If you come to Russia, you have a lot of ways to build your life. You can find a job, and then your employer makes a visa and work permit for you. But a lot of ambitious people once decide to start working on their own. But what should your first steps be like?
Certainly, there is always the option to create a Limited Liability Company (we call it "ООО" in Russia), but there is an easier way: you can become an Individual Entrepreneur. And since you provide the documents for registration, you can do your own business in Russia. And here is some information on the advantages and disadvantages of entrepreneurship in the Russian Federation to consider.
Let’s start with the procedure of registration
If you are a foreign citizen or a stateless person and have the intention to carry on business in Russia without forming a legal entity as a sole proprietor, you must perform the following steps:
Obtaining a part or full-time residence in the Russian Federation.
Defining the sphere of your business.
Preparing the set of the required documents for registering.
Filing the required documents to the registered office.
Receiving the incorporation documents.
Opening a bank account.
Starting a business!
What are the advantages?
A simplified registration procedure. In comparison with registering an LLC, you do not need a large set of documents.
Simplified taxation. When registering an Individual Entrepreneur, you have the right to choose the tax system, and, as a rule, it is easier than if it is with a legal entity.
A simplified conducting of accounting activities.This significantly simplifies the activities of Individual Entrepreneurs, as well as reduces costs.
The Individual Entrepreneur takes all the profit received for himself.
Minimum registration costs.
In case of violation of legal requirements, the penalties imposed on Individual Entrepreneurs are significantly lower than on legal entities and their managers. Administrative penalties for entrepreneurs are imposed for violation of tax payment deadlines, lack of a license for the type of activity, provision of low-quality services, violation of trade rules, failure to provide complete information about the product, and for other reasons.
The liquidation process is a simplified procedure in the form of filing an appropriate application to the registration authority and payment of state duty (provided that there are no complaints from the fiscal authorities).
What are the main disadvantages?
The Individual Entrepreneur is liable for obligations with all his property, except for the property that cannot be recovered in accordance with the Civil Code of the Russian Federation.
Individual Entrepreneurs sometimes do not have the right to choose the sphere of their activity they want and there are activities you can do only if you have the appropriate license (which is not easy to get).
You need to pay contributions to extra-budgetary funds, regardless of whether the entrepreneur receives a profit or not. Contributions can only be suspended when the sole proprietor is self-liquidated.
The Individual Entrepreneur is not able to sell the business; you can sell only the property.
Here is the table for you to compare:
;Individual Entrepreneurship;Limited Liability Company
Taxes;You can withdraw your profit immediately after receiving it and spend it as you want. It is not registered anywhere and no tax is paid on it;You need to submit reports. The founders pay tax on the profit. Withdrawals from the current account must be recorded
Contributions to non-budgetary funds;Regardless of whether the individual entrepreneur makes a profit or not, he is obliged to pay contributions to the Pension Fund during the year;Deductions are made for all employees, the terms of deductions are strict
Accounting;A simplified conducting of accounting;All legal entities are required to keep records and submit reports.
Registration costs;Minimum registration costs;At least 10 times more than for entrepreneur registration
Responsibility for obligations;with all his property except for the property that cannot be recovered in accordance with the Civil Code of the Russian Federation;The founders of an LLC are liable for their obligations according to their share in the authorized capital
The patent system of taxation;Only an individual entrepreneur can choose a patent tax system, and it is very profitable for small businesses;Cannot use the patent system
Registration;It is easier to register a business because you need to provide a smaller set of documents, the amount of state duty is not so large;Not only have you to pay the larger state duty, but also to provide a lot of documents, including the Charter
Liquidation;The individual entrepreneur is not able to sell the business, you can sell only the property. But the liquidation process is quite easy;LLC can be sold or re-registered. But the liquidation process is complicated
Well, taking into account all the pros and cons, you decide to register as an individual entrepreneur. It’s high time to think about the system of taxation you are going to choose.
For small businesses in Russia, there are 3 preferential tax regimes that allow individual entrepreneurs to reduce their taxes and the number of reports. Here they are:
Unified Tax on Imputed Income
Individual Entrepreneurs don’t need to pay income tax, property tax and VAT. It can only be used for certain types of activities and only in regions where this regime has been introduced by local authorities. By choosing this taxation system, you pay taxes not on your actual income, but on your estimated income. For each type of activity, the Tax Code prescribes a basic return, on the basis of which the tax is calculated, taking into account coefficients and physical indicators. How much you actually earn from this activity — more or less — the Tax Authorities are not interested in. You need to submit reports on the unified tax system every quarter. There are no exact restrictions on the amount of revenue, but the tax regime is prohibited for the largest taxpayers.
Patent System of Taxation
Individual Entrepreneurs don’t need to pay income tax, property tax and VAT. This special system can only be used by Individual Entrepreneurs, but it is not available for organizations. The patent system can also be applied only for certain types of activities and in certain regions where this regime is introduced by the authorities. And the tax is also calculated not from the actual, but from the estimated income. The list of permitted activities mainly includes household services to the population. A distinctive feature is that an individual entrepreneur immediately buys a patent for any type of business and then does not pay taxes and does not submit reports during the year. Remember that maximum revenue per year cannot be more than 60 million roubles.
Simplified Taxation System
Entrepreneurs don’t need to pay income tax, property tax and VAT. This is also the most popular system among Individual Entrepreneurs in Russia, very simple and profitable.
By choosing this option, you pay taxes in one of the following ways:
6% of all received income;
15% of the difference between income and expenses;
Your revenue cannot be more than 150 million roubles a year. And you can employ not more than 100 people.
This special option can only be used by farmers and those who provide them with services. The tax is paid on the difference between income and expenses and is reported once a year.
General Taxation System
If you do not switch to any of the special tax regimes we have written above, you will automatically be registered in the General Taxation System. This means that you will be required to pay personal income tax on business income, property tax and VAT. All this involves a lot of work on accounting and reporting.
Any other taxes?
All the other taxes (transport, land, water, etc.) you have to pay only if there is a corresponding object of taxation. This does not depend on the applicable tax regime.
In addition to taxes, all Individual Entrepreneurs without employees are required to pay annual fixed insurance contributions for two types of insurance: pension and medical. The amount of contributions differs each year and related to minimum wage.
So, this is the main information on Entrepreneurship in Russia. If you need any help with registration or accounting, we are always ready to assist you.