Although Russia in general and Moscow in particular have much more to offer than work, most returning visitors have not come here for the pleasures of life. Whether you work with a foreign company or for a Russian corporation, employment relations can prove volatile. Many expats therefore sooner or later think about setting up their own business. The Russian market is in bad need of good ideas paired with boundless commitment, persistence, flexibility and, hopefully, some initial working capital so if you can overcome the administrative hurdles there is a great future for you out there.

The main question to ask yourself is how your customers will pay you for your product or service. If you are going to perform a service in Russia, such as consulting or outsourcing,a branch of a foreign legal entity is probably the leanest solution.  A branch must be registered with the tax authorities and, at the same time, should acquire an accreditation with the State Registration Chamber or the Chamber of Commerce and Industry. The additional advantage of the accreditation is that this allows you to get a work visa allowing you to spend the whole year in Russia and without limitations on where to stay.

The same goes for a representative office which can be used to facilitate sales of products to Russian customers from abroad where the Russian customer will take care of the import procedure themselves. This applies when goods are sold DDU (Delivered Duty Unpaid) Moscow or anything closer to the origin of the goods.
When paying yourself a salary, you can choose between being employed by the head office (no work permit required, pay 13% tax yourself in the following year) or by the branch (work permit required, 13% to be withheld by the branch).  And no social tax, unless you have achieved the Holy Grale of residence status, a residence permit (vid na zhitel’stvo), but even then the amount of social tax you pay is capped. You can spend a lot of money on trying to find an exotic and low tax jurisdiction in combination with low dividend withholding rates. But the best, most legal and least complicated way of tax optimisation for small businesses is a high salary.

Some Russian friends may suggest you to get registered as an individual entrepreneur, which allows you to pay 6% tax on your gross income or 15% on your profit. But that is only allowed if you, again, have acquired a residence permit.
If you are planning to import goods into Russia, a Russian legal entity  is the only vehicle accepted by the Russian customs. This is usually a Limited Liability Company (OOO, obshestvo s ogranichennoy otvetstvennostyu). The closest alternative, a joint-stock company of the closed type (ZAO, Zakrytoe Aktsionernoe Obshestvo) requires one more approval  and takes a month longer to register. So why bother?  Working in a Russian entity  requires a working permit which you can only start applying for after the entity has been set up and which may not always be granted.

Broadly speaking, you will probably succeed in getting a work permit to have yourself appointed as the general director but not for any other position. In any case you need a trusted Russian citizen to act as the general director for the interim period. Bottom line is that the lead time for positioning yourself as a paid employee of your own entity is 2-3 months for a branch or representative office of a foreign legal entity and 5-6 months if you choose for an OOO or ZAO.

Written in association with:
Bauke van der Meer Tax & Legal Services,
Ul. Bol. Yakimanka 31/18, off 203B, Moscow.
tel. (+7) 495 935 76 21, www.bvdmeer.nl