Individual Proprietorship for temporary residents: how to set up a business in Russia by a foreign national

Russia is interested in bringing foreign investments as never before that’s why the registration of a business has been considerably simplified in later years. The citizenship doesn’t matter now and the procedure is the same for everybody. The place of residence has a key role now. It relates to Individual Proprietor registration by foreigners with temporary residence permits as well. Other details of the process shall be considered too.

Can foreign nationals open a business in the Russian Federation?

As stipulated by articles 4 and 13 of the Federal Law No. 115 dated 07.25.2002 «The Legal Status of foreign citizens in the RF», foreign nationals have equal rights with Russian nationals throughout the territory of the RF including free use of their capabilities and assets to run businesses or other economic activities that are not prohibited by law. However, this is a general rule. Foreigners staying in Russia might have different status and it determines the possibility of opening a particular business.

The answer to the question of «Can foreigners with temporary residence permits register as Individual Proprietors?» is found in the Federal Law No. 129 «Legal persons and Individual Proprietors Registration Act» dated 08.08.2001. As stipulated by clause 3 of article 8 of the law, the state registration of Individual Proprietors shall be carried out at the place of residence.

Individuals (regardless of their citizenship) can register as Individual Proprietors provided they have a place of residence in the Russian Federation.

As stipulated by articles 6 and 8 of the Federal Law No. 115, two documents confirm the rights of foreigners for residence in Russia — a temporary residence permit and a permanent residence permit. Therefore, a foreign national must have either one of them to set up as an Individual Proprietor. Bear in mind that a visa doesn’t entitle residency as it only allows for a temporary stay in the RF.

It shall be noted that this rule applies only to Individual Proprietors. To establish a legal person or purchase a share in it, foreigners don’t have to have RF residency. In such a case, a legal person becomes a foreign-invested enterprise.

Types of businesses available for foreign nationals

Because the law states equal rights for Russian and foreign nationals including business areas, they can choose any business direction that is not restricted by law. An Individual Proprietor can engage in one basic and a few additional types of economic activities listed in the Russian National Classifier of Types of Economic Activities endorsed by the Order No. 14-st of Rosstandart dated 01.31.2014.

The types of activities can be divided into three groups.

  • Ordinary activities that can be started immediately after the registration (sale of food and cloth, construction and household services, housing rental).
  • Licensed activities that require a license (taxi service, security service, etc). There are 53 of them.
  • Activities that require additional approval from the Emergencies Ministry and Preventative Disinfection Department (for example, catering, sale of children’s toys, sale of pyrotechnics).

Restrictions

Some activities are not allowed for Individual Proprietors regardless of citizenship as they require establishing a legal person. They include:

  • development and sale of military goods;
  • lending financial activity;
  • television and radio broadcast;
  • insurance activity;
  • production of atomic and electric energy;
  • drug manufacturing;
  • aerospace-related activity.

Additionally, some limits apply to foreign-invested enterprises. In particular, if an enterprise of interest is engaged in one of the strategically important areas indicated in article 6 of the Federal Law No. 57 dated 04.29.2008 then a foreign national can purchase a share in it only after approval by a special government council. The same applies to establishing a new enterprise whose activity falls under the law above. These activities include those related to the use of radioactive materials, atomic energy, infectious agents, distribution and use of encryption equipment, activities that impact hydrometeorological processes, space-related activities, etc. The total number of them is 46.

Existing tax regimes

At least five tax regimes that are eligible for Individual Proprietors exist currently in Russia. Each of them has its specifics that we shortly describe below.

  • PSN or a patent system. Only Individual Proprietors generating less than 60 million rubles as annual revenue and employing less than 15 workers are eligible. Under this regime, an Individual Proprietor shall purchase a patent for the duration of 1 to 12 months and is taxed at 6% of potential revenue.
  • OSNO or a common system. It can be used by any Individual Proprietor. It assumes 13% income tax, 18% VAT and up to 2% Individual Proprietor property tax.
  • USN or a simplified system. Only Individual Proprietors generating less than 150 million rubles as annual revenue and employing less than 100 workers are eligible. There are two taxation options — either 6% of revenue or 5% to 15% of revenue after deductions.
  • ENVD or temporary income taxation. Only Individual Proprietors employing less than 100 workers and engaged in certain types of activities like trade and services are eligible. It assumes a 7.5%-15% income tax.
  • ESKhN or agricultural tax. Only Individual Proprietors engaged in farming are eligible. The applicable tax rate is 6% of income after deductions.

Ways of Individual Proprietor registration

The general process of registration of a foreign national as an Individual Proprietor is described in the Federal Law No. 129. In accordance with the regulation, individuals shall register as Individual Proprietors with the local tax authorities. There are a few ways to submit an application.

  • In-person submission of an application to the Federal Tax Service in the place of residence registration directly or through a representative.
  • Submission of an application through a Multifunctional Center for Public Services if such a service is provided.
  • Sending of insured mail with the list of enclosures to Federal Tax Service at the place of residence registration.
  • On-line application through the Federal Tax Service website.
  • Submission of an application with a notary.

