. A taxpayer may file profits tax returns monthly, based on the tax accounting results for the previous month, or quarterly with monthly estimated prepayments. In either case, an annual return is required with a final calculation and any necessary adjustments.

Deductible expenses

The following table shows deductible expenses for corporate taxable profits:

Type of expenseAdvertising Up to 1 % Entertainment Up to 4% of payroll 12% of

Pension and life insurance payroll 3% of payroll Within

Medical insurance for employees Within statutory limits

Depreciation and amortization

Depreciable or amortizable assets include fixed assets and intellectual property used to generate income with an initial value exceeding 20,000 RUB and have a useful life exceeding one year. The following assets are not subject to depreciation or amortization:

  • Property received with special purpose financing;
  • Property acquired with state budget financing;
  • Property not in service for more than three months;
  • Property subject to modernization or reconstruction for more than 12 months;
  • Books and art works;
  • Fixed assets provided (received) for use without charge; and
  • Land and other objects of nature.

Depreciation and amortization procedures for corporate profits tax purposes differ from those applicable under Russian statutory accounting. For profits tax purposes, the tax basis of a fixed asset is defined as the costs incurred in relation to such asset in order to place the asset in service for production, including purchase, transportation, installation and other costs.

The useful life of an asset is determined within the limits established by the Russian Government.

Two depreciation methods are available for profits tax purposes: straight-line and declining balance.

Tax withholding on dividends

A Russia-based company should withhold tax at the following rates from dividends paid and remit the tax to the federal budget:

  • 0% - for dividends payable to a Russian company if this company owns at
    least 50% of shares of dividend payer for 365 consecutive days and if this
    company's investment in dividend payer exceeds 500,000,000 RUB
    ( 21,275,000 USD)
  • 9% - for dividends payable to a Russian company or to a foreign company
    with a permanent presence in the Russian Federation (as defined in the applicable double tax treaty);
  • 15% - for dividends payable to a foreign legal entity;
  • 9% - for dividends payable to an individual with Russian tax resident status;
  • 30% - for dividends payable to an individual with Russian non-resident status.

Value Added Tax (VAT)

Taxation base

Russian Value Added Tax (VAT) is designed to be withheld from taxable bodies and individuals on a basis similar to the EU model.

VAT taxable activities include:

  • sale of goods (work, services) in the Russian Federation;
  • transfer of goods (performance of work, provision of services) in the Russian
    Federation for the taxpayer's own use in respect of which expenses are not
    deductible for corporate profits tax purposes;
  • construction and building projects for the taxpayer's own use;
  • import of goods through the customs of the Russian Federation.

The taxable base for VAT on imports is the customs value of the goods plus customs duties, excise and customs fees. "Technological equipment" imported by a foreign company to invest in the charter capital of a Russia legal entity may be exempt from import VAT.

VAT tax is imposed on the following dates:

  • the date of shipment of goods
  • the date of shipment’s payment, full or partial

Advance payments are included in the VAT taxable base on the date of funds receipt.

Input VAT

Input VAT (VAT on purchases and other expenses) is recoverable if a number of requirements are met. The recoverability of input VAT does not depend on if it has been actually paid to the supplier or importer.

Input VAT is not recoverable if expenses or assets used in the manufacture or sale of products exempted from VAT, including those expenses or assets incurred for non-production activities. In certain circumstances input VAT recovery may be denied if the supplier has not paid over their output VAT.

If a taxpayer has net VAT due from the budget (input VAT is greater than output VAT), the tax authority conducts a desk audit of the submitted VAT declaration. Within seven days of the end of the desk audit the tax authority issues a decision on whether to refund VAT or not. However, the tax authorities often require a taxpayer to carry forward VAT due from the budget for the offset of this amount against future VAT payable.

Withholding VAT

If the supplier of VAT taxable goods and services is not registered with the russian tax authorities, VAT must be collected from the payer at the source of payment. In order to do so, an organization or individual entrepreneur conducting settlements on the basis of delegation, commission or agency contracts is considered a tax agent for goods sold by a non-registered foreign entity.

