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The Ultimate Guide To
Employment in Russia

Russia Facts

Population size: 143,439,832
Currency: Russian Ruble (RUB, ₽)
Capital city: Moscow
Languages spoken: Russian, Abaza
Ease of Doing Business: 40

Employing in Russia: What You Need to Know

The regulation of employment in Russia is governed by the Labor Code of the Russian Federation which applies equally and must be complied with by both executives and employees. Russian labor laws apply to foreign nationals and foreign businesses in Russia in the same manner as domestic entities. Typically, an employment agreement governed by a foreign law will be disregarded in the Russian court, where the Code prevails. Making employment decisions in Russia must be made with full compliance to the Labor Code, as all regulations related to minimum guarantees, employment benefits and compensation supersedes any agreement between the employer and employee. The employee-sided nature of Russian labour legislation makes employment in Russia complex.

For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Russia.

Key Factors to Consider When Employing in Russia

There are several key areas to be aware of within Russia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resource department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

 

 

  1. Contracts

    The most prevalent form of employment contract in Russia is a simple written employment agreement in Russian, which outlines the basic terms and conditions of the employment relationship between the employee and the employer. The contract must include:

    • Job description
    • Probation period (3 months for standard employees)
    • Salary in roubles
    • Mandatory holiday allowance
    • Working hours (Generally less than 40 hours per week)

    Generally, these contracts are specified for an indefinite period of time, unless a fixed-term agreement of up to 5 years is entered into under specific condition under Article 59 of the Labor Code.

    It must be noted that any terms in the employment contract that worsens the position of the employee than if they were under the mandatory minimum guarantees, benefits and compensation under the Labor Code will be rendered invalid.

Employee Entitlements

Information Explanation
Statutory Working Hours ?

A normal Russian working week must not exceed 40 hours, and overtime work must be requested in very specific circumstances stated in the Labor Code, and must also be accompanied by the employee’s written consent. This overtime work must not exceed 4 hours in two consecutive days, and not over 120 hours per year. It must be paid at 150% of the regular hourly rate for the first 2 hours, and at 200% for subsequent hours.

Very specific categories of employees may work under the “irregular working regime” (nenormirovanniy rabochiy den), where overtime work is at the employer’s discretion. These employees must not be subject to daily overtime work, and may also receive additional holiday leave.

Medical Leave ?

Employees may take sick leave provided they present a medical certificate to an employer when they return to work. In the event of an employee’s illness, injury or a sick family member, sick leave compensation is required at varying levels depending on the situation. Occupational injuries or sickness provide the employee with 100% of the employee’s average earnings in the preceding two years. All sickness compensation, however, is capped at RUR415,000, or US$12,700. An employer is only required to pay sick leave compensation for the first three days of sick leave, where further sick days are payable from the Russian State Social Insurance Fund, funded by the employer’s mandatory contributions as a percentage of employee salary.

 

Annual Leave Accrual Entitlement ?

The minimum holiday entitlement for all employees under the Labor Code is 28 calendar days per year of employment, where public holidays will not be counted in their annual leave entitlement. In the first year, the employee may take holiday leave after 6 months they commence working, and at any time in subsequent years. An employer may recall an employee from holiday leave with written consent from the employee, except in the case of pregnant women and situations of hazardous employment.

The employer may postpone the vacation of an employee if it disrupts normal business operations, where unused annual holiday leave may be carried forward to the next year. The employer is prohibited from denying employee vacations two years in a row. Any accrued vacation days will be compensated during termination of employment.

Maternity Leave in Russia ?

Maternity leave must also be granted to pregnant women if they procure a medical certificate. This is also payable from the Russian State Social Insurance Fund. Paid maternity leave accrues 70 calendar days prior to birth and extends to 70 calendars after birth, except in the circumstance of birth complications.

 

Employment Termination

Information Explanation
Severance / Redundancy Pay ?

