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DOING BUSINESS IN RUSSIA / RUSSIA BUSINESS GUIDE

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DOING BUSINESS IN RUSSIA / RUSSIA BUSINESS GUIDE

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Postby Russia Info » Wed May 30, 2007 6:02 am

DOING BUSINESS IN RUSSIA

STARTING A BUSINESS

STANDARDIZED COMPANY
Legal Form: Private Limited Liability Company (OOO)
Minimum Capital Requirement: 10,000
City: Moscow

Registration Requirements:

Procedure 1. Deposit capital in the bank and get a proof of the transaction.


Time to complete: 1 day

Cost to complete: no charge

Comment: At least 50 per cent of the charter capital shall be paid before company incorporation. The balance must be paid in the first year of operation.

Procedure 2. Pay registration fee.

Time to complete: 1 day

Cost to complete: no charge

Comment: The registration fee must be paid for the registration of the legal entity with the State Tax Inspectorate, on a local level, for obtaining a single state registration number. The amount of the registration fee is RUR 2,000, which includes fees for registration with the State Pension Fund, the State Fund of Social Insurance and the State Fund of Compulsory Medical Insurance, shall be transferred to the account of the State Tax Inspectorate, on a local level, in the Savings Bank (Sberbank).

Procedure 3. Register with the unified register at the Ministry of Taxation of the Russian Federation on the local level, for obtaining the single number of state registration and the number of tax registration (identification number of taxpayer (INN)).

Time to complete: 18 days

Cost to complete: RUR 2000

Comment: From the 1st of January 2004 as it follows the provisions for the law "On State Registration of Legal Entities and Individual Entrepreneurs" (the "Law"), the registration of all legal entities with the State Pension Fund, the State Fund of Social Insurance and the State Fund of Compulsory Medical insurance is executed by the Ministry of Taxation of the Russian Federation . The applicant can file all documents in one without making extra visit to the office. The tax authorities should inform the applicant about the details of its registration with the insurance authorities. However, as the unified register is in the process of transiting to the new practice, companies usually prefer to do the registration with insurance funds themselves to save time.

Registration with the State Pension Fund, the State Fund of Social Insurance and the State Fund of Compulsory Medical Insurance is obligatory for all legal entities and must be completed within 30 days of registration with the State Tax Inspectorate.

Time to complete registration:
Tax authorities (INN) - 5 days;
State Pension Fund - 1-2 days;
State Fund of Social Insurance - 14 days

The procedure takes from 5 days minimum, up to 30 days.

Tax authorities now accept the documents for state registration only when filed personally by one of the founders of the company otherwise require them to be delivered by mail. If the documents are filed by mail, the registration certificates are sent back by the Tax Inspectorate by regular mail as well. Given the low speed of mail delivery, this approach adds significant time to registration process.

Procedure 4. Notarise bank signature card.

Time to complete: 1 day

Cost to complete: RUR 2,000 (Notarising of one signature costs approx. RUR 200, assuming 10 signatures)

Comment: Due to the amendments to the Tax Code of the Russian Federation, new notary tariffs came into force. On the other hand, the fee for notarisation of copies foundation documents increased.

Procedure 5. Open the company bank account.

Time to complete: 1 day

Cost to complete: nominal

Procedure 6. Inform Ministry of Taxation of the Russian Federation of the company bank account number and obtain a special letter of confirmation.

Time to complete: 5 days

Cost to complete: no charge

Comment: The procedure takes from 3 to 7 days and needs to be completed 10 days from date of opening of bank account.

Procedure 7. Register the company with Moscow Centre of Quotation of Work Places.

Time to complete: 1 day

Cost to complete: no charge

Comment: The notification needs to be made within 30 days after the state registration of the company if the founder's net assets exceed 200,000 minimum monthly wages. Registration of companies with Moscow Center of Quotation of Work Places was introduced by the Resolution of the Moscow Government No. 125-PP of March 4, 2003 "On Approval of Regulation on Quotation of Work Places in the City of Moscow".

FORMS OF BUSINESS ORGANISATION

1. Limited liability company
2. Joint stock company (open and closed))
3. Joint activity agreement or simple partnership
4. Branch and representative office

Limited liability companies are the simplest form of conducting business and investors often use them for wholly owned subsidiaries.

The registration procedure for legal entities includes state registration, tax registration, registration with the State Social Funds and registration with the State Statistical Board.