With some exceptions, VAT withheld at the source qualifies as input VAT.

The Russian Tax Code provides for goods and services place of supply rules which determine whether Russian VAT applies to certain cross-border transactions.

Filing and payment VAT

All taxpayers must file their VAT declarations on a monthly or quarterly basis. The final settlement of tax is made on the same date as it is filed.

The submission of declarations and payment of VAT by a foreign legal entity with several branches in the Russian Federation can be performed on a consolidated basis by one division chosen by the board of directors.

General VAT rates

The general VAT rate is 18%. The reduced VAT rate of 10% applicable for medical goods, books, periodicals, foodstuffs and children's clothes. The export of goods is subject to “O” VAT . Certain lines of business, including banking and securities transactions, are exempt from VAT altogether.

Taxation of individuals

Individuals are subject to Russian personal income tax, both residents or non-residents. A tax resident is subject to personal income tax on worldwide income, whereas a non-resident is subject to personal income tax only on Russian-source income. Russian source income will include any income from any payment source for performed services or sold goods in Russia.

An individual is considered a Russian tax resident if physically present in the Russian Federation for 183 days or more during 12 consecutive months.

Personal income tax rate

The flat personal Income tax rate of 13 % applies to all types of Income with the following exceptions:

  • 9 percent tax rate on dividend Income from Russian and foreign companies;
  • 30 percent tax rate on Russian-source Income of non-residents, except for
    15 percent tax rate on dividend Income from Russian companies
  • 35 percent tax rate on specific types of Income, Including: Interest from bank
    deposits In excess of specified rates; material benefit from loans provided by
    organizations or Individual entrepreneurs at a rate of Interest less than the
    specified rate.

The Russian tax resident can benefit from standard, social, property and professional deductions in computing the taxable base.

Social deductions include educational expenditures, per taxpayer and each of his/her children and medical expenditures, per family, anything up to 50,000 RUB ( 2,127 USD ) each.

Property deductions include expenditures relating to the purchase and sale of real estate and personal property.

Professional deductions include expenditures for the creation of intellectual property rights.

An individual who has taxable income that is not subject to withholding, for example any kind of awards coming from abroad, is personally responsible for filing and paying the appropriate income tax.

A foreign citizen may be entitled to some benefits under a double tax treaty. In this case certain information must be provided to the Russian tax authorities to claim such benefits.

Other types of taxation

The general rate of tax withholding is 20% (on interest, royalties, income from leasing and rental operations, etc). Tax withholding on freight income paid to a non-resident with no permanent establishment in Russia is 10%.

Capital gains from the sale of real estate located in Russia are subject to Russian tax at the following rates:

  • 24% - on the net gain (sales proceeds less expenses) if the expenses for the
    acquisition of such property can be supported by appropriate documents;
  • 20% - on gross income (sales proceeds) where documents to support
    expenses on the above sales are not presented by the recipient of income;

Capital gains by a foreign shareholder from the sale of a RLE are also exempt from withholding tax except where more than 50% of the assets of the RLE being sold consist of real property.

Excise tax

Companies,legal entities and individual entrepreneurs, which are manufacturers and traders of excisable products,such as tobacco, alcohol, oil products, cars etc are considered as taxpayers.

Excise tax, as any other tax, is levied on the value of a taxable product.

A taxpayer can use registration certificates which permit a taxpayer to offset the tax due by deducting the amount of excise taxes paid earlier.

Excise tax is not imposed on exported goods.

Property taxation

Property tax is assessed on all ROs and branches of foreign legal entitles owning property at the territory of the Russian Federation. Such taxable property Includes personal property and buildings treated as fixed assets in compliance with the russian accounting standards. For foreign legal entitles without a permanent presence in Russia, only its buildings are subject to property tax. The taxation rate is set by regional legislation but may not exceed 2.2%. In Moscow, Moscow region and St. Petersburg the rate is currently set at 2.2%.