In the condition of an employer-terminated agreement as a result of redundancy or liquidation, two months’ notice is given along with a two months’ salary severance payment to the employee. The employer bears the burden that the redundancy or liquidation was driven by business factors, and not with the motive of dismissing select employees.

As Russian employment laws on compensation are employee sided, Russian employers prefer to negotiate a settlement amount usually from two to three months’ salary for regular employees and up to six months for senior executives.

Termination of Employment ?

Termination by Employee

Termination of the employment agreement may be carried out by providing two weeks’ written notice to the employer, which is a basic right under the Labor Code that cannot be overridden by contractual terms. With the consent of the employer, termination may occur within the two weeks’ notice, and it may also be withdrawn by the employee given that the employer has not legally entered into another employment agreement in this time for that position. If the two weeks’ notice has expired and termination has not occurred, the employment agreement may continue if the employee chooses not to terminate.

Termination by Employer

Only upon specific grounds specified in Article 81 of the Labor Code may the employer terminate an employment agreement. These conditions typically apply to most employees except for CEOs and executives with contractual terms in their agreements, which include:

  • Redundancy or liquidation event
  • Poor health rendering the employee incapable
  • Insufficient qualifications rendering the employee incompetent
  • Non-performance of employment obligations
  • Violation of the employment agreement

Employees who are sick, on vacation or are pregnant may not be terminated except in the circumstance of the company’s liquidation.

An employer must comply with the detailed procedure of employment termination under the Labor Code, or it will be invalid by a court. Disputes may be heard in courts of general jurisdiction or commercial courts, where the former is typically used for general situations; however it is unclear which court is chosen for CEOs and executives and is highly circumstantial. Employees may be entitled to reinstatement at work, salary compensation for their absence, and compensation for moral harm, depending on each case at the judgment of the Russian courts.

Labour Books

Employment laws in Russia is unique in that the employee’s employment history is recorded in a “labour book” (trudovaya knizhka), which extend to foreign employees as well. The book contains records of employment, positions, dates of joining and termination, and disciplinary sanctions from the employee’s first employment up to retirement. The employer is required to keep records and updated information on each employee’s labour book with full disclosure of appropriate employment information for any employment exceeding 5 days.

It is in the employee’s interest to keep their labour book “clean” by avoiding any disciplinary sanctions or termination for reasons that will make future employment difficult. This feature of Russian employment gives the employer some bargaining power as a negotiation tool for termination agreements.

 

Probation

Information Explanation
Probation Period ?

The rules for probation periods are outlined in the Labor Code, and are generally set at a maximum of 3 months for most employees, and 6 months for executives, deputies and head of departments. The probation period must be expressly specified in the employment agreement prior to employment.

Special conditions apply to pregnant women, women with young children up to one and a half years and other specific individuals, where probation periods are not permitted.

During the probation period, the employment agreement may be terminated by the employer with three days’ notice, where the reasons for failure to pass the probation period must be provided by the employer. The employee may also terminate the agreement with three days’ notice.

Pension

Information Explanation
Pension Requirements ?

Currently, the Russian social security contributions system involves separate contributions to the State Pension Fund, Social Security Fund and the Federal Mandatory Medical Insurance Fund, which replaced the Unified Social Tax in 2010. As of 1 January 2015, social security contributions apply at an aggregate rate of 30% of an employee’s annual salary, up to these social contributions thresholds:

  • State Pension Fund – 22% up to RUB711,000 (approx. $USD12,640)
  • Social Security Fund – 2.9% up to RUB670,000 (approx. $USD11,910)
  • Federal Mandatory Medical Insurance Fund – 5.1% with no threshold

All social security contributions apply to all payments to individuals.

For certain categories of payers, there will be a reduced rate of contributions from 2011 to 2027, particularly for employees in IT companies, agricultural producers, companies in special economic zones and budgetary scientific institutions.