Representative offices and branches are not considered legal entities under Russian law. The registration process for both types includes accreditation, inclusion in the State Register of Accredited Foreign Representative Offices or branches (State Registration Chamber), registration with the State Statistical Board, registration with the tax authorities (regardless of whether the activities are of a taxable nature) and registration with the State Statistical Board. Representative offices should perform non-commercial activities only.

The financial sector is concentrated in the capital, Moscow, and, to a lesser extent, in St Petersburg.

The government controls capital transfers via currency-control regulations. There is a requirement to use special types of bank accounts and a requirement to deposit a certain percentage of the transaction value in a special deposit account in the cases of certain transactions between residents and non-residents. The Central Bank of Russia may also require registration before a resident entity or individual opens a bank account abroad.

TAXATION

Corporate profits tax

Main rate: 24%

Russian companies are taxed on worldwide income with a credit for foreign tax. Foreign companies that do not conduct business activities in Russia through a permanent establishment are taxed only on Russian-source income. The main profits tax rate is 24%. The rate may be reduced by the regional legislative bodies of the Russian Federation to 20% for certain categories of taxpayers.

Dividends paid by Russian companies to other Russian companies are subject to a final withholding tax of 9%. Dividends paid by/received from Russian companies to/from foreign companies are subject to a withholding tax of 15%, unless otherwise provided by an applicable double-tax treaty.

Interest is generally included in taxable income, but interest received on state and municipal securities is subject to a final withholding tax of 15%. Interest on mortgage bonds and municipal bonds issued before January 1st 2007 for a period of not less than three years is subject to a final 9% withholding tax.

Personal income tax
Flat rate of 13% for residents (30% for non-residents)

The personal tax rate in Russia is 13% for residents. The tax rate for non-residents, who are taxed on Russian-source income only, is 30%. Residents are defined as individuals actually present in Russia for 183 days or more in a calendar year. Domestic and foreign dividends are subject to tax at 9%, which in the case of domestic dividends is withheld by the paying company. Interest on bank deposits is exempt provided it does not exceed the refinancing rate of the Central Bank of Russia for rouble deposits or 9% for foreign-currency deposits. The excess is subject to tax at 35%.

Capital gains
Taxed as income; some long-term gains of individuals are exempt

Capital gains of companies on immovable property are taxed as ordinary income. Gains from the sale of securities are treated as a separate category of income and cannot be reduced by deduction of regular expenses. Capital losses on securities cannot be set off against general income. Certain long-term gains of individuals (residents) are tax-exempt, including gains on immovable and movable property if owned for more than three years. Gains that are not exempt are subject to income tax at normal rates.

Indirect tax
VAT standard rate: 18% ; Other rates: 10%, 0%

Value-added tax (VAT) applies to most transactions at the standard rate of 18%. Companies and individual entrepreneurs can apply for exemption from VAT if their taxable revenue for three consecutive months is below RUR 1m (from January 1st 2006—below RUR 2m). The lower rate of 10% applies to certain foodstuffs, books and medicine. Exports are zero-rated. Major VAT-exempt activities include medical services and sales of medical equipment, passenger transport services, education and banking services. Business entities must initially register for all taxes, including VAT.

Tax administration and compliance
Tax year: Corporations and Individuals: calendar year

Companies must submit a profits tax return every quarter, but may elect to report on a monthly basis. Companies are required to make monthly advance payments of tax. However, a permanent establishment of a foreign company may make quarterly rather than monthly payments. An annual tax return must be submitted by March 28th following the reporting year. Employment income of individuals is subject to deduction of tax at source. Individuals receiving income not subject to deduction of tax at source must submit a tax return by April 30th following the end of the tax year.

Additional tax information

Withholding taxes:
Dividends 15%, Income from international freight 10%, Interest 20%, Royalties 20%. Rates may be reduced by an applicable tax treaty.

Tax treaties: Russia has more than 70 tax treaties.

Dividends: Subject to withholding tax of 9% when paid in Russia by a Russian company to a Russian company or Russian individual.

Revenue protection: There is transfer-pricing and thin-capitalisation legislation.

Groups: No provision for group taxation.

Incentives: Regional authorities may reduce the regional component of the corporate tax by up to 4%.

Other taxes: Excise duties, Import duties, Enterprise property tax, Individual property tax, Land tax, Water tax, Unified social tax, State duty, Mineral extraction tax, Export duties, Transportation tax.
Russia Info
 
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