Tax on natural resources:

land, water and other natural resourcs


The land tax is imposed on the landlords’ ownership rights, rights of permanent use or lifelong heritable possession.

The land tax is payable to the regional budgets. The Tax Code sets the tax base and reporting requirements, while the local authorities set the tax rate and filing period.

This tax is imposed on taxpayers that use water resources to manufacture or produce hydroelectricity. Its rate depends on the source which the water is taken from and the economic region where it is located.

Another tax is imposed on taxpayers exploiting fauna and water biological resources.

Finally, a tax is imposed on taxpayers recognized as sub-soil users based on the value of extracted mineral resources.

Social tax

Every Russia-based employer, including a Russian legal entity and a RO or Branch of a FLE registered in Russia, must pay social security contributions - Unified Social Tax - to the Russian Pension Fund and medical contributions for injury and any occupational diseases.

Unified Social Tax ("UST")

UST is assessed on the gross payroll of each employee and is payable by his/her employer to the Federal Budget, Social Insurance and Medical Insurance Funds. The Tax Code provides a regressive scale of annual UST rates as follows:

Tax base (RUB) UST rate %

First 280,000 (USD 11,915) 26

Next 320,000 (USD 13,615) 10

Over 600,000 (USD 25,530) 2

Special tax conditions

The Tax Code renders special tax regimes under which a taxpayer is entitled to pay one specified tax instead of a number of taxes. Such a regime may be applied if certain requirements are met. Special tax regimes include the simplified tax, unified agricultural tax, tax on imputed income and production sharing.

Simplified tax system

Such taxation system can be adopted by a company if certain criteria are met, including but not limited to:

  • The company's annual turnover does not exceed 20,000,000 RUB
    ( 850,966 USD);
  • The net book value of fixed assets and intangible assets does not exceed
    100,000,000 RUB ( 4,254,830 USD);
  • Less than 100 people are employed.

The simplified tax replaces the profits tax, VAT (except VAT paid on imports), property tax, and a portion of UST. Use of the simplified tax system does not exempt employers or individual entrepreneurs from making mandatory pension insurance contributions or withholding income tax from employees' compensation.

The following organizations are not eligible for simplified tax system regime:

  • A Russian company with local branches;
  • A FLE, RO or Branch of a FLE;
  • An organization engaged in specified lines of business (e.g., banks, insurance
    companies, pension funds, investment funds, participants in [production
    sharing agreements], etc.); or
  • A company where more than 25% of its capital is owned by other
  • The simplified tax rates are:
  • 6% - if a taxpayer selects "revenues" as the tax base; and
  • 15% - if a taxpayer selects "revenues less deductible expenses" as the tax

Agricultural tax

A company involved in agricultural production, processing and selling agricultural products may also use a simplified tax system, under condition that the share of income from the sale of agricultural products accounts for at least 70% of its overall sales income.

The unified agricultural tax replaces the profits tax VAT,except VAT paid on imports, property tax and the portion of UST payable to the medical and social funds. The imposed tax at 6% of revenues is less than certain deductible expenses.

Tax on imputed income

Regional authorities may impose a "tax on imputed income" on individual entrepreneurs and small companies. This tax rate is set by the local tax authorities for specific types of activities: public catering or retail trade. A company paying this tax is set apart from most other taxes. The imputed income tax does not exempt an employer or individual entrepreneur from mandatory pension insurance contributions. The tax on imputed income is imposed at the rate of 15% on the "imputed" revenue per month and is adjusted by special coefficients based on the type of utilized land, range of goods, seasonal factors, level of income, etc.

Vehicles taxation

Transportation tax is a regional tax payable on all registered transportation vehicles: cars, motor bicycles, ships, aircraft, etc. by the entities (or individuals) registered as the owners of these vehicles.

The tax base is usually based on the size of the engine. The tax rate varies for different means of transportation and may vary according with the regional legislation.