Benefits

There are no benefits that come with continuous employment, unless provided by the employer or by a collective bargaining agreement.

Unemployment benefits apply to those who are older than 16, ready and able to perform suitable work, have no work or income and are looking for a job. Unemployment benefits by law are set at a minimum of RUB850 per month, up to RUB4,900 (US$160) per month. This system is somewhat concerning for Russia as individuals in low salary regions are finding it more attractive and easier to live off unemployment benefits.

GEO Solutions or DIY Employment in Russia?

Companies entering Russia must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities.  A GEO or Russia Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Russian entity established that can run payroll.

A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Outsourcing Employment Through a GEO Employer of Record Service

Using Shield GEO Employer of Record Services in Russia

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Russia. For companies which intend to employ their staff directly through their incorporated Russian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Russia.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Russia.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Russia

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Russia

– the company needs help with tax, employment, immigration and payroll compliance in Russia

Shield GEO can contract directly with the company to employ and payroll their staff in Russia. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

Payroll

Payroll Russia
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

Currency ?

Russian Ruble (RUB, ₽)

 
Grossed income Tax Rate (%)
Most types of general income - Residents 13
Most types of general income - Non-Residents 30
Highly Qualified Foreign Specialists 13
Tax Returns Supplied

Yes

Corporate Tax Requirements

Russian companies forming groups with more than 90% direct ownership may file for a consolidated tax return if the company in the previous calendar year has:

  • Tax payments of more than RUB10 billion
  • Revenues of more than RUB100 billion
  • Assets of more than RUB300 billion

Annual profits tax return is filed every year by 28th March.

Employers Social Security and statutory contributions

Social Security Rate is tax charged to companies related to labour income. They are in the form of social contributions to the pension fund, social insurance fund and mandatory medical insurance funds.

 

Social Security Rate (Employers): 30%

 

Employees Social Security and statutory contributions

Employees are not required to contribute to social security as it is made by the employer. However, voluntary contributions may be made by individuals.

 

Social Security Rate (Employees): 0%

Payroll and Tax in Russia

Russian legislation on taxes for foreign companies operating in Russia is relatively straightforward in that profits generated by foreign legal entities in Russia in most cases are taxed at the same profit tax rates for Russian taxpayers.

Your Payroll Options in Russia

Information Explanation
Remote Payroll ?

A remote payroll in Russia is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Russia. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Russia is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration ?

In some cases, a company will register their business in Russia under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll ?

Larger companies with a commitment to Russia may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Russian payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Russian employment laws.

Fully Outsourced Payroll & Employment ?

Companies can outsource the employment and payroll of their staff in Russia to a GEO, like Shield GEO. This is possible for both foreign workers and Russian nationals. This is the easiest, fastest and safest way to payroll staff in Russia.

Shield GEO manages all aspects of payroll for workers in Russia, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

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Tax Figures

Information Explanation
Corporate Income Tax ?

The corporate tax rate in Russia ranges from 15.5 – 20%

2% is payable to the federal budget and 18% payable to the regional budgets. Regional authorities may lower it to 13.5% at their discretion.

Income Tax Rate ?
Grossed income Tax Rate (%)
Most types of general income - Residents 13
Most types of general income - Non-Residents 30
Highly Qualified Foreign Specialists 13
Payroll Tax ?

N/A

Sales Tax ?

Applies to all individuals and companies importing goods into the Russian Federation.

 

VAT rate: 18% for taxable sales of most goods, work and services.
VAT rate: 10% for certain foods, children’s goods, medical/pharmaceutical products and certain books.
VAT rate: 0% for certain sales of goods, work and services exported outside the Russian Federation. E.g. Transportation services via railway or sea ports.

Withholding Tax ?

Under Russia’s double taxation treaties, certain classes of income paid to non-residents apply.

 

Dividends: Dividends paid to a foreign entity or to a non-resident individual are subject to a 15% withholding tax, unless the rate is reduced via a tax treaty.

