If you are considering expanding into the Russian Federation, you should understand the risks involved in doing business in Russia. You will have to familiarize yourself with new regulations and procedures to work with Russian partners. You'll need to analyze significant amounts of data, understand different cultures, and pinpoint your target locations across the country.
Here are some facts you need to know about Russia:
- Even after the dissolution of the Soviet Union in 1991, Russia (the Russian Federation) was still a vast country, consisting of 22 republics spanning nearly all of North Asia and a large part of Eastern Europe.
- Russia is the world's largest country by area, covering 17.125.200 square kilometers or 6.612.100 square miles.
- The country has 145,9 million inhabitants (2019 estimate).
- There are 11 different time zones in Russia.
- By world standards, the Russian economy ranks 12th by nominal GDP.
- In terms of purchasing power parity (PPP), Russia ranks sixth in the world.
- Russia is an emerging market and is part of the BRICS group that includes South Africa, China, India and Brazil. Of the five countries, Russia has the second smallest population after South Africa, however, it has the richest consumers in the BRICS group.
- Moscow plans to become an international financial center, allowing financial and legal firms to flourish.
- Russia exports a wide variety of products. The most popular industries are pharmaceutical, engineering, education and elearning, and consumer products and retail.
Main Language In Russia
When considering doing business in Russia, you will only use the official national language, which is Russian. However, different states within the Russian Federation use 27 other official languages. Likewise, immigrants speak their native language at home and when communicating with their peers.
Why You Should Choose Russia To Expand Your Business
This country offers many opportunities and benefits to those who want to do business in Russia. It is one of the 10 largest economies in the world and is an emerging market. The Russian economy received a boost from the country's initiative to provide mortgages and consumer loans and to increase the use of industrial capacity. The improvement in the economy allowed Russia to pay off a large part of its foreign debt. So the country now has the most significant foreign exchange reserves, following Japan and China.
The confidence of investors and businesses in the country increased due to the revival of efforts from the government. They are introducing many structural reforms and setting macroeconomic policies. Specific business opportunities are available in the electrical, pharmaceutical, retail and telecommunications industries. To encourage economic activity after the financial crisis swept the country, the government offered various tax incentives packages.
Understanding the Russian Market
If you are looking to do business in Russia, you will need a lot of advice and opinions to penetrate this emerging market. To really understand the Russian market, let's start with how to open a business in the country.
You will have to go through several processes to start a business in this country. First, let's look at the business ideas and some of the legal issues you need to overcome.
1. Requirements for Visa to Russia
You will find that your immigration status allows you to start or operate a business in Russia. To do business in Russia, you should be the holder of the necessary residence permit and visa. Visa will allow you to be self-employed, open a business or hold a corporate position that involves routine decision making.
If you are a non-resident, you can join a Russian company as a shareholder. Holders of a permanent or temporary residence permit are allowed to start a business in Russia.
If you do not have a residence permit and still want to do business in Russia, you can apply for a Russian Work Visa and be self-employed. However, this option requires you to have an invitation letter from the General Department of Immigration of the Ministry of Internal Affairs of Russia. Another opportunity to do business in Russia is to open a company that will create jobs and generate revenue. You must secure a Russian Business Visa to get this option.
2. Business Plan
To ensure the long-term sustainability of your business venture, do thorough market research and prepare a solid business plan. You should base your business plan on extensive market research to see that the products or services you offer will be profitable.
3. Understanding the Company Type
Part of planning when doing business in Russia is to find out what types of companies are available in the country. You should learn the legal structure and characteristics of each type of company.
- Limited liability company: The most common type is a Limited Liability Company (OOO), which is a private company. The maximum number of shareholders in this category is 50. Each shareholder should contribute a minimum of R10.000 and may pay half of the share amount during the registration process. All shareholders are responsible for the debts incurred by the company up to the registered capital. A foreign company or individual can be a shareholder or founder of a company or companies under OOO. However, foreigners need a specific residence permit/visa to become a company director or board member.
- Joint Stock Company: This type can be a closed (ZOA) or open (OAO) corporation. OAO is a public company, while ZOA is a private company. A company can have more than 50 shareholders and the shares are freely transferable to the public. Each shareholder can contribute a minimum of R100,000 to the capital of the company. Other rights and liabilities are similar to OOO.