Presently, the principal law applicable to employment arrangements is the Russian

Labor Code.

Social responsibility

The interests of the employer and employees are regulated and protected by the system of social partnership in the following aspects:

  • Negotiation of collective agreements;
  • Mutual consultation on employment issues;
  • Participation of employees in the management of the organization;
  • Participation of third parties in pre-court settlements between an employer and its employees.

Agreement between them

A collective agreement may be concluded between the employer and the employees. The labour law does not require a collective agreement, unless on of the parties insists to issue it. The trade unions protect employees’ rights when such contract gets broken. The employer is represented by the General Director or his authorized representative.

The law allows the parties to define the content of a collective agreement independently; however, they may not be less favorable than those in the Labor Code. The collective agreement is subject to registration with the appropriate State Labor Office.

Trade unions

As it is written in the Labor Code, when an employer makes decisions, the employer should consider the opinion of the trade union(s) if such exists. So far the russian trade unions are more typically formed at company level rather than on an industry-wide level as in western countries. In the event If a disagreement occurs between them and cannot be settled by common consent, then the employee can file his/her complaint and submit it to the civil court.

Employment agreement

Accordingly to the Labor Code an employment contract should contain "essential" conditions, such as place of work, commencement of work, position, rights and obligations of the employer and the employee, salary and benefits, also additional conditions: probation, trial period, confidentiality.

An employment contracts may be signed for:

  • an indefinite term; or
  • a fixed term of not more than five years.

The contracts with a fixed term are only allowed when employment relationships cannot be established for an indefinite term and specific conditions are met.

Particularly, fixed term contracts are recomended for the following categories of employees:

  • Directors, deputy directors, chief accountants;
  • Employees working in companies created for a specific project;
  • Part-time workers (having more than one job);
  • If the work is temporary in nature.

Employers are welcome to sign an individual written employment contract with each employee. After its signing, a respective order for the employee's admission to work should be issued by the General Director.

In the case of a fixed term contract, the term and the reason for defining the duration or cancelation of the contract must be specified.

Probation period

Trial periods, maximum up to three months, are permitted to assess the suitability of employees for the position. At the same time certain categories of employees are not subject to a trial period:pregnant women, minors, transferees. The trial period may be established for six months for directors, deputy directors, chief accountants, deputy chief accountants and directors of branches, representative offices or other divisions.


If the payment of salary has been overdue for more than 15 days, the employee has the right to notify the employer and to stop attending his/her working station. In such cases, the employer may be obliged by court to pay the employee for each idle day by two-thirds of the average salary, calculations based on actual salary accrued and the actual working time for the past 12 months.

The employer must pay interest for each day of delay in payment of salary in the amount of no less than 1/300 of the refinancing rate of the Bank of Russia.

Even criminal sanctions may be imposed on the employer if the payment of salary is delayed for more than two months - up to 125,000 RUB or imprisonment for up to two years.

Employee references

The Russian employment legislation requires that a work labour book to be kept for each employee working for more than five days for one enterprise. This is the basic document concerning the activities of the employee, work performed by the employee, reasons for dismissal, etc. Firms are generally required to sign, stamp and hold such work record cards for their employees.

Amendments should be made to the labor book if there are any changes to material conditions of employment.

Though nowadays looks like these so-called “work labour books” soon will be completely withdrawn from the circulation, instead letters of references will be in favour.

Cancelation of employment agreement

The reasons for terminating an employment contract according to the Russian employment legislation include a number of situations, such as:

  • Agreement of the parties;
  • Expiry of the term of the employment contract;
  • Cancellation of the employment contract at the initiative of management or employee;
  • Refusal of the employee to continue working due to a change in owner or
    subordination of the employer, or its reorganization;
  • Refusal of the employee to continue work owing to relocation of the employer.