Interest: Interest paid to a non-resident is subject to a 20% withholding tax, unless the rate is reduced via a tax treaty.

Royalties: Royalties paid to a non-resident is subject to a 20% withholding tax, unless the rate is reduced via a tax treaty.

Other Tax ?

Property Tax: Up to 2.2% where tax base is calculated as the depreciated book value. This is administered under the local legislation as a regional tax.

 

Land Tax: 0.3% for cadastral value of land that is used for agricultural, residential or private farming purposes. 1.5% of the cadastral value of other land.

Time to prepare and Pay Taxes ?

168 hours

Time required to start a Business ?

9.800000191 days

Immigration and Work Permits in Russia

Foreign workers are required to have the proper visas and work permits in Russia, as established by immigration laws.  Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the Russian market.  If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits.

Have your own Company?

The process of employing foreign nationals in Russia typically requires the worker to be issued a work visa for entry into Russia, a work permit held by the employee and an employer permit held by the company, and an employment agreement between the employer and worker.

The type of visa required will depend on the purpose of the individual’s entry into Russia and the nature of their work. Foreign citizens from most Commonwealth of Independent States (CIS) countries do not require entry visas, but do require identification documents and other residence entry permits. The issuance of visas is conducted through consulates of the Russian Federation, Ministry of Foreign Affairs or the Ministry of Internal Affairs.

A work permit is required for any foreign nationals who are not from a CIS country and are not hold residency status in the Russian Federation. The work permit must be acquired by the employer either through applying for an employer permit, or through obtaining an individual work permit for “visa nationals”.

Process:

Visa Application

  • The foreign subsidiary or representative office of a foreign firm in Russia must invite the employee into Russia for the purposes of employment.
  • The invitation is issued through the Ministry of Foreign Affairs (MFA) in Moscow, which instructs the Russian consulate in the employee’s country to issue a visa, or to instruct the employee to take the invitation to the Russian consulate.
  • A visa service company may be used to facilitate this process between the MFA and employee for a fee. These companies will be fully updated on the immigration procedures and any legislative changes.
  • The employee brings their passport, a visa application form and a processing fee (varies depending on consulate and processing speed) to the consulate. When applying for a multiple entry visa, an HIV test for the recent 3 months may be required.
  • Short-term visas are issued anywhere from three months to a year and are typically single entry, while long-term visas allow multiple entries.
  • The employee will be issued a relevant visa depending on their purpose of visit, which will typically be a work visa where the employee intends to enter into an employment agreement with a Russian organization. The validity of the work visa will be limited to one year, and may be renewed after expiry.
  • Once the visa is acquired, the employee will be allowed entry into Russian borders.

Processing Time: 4 – 6 weeks.

Cost: Dependant on consulate

Work Permit Application

  • The employer wishing to employ foreign nationals must submit a work permit quota application based on their foreign employment requirements for the next year.
  • The employer forecasts their foreign labour needs and submits an application to Federal Employment Service (FES) for the number and nationality of employees they seek to hire by 1 in the previous year. The nationality of the employee cannot be changed thereafter.
  • FES reviews the quota applications and will advise on failed and successful applicants by the following July.
  • FES procures a consolidated approval list up to a Federal level in October for the national quota of foreign nationals employed in Russia in the following year.
  • The employer will be notified at this point whether their application to issue work permits is successful.
  • Certain professions and positions are exempt from this quota depending on the nature of their work.
  • The employer must now lodge an application for work permits with FES for every foreign national that will receive one of these work permits.
  • The employer submits updated information on job vacancies that must be filled in the company to (FES), which will take one month.
  • The employer lodges an application to the Federal Migration Service (FMS) for a corporate permit to engage with foreign labour, where the application will be confirmed by FES that there is a vacancy in the company and no Russian candidates have been found. The corporate permit is issued one month later.

