Welcome to Russia or what foreign companies need to know for a successful start in Russia

Пайсина Мария, руководитель отдела маркетинга Интеркомп  
Maria Paysina
Head of marketing

To be or not to be

Although the Russian economy is going through a difficult period, many experts agree that Russia still remains fairly attractive for foreign investors considering, among others, the high demand for technological innovations and digitalization.

According to the latest analytical reports prepared by CEEMEA Business Group, the Russian market has the potential to become in the next 5 years one of the most effective in Europe and the world. According to the World Economic Forum’s Global Competitiveness Report 2016-2017, Russia’s relative performance over five years has brought it up twenty four positions in the rating, where it now ranks 43rd.

Russia’s performance in the Global Competitiveness Report

Russia’s performance in the Global Competitiveness.jpg

How Russia ranks in Doing Business

How Russia ranks in Doing Business.jpg

Where to begin?

You have assessed investments and further development prospects for your company. You have a strategy to enter the Russian market and have found reliable partners. The next step is then to register a legal entity or get an accreditation for the branch/representative office of a foreign company and its further activity in Russia.

Important note: If you know the rules and follow the law, your business will be successful in Russia.

Points worth noting:

  • A legally acceptable procedure for registration of legal entity or accreditation of branch/representative office should be applied (in Russian many formalities need to be observed. Otherwise, registration is automatically declined);
  • Tax as well as labor rules and regulations must be observed;
  • Intragroup prices should be monitored and controlled;
  • Accounting and reporting for head office should be duly kept and prepared;
  • Settlements with staff should be duly made; 
  • Interaction with Russian state authorities;
  • Lease relationships;
  • Relationships with partners and counterparties.

Company registration, accounting records keeping and business development

Selecting the legal form of a legal entity  is undoubtedly the first important step that will shape the legal entity’s development, including financial, tax, currency and customs aspects. It is better to get advice on business legal forms directly in Russia from local consulting companies or lawyers who know all the ins and outs of doing business in Russia.

Registering a Russian legal entity is a procedure that requires many formalities and filling out a lot of paperwork. Registration will be automatically denied if these formalities are not strictly followed.

The accreditation procedure  can also give rise to certain difficulties. All the documentation required for accreditation of branches or representative offices must be submitted properly and in a timely manner to the Federal Tax Service. Then it then takes 25 days for the Federal Tax Service to review these documents and grant or deny accreditation.

The first state authority you will get introduced to is the Federal Tax Service. Then, your company will be subject to various inspections from federal services checking that business is conducted in compliance with Russian law. These inspections may be either scheduled or unscheduled, performed on site or based on documents (desk audit). In addition to the Federal Tax Service, the following federal services are worth noting: State Labor Inspection Service, Federal Service for Labor and Employment (Rostrud) and Federal Service for Protection of Consumer Rights and Human Wellbeing (Rospotrebnadzor).

Opening a bank account  — not all banks in Russia can open accounts for foreign companies as you will need a bank with a license to make transactions both in rubles and in foreign currency.

Staff recruitment, accounting, tax accounting and HR recordkeeping

If all the above-mentioned actions (apart from regular inspections) need to be performed only once, then keeping accounting and HR records as well as reporting to parent companies inevitably need to be done on a regular basis. Legislation in Russia, especially labor and tax laws, cannot be called perfect. It is rather complex, constantly changing with many disputable points that may be interpreted differently.

The staff you will be hiring to run your company’s financial and HR departments must know:

  • Russian standards for HR recordkeeping, accounting and taxation;
  • International accounting and reporting standards;
  • Accounting and reporting standards applied by head office;
  • English language for effective communication with head office.

In-house vs. outsourcing 

It is difficult in practice to find employees with such qualifications. Professionals who meet such requirements are highly sought-after by major Western companies that are able to offer better packages than small representative offices. Moreover, the small workload at the start of any venture does not justify hiring a full-time employee, and few candidates of this level are willing to work part-time.

So how can heads of representative offices resolve these challenges?

A highly qualified specialist could be hired to work full time. This would entail the payment of high wages, setting up a workplace as well as a monitoring system and offering further training opportunities. But, in addition to the overpayment relative to the small amount of work performed, having only one person to perform all accounting functions would increase the risks of incorrect or untimely performance of these functions which, in turn, would adversely affect the company’s reputation and finances.

There is another way, though. These challenges could be resolved by engaging a professional outsourcing service provider. According to a survey conducted by RAEX, the largest and most authoritative Russian rating agency, the market of consulting and outsourcing services showed in 2017 a record growth over the past 10 years. According to analysts, this growth is mainly due to companies striving to improve their business performance by putting in place proper processes, introducing new technologies and digitalizing. HR management and financial services have developed the most over the past year. Drawing from years of experience, outsourcing companies are able to offer effective turn-key solutions to branches and representative offices of foreign companies starting their business in Russia.

We are among the top-ranking outsourcing and consulting companies in RAEX rating, and we offer effective business models for start-ups in Russia.

Our solutions include a full range of essential services, starting with the provision of advice on the selection of legal form for your company and ending with keeping accounting, tax and HR records, including recruiting and legal support.

Our comprehensive solution allows to:

  • Free time for company directors, heads of representative offices or branches and executives of parent organizations to engage in business development;
  • Duly and quickly register companies in Russia, or duly and quickly obtain accreditation for the representative office or branch of foreign companies; 
  • Effectively fulfill accounting functions to the highest quality standards; 
  • Ensure continuity of accounting processes; 
  • Minimize financial risks and liaise with regulatory bodies; 
  • Ensure high level of data confidentiality. 

We wish your business all the best and look forward to a fruitful and long-term cooperation.