Starting a business in a new market always implies a lot of challenges and changes. In Russia everything becomes even more exalted not only because it is a fast growing economy that posses vast reserves of natural resources, fighting for becoming among one of the most authoritative world powers, but also because of its mysterious magnetism, ability to combine contradictions, simultaneously foster culture, business and spirituality. And last, but not least, Russia is the largest country in the world being the Motherland for over 150 different nationalities with their own customs, traditions, languages and unique habits. Such successful integration of very different people on a national level created that very special atmosphere which cannot be found anywhere else in the world and allowed the country to perform a function of a bridge between Europe and Asia, West and East in all its meanings.
Moreover, Russia has been home for many international companies over last 2 decades, which in spite of local challenges and struggles still have long term plans for business development in the country.
Taking into consideration everything mentioned above, starting a business in Russia, should it be an existing foreign enterprise or a new start up, all its business practices should be definitely re-evaluated and adapted to the Russian market.
Important briefing before market entry
Starting a business in Russia first of all begins with deep understanding of the market needs and its peculiarities. To begin with, it is crucial to understand your business location in Russia in accordance with your target market. Another good tip would be to analyse existing international companies in Russia and their locations. From 147 mil people in the whole country, approximately 13 million (officially) live in Moscow, 5 million people – in Saint Petersburg and there are only 15 cities in the whole country with population over 1 million people. Most of these “1 million +” cities are situated in the Western part of Russia and only few of them in the East.
Russian Federation has a regional economic integration The Eurasian Economic Union (EAEU) with its 5 neighboring countries: the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan and the Kyrgyz Republic. This regional integration is very beneficial for any business activity in Russia and its advantages should be taken into consideration. The EAEU means that any company is entitled to free movement of goods, services, capital and labor. The integration pursues coordinated, harmonized and single policy in sectors determined by the Treaty and international agreements within the Union.
Procedure for starting a business in Russia has been significantly simplified by national officials and it may take only from 3 to 7 days for a company start-up. However, legislation of Russia is famous for having continuous changes and requires thorough monitoring of all requirements. Therefore, it is very common in Russia to delegate all paper work associated with legal registration, banking and other formalities to high-end consulting companies who also specialise in doing legal support for foreign businesses in Russia in a highly professional manner.
Among all various options for a foreign company we would recommend to consider 4 legal options to run a business in Russia
1. Establish a local firm
The most common types of business firms in Russia are: Individual enterprise and Limited Liability company, LLC.
Individual enterprise is the most simplified way of doing business, which is suitable for self-employed entrepreneurs, freelancers or firms with very few employees. However, to open an individual enterprise for a foreign company will require to have a residence permit, which is not required in the latter form.
Limited Liability Company (further LLC) – is the most preferable type of a medium to large sized businesses, which is also suitable for foreign companies. Managing LLC (to be a governing body of a company or as part of board of directors) could be done from abroad, however, directorship and all operational activities will require residence permit the same as in case with Individual enterprise.
2. Purchase a stake in existing Russian business
Here is another way on how to operate in Russia as a foreign company – to purchase a stake of a local company. However, being a part of an existing business implies that there is a very strong trust, reliance, certainty and both parties are driven with the same vision. Our experts assist in legal support and in composing a detailed agreement in case unexpected contingencies arise.
3. Branch or registered office (subsidiary) of an existing foreign firm
Branch allows for an existing foreign business to employ commercial activities on the territory of Russia, whereas registered office allows only representing company’s interests. Both types are not considered as separate firms, but as subsidiary of its foreign mother company. Although branch allows a wider range of activities, such as sales and employments, it levies higher local taxes. Nevertheless, both types are entitled to be registered in the Federal Tax service of Russia (FTS).
This option could be considered as a first step of testing and studying the market. Partnership with a reputable company through making it a distributor or representative usually gives a very good way to enter the market, learn preferences of targeted audience and advance further business strategy accordingly.
The process of starting a business in Russia involves a lot of dedication and at times it might be a very challenging task to apply logic to all formalities that exist in Russia. Our advisors became unequivocal professionals due to enormous experience gained over the years in legal support for foreign businesses in Russia.
Our professional successful experience, continuous up-to-date business alertness and yearning to deal with every case as much carefully as possible built up the proper combination of the right approach towards finding the best solution for all our foreign clients.
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