Non-CIS employees

  • The employer lodges an application to FMS for an individual work permit for each non-CIS citizen to be employed, which will take up to one month. It must be lodged with the employment authority in the region the employee will work in.
  • As of 1 January 2015, foreign nationals applying for a work permit must provide documents confirming their knowledge of the Russian language, history, and basic legislations of Russia before the permit is approved. A medical certificate is also required to show that the employee is healthy.
  • Once the individual work permit is obtained, an employment agreement with the foreign national is created detailing position, salary, length and other terms.
  • The employer must then notify the relevant state tax authorities, employment authorities and State Labour Inspection of the employment relationship created.
  • Once the worker permit is cleared for the employee, the employee is legally allowed to work in Russia under the terms of the permit.

CIS employees

  • Foreign nationals from CIS countries do not require a corporate permit from the employer, and the work permits are instead obtained by the employee.
  • The individual work permit may be obtained in person or through an organization that facilitates work permit applications.

Highly Qualified Specialists (HQSs)

  • High qualified foreign nationals with earnings exceeding RUB2 million with specialist roles are exempt from the quota application procedure, do not require a corporate permit and simply require an application to the state employment body, which will be processed in 14 days.
  • The duration of the work permit can be extended to 3 years as opposed to 1 year and is multi-regional.
  • HQS are also not required to confirm their knowledge of Russian language, history and legislation to acquire a work permit.

Processing Time: At least 3 months for standard permits

Cost:

Employers: RUB3000

Employees: RUB1000

Arrival Procedure

  • Once the visa and worker permit is obtained, the employee may travel to Russia. Upon arrival, an immigration card is stamped and provided to the employee detailing arrival, departure and duration of stay.
  • The immigration card must be registered within three working days with the Office of Visas and Registration (OVIR).
  • The immigration card is kept for the duration of the stay and must be returned upon departure from Russia, and failure to do so may lead to a formal deportation that will prohibit entrance into Russia for the next five years.
  • Upon arrival, the employee must also go through an enrolment procedure which registers the location and activity of the employee in the Russian migration system. Enrolment and de-enrolment is typically carried out by the hotel or employer within 3 business days of arrival and departure respectively.

Documentation Required:

Employee

  • Valid passport
  • One standard photo
  • Letter of invitation from Russian host organization, issued by the FMS
  • Visa application form
  • Medical certificate
  • Documents as evidence of Russian language, history and legislative knowledge
  • Consular fees

Employer

  • Registration card of organization in FMS of Moscow
  • Application letter for invitation
  • Letter of guarantee
  • Copy of corporate permit to employ foreign workers
  • Work permit of foreign citizen
  • Copy of the foreign citizen’s passport
  • Copy of employment contract

Use the Shield GEO Employer of Record Solution?

Once you get in touch with us, one of our consultants will take all the work off your hands, coordinate with our local partners to get all the required permits organised, provide the processing time, costs, document-checklist and keep you informed through the process. Contact us to know more.

Types of visas in Russia

Category Description of Visa
Business Visa

The business visa is intended for foreign nationals who are entering Russia for business purposes, such as negotiations, conferences and consultations. It does not allow the worker to engage in any work or hold any positions in Russian entities under any employment agreements.
The business visa is issued through invitations from Russian host companies or foreign subsidiaries operating in Russia, and is issued to the employee via the Russian consulates in the employee’s country.

Single and dual-entry visas are valid up to three months, while multiple-entry business visas are valid up to twelve months. The multiple-entry visa requires that foreign nationals may not stay in Russia for longer than 90 days in a 180-day period. Certain countries under immigration treaties with Russia, particularly most of the European Union countries may extend the business visa for up to five years.
The business visa may not be re-issued while in Russia, where the employee must leave upon expiry.

Documents required:
– Visa application form
– Valid international passport
– One standard photo
– Consular fee
– Letter of invitation from Russian host organization, issued by the FMS

Processing Time: 14 days for single/double, 21 days for multiple-entry. May be reduced with an additional fee.