Generally, an employee may terminate a contract by giving two week's advance written notice to the company, unless an earlier termination is mutually agreed. A fixed term employment contract may be terminated by an employee if he/ she is injured or disabled and not in position anymore to perform the required type and volume of work, management violation of the employment legislation, the collective agreement or employment contract, or if the employee has other good grounds for doing so.

Guaranteed rights

The Russian employment legislation secures certain guarantees for all legal employees:

  • Wages for time spent away from work, for the performance of the functions of
    a trade union officer, appearing in court, going to vote, and fulfilling other state
    or social responsibilities;
  • Severance pay in certain circumstances;
  • Certain social benefits: maternity leave, paid holidays and vacation time;
  • Limited overtime is permitted for certain workers, subject to certain conditions.
    Overtime is payable at the following coefficients: 1.5 times normal salary per
    hour for the first two hours, 2 times for subsequent hours. Employees may
    demand additional days-off as compensation for overtime;
  • In general, employees are entitled to twelve days of paid Russian national
    holidays and annual leave of not less than 28 calendar days;
  • Employees are generally entitled to sick leave benefits, paid by the Social
    Insurance Fund. The monthly amount of such statutory benefits may not
    exceed 17,250 USD ( 734 USD), though the first two days of
    sick leave must be covered by the employer;
  • Women are entitled to get paid for maternity leave, 70 days before and after childbirth as well as unpaid leave until the child's third birthday

Unforeseen circumstances

In compliance with the Labor Code severance pay must be equal to at least two week's average earnings where an employment contract is terminated in certain circumstances, for example:

  • Drafting or enlisting of an employee into military service;
  • Refusal of an employee to be transferred to work in another locality together
    with the enterprise, institution or organization upon its relocation;
  • Reinstatement of an employee who previously performed the work.

In the event of the dissolution of an enterprise, institution, or organization, or staffing cuts, a one-off payment of monthly average earnings is required with additional payments if the dismissed employee is unable to find work, but no more than two months. To eliminate a position by redundancy, at least 60 days notice must be given to the employee and severance pay must be made in the amount equal to two months' salary. If the employee is unable to find alternative employment, then up to two additional months' salary may be claimed from the former employer.

An employer may void a contract with employee in the following cases:

  • An employee submitted false documents when he/she was hired;
  • An employee fails to discharge work duties on a regular basis for no good
  • Is absent for no good cause.
  • Is inebriated at work
  • Discloses commercial information or internal confidential information of the employer to the third party
  • Steals from the employer.
  • Fails to comply with labor protection requirements, that can cause a significant damage to the equipment or co-worker’s injury;

The Russian labour law stipulates that employment contracts cannot be terminated on the initiative of the employer with the following employees:

  • Pregnant women or women with children under the age of three;
  • Single women with children under 14 or disabled children under 16.

If the employee’s age is under 18, an employment contract may be terminated by the State Labor Inspectorate and Commission on Minors.

It may prove difficult to terminate an employment contract on the grounds that the employee is not suitable for the position unless there are clear job requirements with demonstrable failings by the employee. Generally courts rule in favour of an employee when considering cases of alleged wrongful dismissal. In practice, companies seek where possible to secure the employee's voluntary resignation.


A subcontractor may be engaged pursuant to provisions of the Russian Civil Code relating to civil work contracts. Under a civil work contract, the contractor performs certain type work at his/her own risk for the hiring company. The “sub” is required to use its own materials, unless otherwise stipulated by the contract.

However, if the nature of the contract is effectively an employment agreement, a court is likely to uphold the applicability of labor law should a dispute arise.

Hiring a non-national employee in Russia

Work permits for foreign employees

All non-nationals employed in the Russian Federation must obtain work permits. An employer willing to hire a foreign national must apply for authorization to hire foreign citizens and check the quotas for that with the Federal Immigration Service. On the basis of the authorization and within the limits of the quota, the Immigration Service can grant the named foreign national such permitting document.