Upon receiving an application the tax authority issues a receipt to a foreign national for documents submitted in person or via mail/email. After review, a reply with an extract from the register of companies is provided the same way.

Required document set

A minimal set of documents is required to be submitted to the Federal Tax Service for the registration of an Individual Proprietor.

According to article 22.1 of the Federal Law No. 129, the set shall include:

  • an application for the state registration of an Individual Proprietor in a prescribed form;
  • a copy of a foreign passport or a statelessness certificate or a refugee certificate with proof of temporary/permanent residence (all documents must bear a note verifying registration at the place of residence);
  • a copy of a birth certificate or another document verifying the date and the place of birth of a foreign national if this information is unavailable in an identification document;
  • a document verifying registration and residence at a certain address if this information is unavailable in the passport;
  • a state fee receipt;
  • a certificate of no criminal conviction if the core business of an Individual Proprietor is related to educational, instructional, social or other activity involving juveniles.
If original documents are written in a foreign language then they must be translated with the translation notary verified.

The application form is the primary document so let’s review it in detail.

Application form

The application form for the state registration of an Individual Proprietor must comply with the form No. P21001 approved by Appendix No. 13 of the Federal Tax Service Order No. MMB-7-6/25@ dated 01.25.2012. It consists of 5 pages and includes the following information:

  • applicant’s full name in Cyrillic and Latin;
  • individual taxpayer’s number, gender, place, and date of birth, citizenship;
  • full residence address;
  • personal identification document details;
  • details of a Russia residence permit with an indication of the place of issuance and its validity time;
  • types of business activities that are planned for an Individual Proprietor;
  • contact information.

The approved application form is attached below.

How to fill the application form

The form can be obtained in any Federal Tax Service office or downloaded (see above) and filled at home.

The following rules shall be observed when filling the application.

  • it shall be filled by hand or with the use of PC or other technical devices;
  • information shall be provided in block letters with no errors, crossing out, underlining or other marks that are not allowed by the form;
  • each cell shall be filled with one character only, shortcuts are not allowed and all the names shall be written in full;
  • the print color shall be black including handwriting.

You can find a completed sample of the Individual Proprietor registration form below.

About procedure time and cost

According to clause 3 of article 22.1 of the Federal Law No. 129, the state registration shall be carried out within three days after the submission of a complete set of documents provided there are no issues with them. Following that, an applicant receives an extract from the register of Individual Proprietors confirming the registration.

The cost of the procedure is low. The only obligatory expense is a state fee of 800 rubles plus paperwork processing fee of not more than 200 rubles. The invoice can be created and paid online at the Federal Tax Service website.

What is next after the Individual Proprietor registration?

After receiving an extract from the register of Individual Proprietors, it’s time to start running a business. But the following things need to be done first.

  1. Choose the tax regime and register an Individual Proprietor with the Tax Office.
  2. Register with the Pension Fund and Social Insurance Fund as an employer (within 30 days if a business assumes hiring workers).
  3. Obtain statistical code numbers in the Statistics Office for opening a bank account.
  4. Open a bank account and order a stamp if necessary.
  5. Get a license depending on a type of business activity if required.

Remember that an Individual Proprietor’s business may already operate while performing the steps above.

Liability for illegal activity

Individual Proprietor registration is a mandatory step for any entrepreneur. Running a business without state registration might be viewed as an illegal enterprise. In such a case a foreign national may be held liable for the following violations (sometimes simultaneously).

  1. Tax offense. If the Federal Tax Service can prove there were tax losses that resulted from such activity it can bring an appropriate charge. Particularly, running a business with no registration may be fined 5 thousand rubles (or 10 thousand rubles if unlawful activity lasted over 3 months). Besides, there is a tax avoidance fine of 10% of the revenue received but no less than 20 thousand rubles (or 20% if tax payment delay is over 3 months but not less than 40 thousand rubles).
  2. Administrative violation. A charge may range from 500 to 2 thousand rubles or from 2 to 2.5 thousand rubles in case of running licensed activity.
  3. Criminal violation. According to article 171 of the Criminal Code, illegal business operations lead to criminal liability if they have inflicted damages to anyone or resulted in high (over 1.5 million rubles) or very high (over 6 million rubles) illegal income.

A violator may face a charge of 100 to 500 thousand rubles, community service/ correctional labor, arrest and even deprivation of liberty for up to 5 years.

Conclusion

So, the registration of an Individual Proprietor by a foreign national can be performed only after obtaining a temporary residence permit or another document confirming the right for residency in Russia. Otherwise, the procedure is the same as for Russian nationals:

  • pay a state fee;
  • submit an application with a required set of documents to the Federal Tax Service;
  • get a confirming extract from the register of Individual Proprietors in 3 days.

Running a business without registration is against the law and a foreign national may be held liable for breaking tax, administrative and criminal law.