Cost:
1 month single-entry: EUR 50
3 month single-entry: EUR 70
1 month double-entry: EUR 50
3 month double-entry: EUR 70
6 month multiple-entry: EUR 80
12 month multiple-entry: EUR 120

*Based on visa invitations to countries not in an agreement with Russia on simplifying visa regulations, e.g. U.K, Ireland, Canada and non-European countries. Invitations will be processed by FMS.

Work Visa (Employer Sponsored)

A work visa is intended for foreign individuals planning to work in Russia under an employment agreement. The work visa allows a foreign national to occupy a position in a Russian company or a representative office/branch of foreign company as outlined in the work permit. It allows the employee to act on behalf of the company.

The work visa is first issued as an invitation to work with the company. The work visa is delivered by a Russian consulate in the employee’s country as a single-entry visa for three months only, and may be extended to a multiple-entry work visa upon arrival in Russia.

The work visa is valid based on the validity period of the foreign national’s work permit, and must not exceed one year.

The work visa may be renewed after expiry given that the employment agreement remains in place, where a new multiple-entry work visa can be obtained provided that a new individual work permit is also issued.

Documents required:
– Visa application form
– National passport
– One standard picture
– Consular fees
– Letter of invitation from Russian host organization, issued by the FMS
– Original HIV blood test Certificate

Processing Time: 8 days for visa processing. Can be reduced with an additional fee. On average, it takes 80 days for the entire process.

Cost:
Single-entry/Double-entry visa (3 months): $160
Single-entry/Double-entry visa (1 year):$160
Multiple-Entry visa: $160
State fees for employer: 9500 rubles

*Based on visa processing fees and times for the Russian embassy in the U.S.

Intra-Company Transfer Visa

Intra-company transfer visas, also known as “Inosotrudniki” visas are a variant of the work visa issued for expatriate employees of foreign companies operating in Russia through its representative offices or branches.

The process and requirements are similar in nature to the work visa, however is easier to obtain as it separates the visa application from the work permit if the employee is being transferred within the organization.

Highly Qualified Specialist (HQS) Visa

The HQS visa is a form of work visa intended for employees who have specialist skills and are prioritized for visa clearance. The process is much faster than obtaining a regular work visa, as the employer is not required to obtain a work permit quota, and the employee is not required to produce a medical certificate or evidence of Russian proficiency.

The HQS visa is may be issued for up to three years, and can be extended for another 3 years prior to the expiry of the HQS visa.

The prerequisite of an HQS visa is that the employee must earn no less than RUB2 million and is considered highly skilled in their profession or service. The foreign national is allowed to obtain a residence permit for his/her family, which no other visa permits.

Processing Time: On average, 16 days for the entire approval process.

Cost:
State fees for employer: 2500 rubles.

Setting up a company in Russia

When setting up a company you may want to consider these factors:

  1. Business Factors

    When setting up a company you may want to consider these factors:

    • The industry and type of business
    • Nationality of headquarters/individuals
    • Presence of existing trade agreements or relationships
  2. Location

    Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.

  3. Regional Language

    Regional Language may be an important consideration. Russian is the only official language used in Russia, however there are 35 different major languages used across various regions of Russia. It must be noted that only 15% of Russians know a foreign language; 80% of which can speak English freely.

There are broadly two categories of business forms for foreign companies in Russia when establishing a legal entity, which are setting up a new Russian legal entity or through the subdivision of a foreign company. Of these two categories there are four methods of incorporation. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases, it will depend on the degree of commitment a company has to Russia and the planned business activity.

When setting up a company in Russia, the following options are available:

  • Limited liability company (LLC)
  • Private joint stock company (PJSC)
  • Representative office (RO)
  • Company branch

This page provides a general guideline for foreign businesses on entering Russia for business purposes. In particular it looks at common pathways to establishing a business presence in Russia, generally through a representative office, branch office or establishment of a legal entity.