The process of proper hiring a foreign employee in Russia requires the following steps:

Registration of the company with local employment centre

The procedure of legalizing relations with foreign employee shall be started from registration of the company with a local Employment centre. This registration shall be made once. After such a registration the company will have a right:

  • to submit an application for work permit quota
  • to publish through the Employment centre an advertisement of the appropriate vacancies for those positions where the requirement to get a quota is temporarily waived

Submission of quota applications to employ foreigners

The Russian migration authorities require that companies shall in advance annually apply to the employment centers for the rights to employ foreigners. According to the current regulations, the companies shall reserve quotas for its foreign employees by filing applications for their work permit quota for the next year by the May 1st of the current year.

If a company needs to obtain work permits for its foreign employees in the current year without having filed quota applications in the previous one, extra quota applications should be submitted.
Herewith, each year the government approves a list of positions where the requirement to get a quota is temporarily waived (usually, a general director of the company, head of rep office). However, such list is valid until the end of the year and the government can at any time decide to retract this law.

Obtaining the permit for the company to engage foreign staff

In order to have right to employ expats (nationals of non-CIS countries) the company shall apply to the Federal Migration Service (FMS) for a permit to engage foreign labour. The FMS considers the application within 30 days after submission of the documents.

Herewith, according to the current regulations, before applying to the FMS the company shall publish through the Employment centre an advertisement of the appropriate vacancies (i.e. of the jobs that the foreign employees are hired for) for a month period and wait for possible Russian candidates. It's a formal part of the process but the company will be automatically refused by the FMS if advertisement term is not observed.

Obtaining work permits for foreign workers

The company must apply to the Federal Migration Service (FMS) for a work permit for each foreign employee. The FMS considers the documents within 30 days.

Registration the company with the FMS in order to get invitations

In order to apply for the invitations for its foreign employees the company shall be registered with Federal Migration Service (FMS). Such registration is valid for 1 year and shall be prolonged annually. As well the registration shall be amended if the company’s details are changed.

Obtaining invitations for a foreign employee

In order to enable the employee to get a working visa the company shall apply to migration service for issuing an invitation.

Registration of the incoming foreign employees with the local department of FMS at the place of stay in the Russian Federation

According to the current regulations, the company shall register its foreign employees with the local department FMS at place of stay within 3 working days after their entry into the Russian Federation.

Notification of the local tax authorities and the local employment centre concerning the newly employed foreigner

According to the current regulations, the company shall notify the local tax authorities concerning each employed expat within 10 calendar days after his/her entry into the Russian Federation, the local employment centre and regional state labour inspection - within a month after conclusion of the labour contract with the foreign employee.


Some of business activities are subject to licensing by the appropriate government authorities, including, for example, banking, construction, and the sale of Pharmaceuticals.

No doubt that licensing process in Russia can be very demanding with regard to documentary support, and for foreigners, with poor language knowledge mostly it turns out to be a very time-consuming and stressful red tape.

In those cases where a company undertakes a regulated activity without the appropriate license, a government agency (such as a tax inspectorate) may apply to the court demanding fines for such company and even its termination,in some cases with confiscation of all income from the unlicensed activity.

TechnologiaONE will lead you through the process of obtaining licenses hustle free. We have a wide experience particularly in this field. (Check out our List of clients)

Buying property

The purchase of land is presently regulated by the Federal Land Code, which must be implemented through enabling legislation by each regional government authority. It is still generally complicated to deal with land ownership in Russia.

Mostly, land is available under lease (sometimes with a right of first refusal to purchase) for a maximum duration of 50 years.

Liquidation, bankruptcy, reorganization

Here is a list of circumstances under which company’s existance may be terminated:

  • According to the decision of shareholders general meeting;
  • In compliance with the court decision if the company has become insolvent or bankrupt;
  • A court decision in some cases of gross violation of the law;
  • By achievement of the goal which the company was
    established for.

LLC liquidation

The liquidation procedures first of all include settlement of the issue with the tax authorities and payment of the liquidation fee. The tax closure can cause significant delays in completing its procedures as a tax audit is often performed long after the tax closure is initiated.

