Starting a Business in Russia

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Starting a Business in Russia

The largest country worldwide by area, spanning over one-eighth of the Earth’s inhabited land, Russia has eleven time zones, a multitude of environments and a rich cultural mixture.

Economy of the Russia

Russia’s vast geography is an important determinant of its economic activity, with some sources estimating that Russia contains over 30 percent of the world’s natural resources. The World Bank estimates the total value of Russia’s natural resources at $75 trillion US dollars. Russia relies on energy revenues to drive most of its growth. Russia has an abundance of oil, natural gas and precious metals, which make up a major share of Russia’s exports. As of 2012, the oil-and-gas sector accounted for 16% of GDP, 52% of federal budget revenues and over 70% of total exports. Russia is considered an “energy superpower”. It has the world’s largest proven natural gas reserves and is the largest exporter of natural gas. It is also the second-largest exporter of petroleum.

Russia is considered an “energy superpower”

Russia has a large and sophisticated arms industry, capable of designing and manufacturing high-tech military equipment, including a fifth-generation fighter jet, nuclear powered submarines, firearms, and short range/long range ballistic missiles. The value of Russian arms exports totalled $15.7 billion in 2013—second only to the US. Top military exports from Russia include combat aircraft, air defence systems, ships and submarines.

The economic development of the country has been uneven geographically with the Moscow region contributing a very large share of the country’s GDP. There has been a substantial rise in wealth inequality in Russia since 1990 (far more than in China and other Eastern European countries). Credit Suisse has described Russian wealth inequality as so extreme compared to other countries that it “deserves to be placed in a separate category.” One study estimates that “the wealth held offshore by rich Russians is about three times larger than official net foreign reserves, and is comparable in magnitude to total household financial assets held in Russia.”

Russian GDP Economic Sectors

Russian Economic Indicators

Russian GDP Growth Rate

Russia is the largest country in the world and the eleventh biggest economy. The Russian economy is commodity-driven. Russia is the world’s largest producer of oil (14 percent of world output), natural gas (18 percent) and nickel (12 percent). The energy sector is the most important, it contributes 20-25 percent of GDP, 65 percent of total exports and 30 percent of government budget revenue.

Russian GDP Growth Rate
Source: OECD
Russian Interest Rate

In Russia, interest rate decisions are taken by the Central Bank of the Russian Federation. From September 16th of 2013, the official interest rate is the one-week auction repo rate. Until September 15th of 2013, the official interest rate was the refinancing rate, which was seen as a ceiling for borrowing money and a benchmark for calculating tax payments.

Russian Interest Rate
Source: Central Bank of Russia
Russian Inflation Rate

In Russia, the most important categories in the consumer price index are food and non-alcoholic beverages (30 percent of the total weight) and transport (14 percent). The index also includes: clothing and footwear (11 percent); housing, water, electricity, gas and other fuels (11 percent); recreation and cultural activities (6 percent), alcoholic beverages and tobacco products (6 percent) and household appliances (6 percent). Health, communication, education, hotels, restaurants and other goods and services account for the remaining 16 percent of total weight.

Russian Inflation Rate
Source: Federal State Statistics Service
Russian Unemployment Rate

In Russia, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.

Russian Unemployment Rate
Source: Federal State Statistics Service
Russian Government Dept to GDP

Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields. Russia recorded a government debt equivalent to 12.20 percent of the country’s Gross Domestic Product in 2018.

Russian Government Dept to GDP
Source: Federal Treasury Of Russia
Russian Balance of Trade

Russia has been running regular trade surpluses since 1998 primarily due to high exports of commodities like crude oil and natural gas. In 2015, trade surplus narrowed significantly, led by the plunge in oil prices and sanctions imposed by Europe and US over Ukraine crisis. In 2015, the biggest trade surpluses were recorded with: Netherlands, Turkey, Italy and Japan. The biggest trade deficits were recorded with: China, the United States and France.

Russian Balance of Trade
Source: Central Bank of Russia
Russian Currency Ruble

The USDRUB spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the RUB. While the USDRUB spot exchange rate is quoted and exchanged in the same day, the USDRUB forward rate is quoted today but for delivery and payment on a specific future date.

Currency Russian Ruble

Russian Stock Market

The MOEX Russia Index (known as MICEX Index until December of 2017) is a major stock market index which tracks the performance of the 50 largest and most liquid Russian companies from 10 main economy sectors, listed on The Moscow Stock Exchange. It is a capitalization-weighted composite index. The MOEX has a base value of 100 as of September 22, 1997.