Representative Office

A representative office (RO) is designed to enact ancillary functions of its founding company in Russia to promote the business. ROs are not legally permitted to engage in commercial activities, and as such are not subject to profits tax, unless the ROs activities create a “permanent establishment” status through engaging in regular commercial activity through the RO without establishing a branch.

Legal Status

The RO is not considered as a separate legal entity, but rather a subdivision of a foreign company. They are considered as a Russian non-resident entity for currency control purposes.

Capital Requirements

No requirement for the authorized capital.

Management Structure

An executive body is to be appointed by the foreign legal entity as the Head of Representative Office. The executive will act as Power of Attorney issued by the foreign legal entity.

Accounting & Tax Compliance

The Branch and RO are treated the same in terms of tax compliance. Reports on business activities, income streams, payroll and social taxes must be reported every quarter to the Special Tax Inspectorate.

Process of Registration

  • Lodge the registration form with the Federal Tax Service (Федеральная налоговая служба, ФНС России) of the Russian Federation to gain accreditation.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the State Statistics Committee.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening of bank account.

Documentation Required

  • Memorandum and Articles of Association.
  • Certificate of Incorporation or relevant except from Trade Register.
  • Letter of Recommendation from a bank to validate good credit standing.
  • Company’s Resolution to establish the RO and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Advantages

  • No minimum capital requirements.
  • Greater exercise of control over HR and Tax processes than other types of businesses.
  • The fastest and cheapest method of establishing a legal business presence.

Disadvantages

  • Business activities are restricted and the RO is prohibited from engaging in any profit-generating activities.

Costs: Accreditation charges: US$1000 (1 year)

Time: 18 – 31 days on average for the entire registration process.

Branch Office

A branch may engage in any function that the parent company engages in as stipulated in the corporate rules, as long as the activities of the branch are permitted by Russian law and regulations. The wide range of activities available to branches makes it an advantageous method of establishing a business presence in Russia over a RO.

Legal Status

The branch office is not considered as a separate legal entity, but rather a subdivision of a foreign company. They are considered as a Russian non-resident entity for currency control purposes.

Capital Requirements

Under Federal law, assets must be formed; however, the amount is not stipulated.

Management Structure

An executive body is to be appointed by the foreign legal entity as the Head of Branch. The executive will act as Power of Attorney issued by the foreign legal entity.

Accounting & Tax Compliance

The Branch and RO are treated the same in terms of tax compliance. Reports on business activities, income streams, payroll and social taxes must be reported every quarter to the Special Tax Inspectorate.

Process of Registration

  • Lodge the registration form with the Federal Tax Service of the Russian Federation to gain accreditation.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the State Statistics Committee.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening of bank account.

Documentation Required

  • Memorandum and Articles of Association.
  • Certificate of Incorporation or relevant except from Trade Register.
  • Letter of Recommendation from a bank to validate good credit standing.
  • Company’s Resolution to establish the branch and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Advantages

  • Greater exercise of control over business operations.
  • Fewer obligations with regards to accounting, HR and tax.

Disadvantages

  • Long and possibly costly incorporation process.
  • Parent company is responsible for any debts and liabilities of the branch, possibly exposing the parent company to lawsuits and tax debts of the branch office.
  • Potentially length and complicated tax dealings with the tax authorities with regards to branch tax obligations.
  • As a branch is considered a permanent establishment of the foreign parent, it is generally subject to double taxation.

Costs:

Accreditation charges: RUB60, 000 (approx. $US2,150)
State duty: RUB60, 000

Time: 18 – 31 days on average for the entire registration process.

Limited Liability Company

A Limited Liability Company (LLC) is the most common corporate form in Russia, as they are easier to establish, maintain and finance, while offering flexibility in corporate governance. A participant in an LLC is entitled to exit the company and receive their proportionate share of the value of the LLCs assets. If the number of participants in a LLC exceeds 50, it must be reorganized into a joint stock company or a production cooperative.