Once a liquidation commission has been appointed, all rights to manage the company are transferred to the commission.


Primarily bankruptcy law provides protection for enterprise's creditors and outlines the procedures to be followed in the event of bankruptcy. If the company has been recognized insolvent it is understood that it is unable to satisfy all pecuniary claims made by creditors or to meet and execute pecuniary obligations as it is stated by the court. Then the legal entity is officially considered insolvent and consequently can be declared bankrupt if it fails to meet pecuniary obligations for more than three months after the date such obligations were presented.

In the event of bankruptcy legal actions can be initiated if the debt is over 100,000 RUB ( around 4,255 USD) for a legal entity and 10,000 RUB (around 425 USD) for an individual.

Reorganization of legal entity

All mergers, consolidations, split-ups and spin-offs, as well as transformations are permitted under the Civil Code, Joint Stock Company Law and Limited Liability Company Law. Such reorganization implicates series of steps to be undertaken which, under individual circumstances, can demand considerable efforts and time.


Annually any OJSC undergoes a Russian statutory audit. A CJSC is expected to undergo an annual audit if it meets certain legal criteria. In particular, an audit is mandatory for the following companies:

  • All credit and insurance institutions
  • Any companies with annual revenue of over 50,000,000 RUB (over 2,127,415 USD) or with total assets over 20,000,000 RUB ( over 850,966 USD).

Additionally, all JSCs are subject to audit by the initiative of the company's internal audit committee, by the internal auditor, or by the decision of the shareholders general meeting, or by the board of directors, yet by demand of a shareholder or group of shareholders holding 10% or more of the voting stock.

Following audit procedures must be performed by an auditor or audit firm with a valid Russian audit license.

Pension and Social Insurance Funds

The amount of contributions due to the Russian Pension Fund is evaluated on the gross payroll in respect of each employee and are paid on a regressive scale, depending on the employee's annual income. Deductions are capped at 56,800 RUB per annum per employee and are not payable on an individual's annual income above 600,000 RUB.

Contributions to the Russian Pension Fund are deductible from UST, thus an employer reduces its current UST payment by contributions to the Russian Pension Fund. As a result, they do not actually represent an additional cost.

Deductions to the Social Insurance Fund are payable in addition to the taxes mentioned above. The rate of contributions depends on the risk category which the employer is referred to by the fund. The current minimum contribution is 0.2% of payroll and the maximum of 8.5 % annually.

Capitalization rules

Capitalization rules are applicable when:

A Russian company has an outstanding debt (a "controlled debt"):

  • to a foreign company that owns (directly or indirectly) more than 20% of
    the Russian company's share capital, or
  • to a Russian company that is an affiliate of the aforementioned foreign
    company, or
  • in respect of which an affiliated person or the foreign company itself acts
    as a guarantor, surety or otherwise guarantees repayment of the debt by
    the Russian debtor company, and

The amount of such company's unpaid loans (unsettled debts) exceeds the
net assets of the Russian company more than three times (12.5 times for
banks and leasing companies).

The excess interest, the amount of interest on the controlled debt exceeding the 3:1 or 12:5:1 ratio, is considered a dividend, which is non-deductible for profits tax purposes and generally is subject to withholding tax of 15% or lower rate under an applicable DTT.

Possible income and expenses

Receipt of money transfers from a parent company, a subsidiary, or an individual does not result in taxable income if:

  • The ownership of the recipient or transferor in the charter capital of the other
    party to the transaction is more than 50%;
  • The individual's ownership in the company-recipient is above 50%;
  • The property received (except for money) is not disposed of within one year
    from the date of receipt.


The Tax Code requires taxpayers, including branches and RO of foreign companies, to maintain separate accounts for profits tax purposes.

The methodology applied for corporate profits tax purposes should be clearly explained in the taxpayer's tax accounting policy. Once chosen, the tax accounting policy may not be changed during the financial year.