Russian Stock Market

Russia Ease of Doing Business

Russia is ranked 28 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Russia improved to 28 in 2019 from 31 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operationstronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

Ease of Doing Business in Russia
Source: World Bank
Russian Business Confidence

Business morale among manufacturers in Russia remained unchanged at -5 points in October of 2020.

In Russia, the business confidence index measures morale among manufacturers. The index is calculated as the arithmetic average balances of assessments of actually existing levels of demand, stocks of finished products (with opposite sign) as well as change in output expected in the next 3 months. The index shows the difference between the percentage share of executives that are optimistic and the percentage of that is pessimistic. The index takes a value between -100 (all responding entities asses their situation as poor and expect it to become worse) up to 100 (all participants are satisfied with the current situation and expect it to improve); 0 indicates neutrality.

Russia Business Confidence
Source: Federal State Statistics Service
Russian Bank Lending Rate

Bank Lending Rate in Russia decreased to 6.15 percent in August from 6.38 percent in July of 2020.

In Russia, the bank lending rate is the average rate of interest charged on loans up to one year by commercial banks to companies.

Russia Bank Lending Rate
Source: IMF
Russian Corruption Rank

Russia is the 137 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.

Russian Corruption Rank
Source: Transparency International
Russian Credit Rating

Standard & Poor’s credit rating for Russia stands at BBB- with stable outlook. Moody’s credit rating for Russia was last set at Baa3 with stable outlook. Fitch’s credit rating for Russia was last reported at BBB with stable outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Russia thus having a big impact on the country’s borrowing costs. This page includes the government debt credit rating for Russia as reported by major credit rating agencies.

Taxation in the Russia

The Russian tax system tends to use moderate flat or regressive tax rates. It is highly centralized for a federal state and relies heavily on proceeds from oil and natural gas corporations, who themselves are mostly state owned. In 2006 the tax burden on oil companies exceeded 45 percent of net sales (compared to 12 percent in construction and 16.5 percent in telecommunications). Rates for oil-related taxes and tariffs, unlike regular taxes, are set not by the Tax Code but by government decree. The Russian Ministry of Finance estimated that revenues regulated by the Tax Code accounted for 68 percent of federal revenue in 2008 fiscal year, rising to 73 percent in 2010.

Individuals are supposed to pay in income tax (13 percent), land tax (0.3 percent of the land’s cadastral plot which is calculated by a special formula) and vehicle tax (which is linked to the vehicle’s engine power). Most small businesses are eligible for simplified taxation and can choose one of the following taxes: income tax (6 percent) or profits tax (15 percent) or unified agricultural tax (6 percent, farmers only) or tax on imputed income (calculated by a special formula, certain companies only). Corporate taxes for medium and large businesses include profits tax (20 percent), value added tax (20 percent), property tax (0-2 percent) and some other taxes like water tax and mineral tax.

Corporate tax Income tax VAT or sales tax Social Security Rate for Companies
Social Security Rate for Employees
20% 13% 20% 30% 0%

How to Start a Business in Russia

Time needed to incorporate a business in Russia is approximately 11 days if all the requested documents are submitted correctly. Registration is done by the Tax authorities, which keep the United State Register. Company also shall be registered with State Committee for Statistics and three non-budgetary funds (Pension fund, Obligatory Medical Security fund and Social Security fund).

An investor may choose to open:

  • a sole proprietorship;
  • a partnership (limited or general) or
  • a company (limited liability or a joint stock company).
Steps for setting up a new business in Russia:
  1. Prepare the documents related to the incorporation of the company: the Memorandum and Articles of Association;
  2. Sign a rental agreement for the purpose of having a registered address for the company;
  3. Open a bank account in which the share capital will be deposited prior to starting the registration process;
  4. Pay the company registration fee and obtaining the receipt which must be filed with the Trade Register;
  5. File all the documents with the Trade Registrar and obtain the Certificate of Incorporation of the company;
  6. Register for taxation, VAT and for social insurance purposes with the tax authorities.
Duties and Charges

Registration duty is 2000 rubles (~70 USD). There are also charges for registration of company’s seal, registration at State Committee for Statistics, which amount in general to no more than ~80 USD. Minimum authorized capital for LLC and private joint stock company is 10,000 rubles (~370 USD).

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