Legal Status

The LLC is considered a Russian legal entity, and may conduct any commercial activity permitted by Russian law.

Capital Requirements

The minimum authorized capital for a LLC is RUB10, 000 (approximately US$370). At least 50% of the authorized capital must be paid-up before the company is registered.

Management Structure

LLCs have a three-tiered management structure, consisting of a general meeting, board of directors and the executive body. The general meeting takes place once a year with top management. The Board of Directors is responsible for the general supervision of the company’s business activities.

Share Structure

A share in an LLC is not considered a security. They can be sold anyone, but there may be some prioritization for the purchase of a unit.

Accounting & Tax Compliance

The LLC and JSC are treated the same in terms of tax compliance, i.e. a legal entity. Reports on business activities, income streams, payroll and social taxes must be reported every quarter to the Federal Tax Service, while a report on VAT is filed every month.

Process of Registration

  • Preparing the company’s documents of incorporation and notarizing signatures.
  • Minimum share capital to be deposited in a bank account.
  • Registration fee is paid.
  • Delivering relevant company documents for registration with the local Federal Tax Service.
  • Registration with the State Committee for Statistics.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening a bank account.

Documentation Required

  • Certificate of Incorporation or relevant excerpt from Trade Register.
  • Directors Certificate and Registered Address Certificate.
  • Company’s Resolution to establish the branch and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Costs: Registration duty: RUB2, 000 (approx. US$70)
Registration charges: approx. US$80

Time: 4-6 weeks

Joint Stock Company

Joint Stock Companies (JSCs) are a business entity in Russia where different stocks may be bought and owned by the company’s shareholders. Public JSCs allow shares to be transferred to the public, while private JSCs may only transfer shares between shareholders.

Private JSCS have flexible corporate governance rules, although the shares issued by a JSC are deemed securities which must be registered with the Central Bank of Russia. As such, financing JSCs are relatively more time consuming.

Legal Status

The JSC is considered a Russian legal entity.

Capital Requirements

The minimum authorized capital for a LLC is RUB10, 000 (approximately US$370). At least 50% of the authorized capital must be paid within three months of registration.

Management Structure

JSCs have a three-tiered management structure, consisting of a general meeting, board of directors and the executive body. The general meeting takes place once a year with top management. The Board of Directors is responsible for the general supervision of the company’s business activities.

Share Structure

A share in the company is considered a security. The allotment of shares must be registered with the state body of Russia.

Accounting & Tax Compliance

The LLC and JSC are treated the same in terms of tax compliance, i.e. a legal entity. Reports on business activities, income streams, payroll and social taxes must be reported every quarter ot the tax authorities, while reports on VAT is filed every month.

Process of Registration

  • Preparing the company’s documents of incorporation and notarizing signatures.
  • Minimum share capital to be deposited in a bank account.
  • Registration fee is paid.
  • Delivering relevant company documents for registration with the local Federal Tax Service.
  • Registration with the State Committee for Statistics.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening of bank account.
  • Registration of the issuance of JSCs shares with the Bank of Russia.

Documentation Required

  • Certificate of Incorporation or relevant excerpt from Trade Register.
  • Directors Certificate and Registered Address Certificate.
  • Company’s Resolution to establish the branch and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Costs
Registration duty: RUB2, 000 (approx. US$70)
Registration charges: approx. US$80

Time: 4-6 weeks

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in Russia, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in Russia they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in Russia
  • the company needs help with tax, employment, immigration and payroll compliance in Russia

The complexity of employment regulations in Russia makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in Russia allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Russia.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Russia. Read more about outsourced employment through Shield GEO.

  • Russia Employer of Record Overview

Russia Employer of Record Overview

  • Russia Employer of Record Overview

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