Specifically, a taxpayer must independently develop its tax accounting policy and apply it for at least two tax periods with respect to expenses treated as direct expenses and the method for valuing inventory.

If expenses cannot be allocated directly to a manufacturing process, such expenses are to be allocated on an any other economically justified basis.

Profit repatriation

Profits generated by russian branch or RO can be repatriated through several procedures: transfer pricing mechanisms, service charges, royalties and interest payments. These are, however, coming under increasing official scrutiny and often raise other tax issues:

  • Transfer prices impact the amount of customs duty;
  • Management services can create a taxable presence in Russia (permanent
    establishment) for the service provider;
  • Consulting services can be challenged with respect to deducibility and are
    subject to VAT;
  • Royalties charged must be economically justifiable;
  • Interest is deductible up to a certain rate, but subject to the thin capitalization
    rules (see discussion in the Profits tax section above).

Transfer pricing

The Russian tax authorities are entitled to change the prices of the following transactions and impose additional taxes, late payment interest and penalties if the sales price deviates from the market level by more than 20%:

  • transactions between related companies where one party to the transaction
    directly or indirectly owns 20% or more of the share capital of the other party;
  • barter transactions;
  • foreign trade transactions;
  • transactions where the price deviates by more than 20%

These are one-sided adjustments in that a Russian seller with additional tax costs from a transfer pricing challenge will not lead to a reduced tax cost for a Russian buyer.

Customs regulations

Import duties

Customs duties levied on imported goods are assessed at various rates, according to the goods classification, applied to the customs value of the imported goods. We have to admit that the applicable rates for the most frequently imported commodities are significantly higher than those in most Western states. Customs rates usually vary from 5% to 20% and apply to goods from countries which enjoy most favored nation status with Russia. If goods come from developing countries with most favored nation status, the customs duties may be reduced. If goods come from a country that is not on the list of loyal countries, the customs duties are imposed at twice the normal rates.

Assets imported into Russia as contributions from a shareholder of foreign LLC as the charter capital of a Russian branch or RO may be exempt from import customs duties if certain conditions are met. Currently, this customs duty exemption is broader than the import VAT exemption for "technological equipment".

Customs clearance is intended to be much simpler and faster due to new procedures, so-called "Green Corridor", developed by the Russian Federal Customs Service.

Export duties

Export duties are assessed on exports of certain raw materials, such as timber, oil, metals, coal etc

Naturally,export customs duties are depending on the goods exported. The export duty on oil and oil products is reviewed every two months by the Russian Government based on the market price of oil.

Currency transactions

The Foreign Exchange Control Law (the "Currency Law") regulates currency transactions In Russia. All currency transactions are conducted without limitation.

Russian entities perform rouble transactions nation-wide without any restriction. The foreign currency transactions between residents which can be performed without any restriction include:

  • receipt and repayment of loans and interest;
  • deposit and withdrawal of cash from bank accounts;
  • certain transactions with bills of exchange issued by authorized banks;
  • purchase and sale of foreign currency by individuals;
  • payment of commissions to authorized banks.

Generally, foreign currency transactions between residents and non-residents can be performed without limitation.

Currency regulations

All russian legal entities with foreign participation are considered residents for the purposes of currency regulations, and may compensate their employees, doesn’t matter if they are foreign or not, in roubles or in kind (in-kind compensation may not exceed 20% of total salary). Branches or ROs of foreign companies may draw the payroll either in roubles or in a foreign currency.

Russian employees may receive foreign currency:

  • By money transfer from outside Russia or from a local bank account of a
    foreign legal entity to a bank account of the individual in a Russian authorized
  • While working overseas for a foreign employer
    and bringing the foreign currency back into Russia on return.

The Russian citizens may legally open foreign currency accounts with authorized banks in Russia. Foreign currency deposits may be made in such accounts and the Russian citizens may withdraw cash from such deposits freely.

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