- Partnerships: If you are opening a small business, this type is a suitable option for you. A general partnership provides the same rights and responsibilities by agreement. Debts can be insured with personal property. Partners share in the management of the business. A limited partnership requires the general partners to share the liabilities for profits and debt, and to use their assets to cover expenses. The liability of limited partners extends only to the extent of their business capital contribution.
Other types of companies include sole proprietorship – branch (of a foreign company) and registered office. The latter means that the office is only in Russia as a representative of a business abroad but is not allowed to have any commercial activities.
4. Business Name and Address
Similar to other countries, your company name should not be the same as any of the names of local Russian companies. You must choose the right location when you plan to start your business in Russia and use it as your company address.
5. Preparation of Business Incorporation Papers
Depending on the type of company you choose, you should prepare the following documents:
- Full name of the company including abbreviations
- Name and signature of the company founder
- Amount and nature of contributions by shareholders
- Company management rules
- Legal responsibilities of management and shareholders
- Information about the Director (if needed)
6. Establishing a Business
After preparing the necessary documents, you need to establish a business in Russia, so send the following documents to the Federal Tax Service registry office:
- Application form with notarized signature of the founder
- Establishment documents
- Proof of the legal status of the founders
- State registration fee receipt
The Federal Tax Service will review your application and notify you of their decision within five business days. If your application is accepted, your business will be registered for taxation. Seven days after submitting your application, you will receive the following documents:
- Certificate of State Registration (Certificate of Establishment)
- Tax certificate
- Corporate tax code
- A copy of your business establishment document with the stamp of the business registration department
- Excerpt from the General Legal State Register of Russia
7. Opening a Business Bank Account
You will need copies of official documents submitted by the Federal Tax Service (FTS) that are notarized and filed with the bank, including:
- Tax and Incorporation Certificate from FTS
- Founding Documents
- Business License in Russia
- Notarized signatures of the founder and shareholders and documents confirming the authority and identity of the person signing the business account
Rules for Opening a Business in Russia
You should study the rules mentioned here, as they will help you navigate the normal working conditions in Russia.
- Corporate and personal security is very important. Therefore, you should conduct background checks on local and foreign subcontractors and employees.
- Hire a legal firm when doing business in Russia to protect you from lack of regulations regarding business loss reimbursement, damage recovery and fraud. Furthermore, Intellectual Property Law in Russia is still in the development stage.
- You need to know who will attend the business meeting when the business structure is hierarchical.
- The Russians favor face-to-face talk, and it is beneficial to mention the profit element early in the meeting. But you don't compromise too much because the Russian partners see it as a weakness. Learn to hold out a little but know how to assess the situation. A glass of vodka often closes a closed deal.
- As a foreigner, Russians expect you to be punctual in meetings. However, do not expect the same from them.
- There are formal and “informal” systems in Russia when dealing with government officials. Besides practicing patience, money and small gifts often go hand in hand to make your work more convenient.
- Be aware of thefts and corruption.
- Practice flexibility when dealing with Russian colleagues and subordinates. Try to convince them to involve your ideas and suggestions. Improve productivity through motivation and allow them to voice their concerns. You have to make them feel safe.
Social Customs and Business Etiquette in Russia
Russians are very hospitable and consider it an honor if they invite you to their home. As usual, there are some rules to follow.
1. Informal Meeting
- When you receive an invitation to a house in Russia, bring a gift, such as chocolates, cake or wine. When giving flowers, avoid yellow roses as it signifies separation and bad luck. Likewise, the number of flowers should be odd.
- You should kiss on the cheek or shake hands after you have entered the house. Russians believe that making common gestures to greet them at the doorstep brings them bad luck. You usually take off your gloves before shaking hands with people you meet. In some households, it is customary to remove shoes before entering.
- Learn the unique Russian features of eating toast every morning.
- In informal conversations, Russian hosts will likely discuss a number of things, including personal achievements, valuable possessions, travel, family, etc.
2. Business Meetings In Russia
- Older Russians are more traditional and conduct business in groups. Younger Russians are comfortable with an individual approach.
- You should learn more about Russian culture, geography and history. Such topics are sure to come into the conversation as Russians are very proud of them.
- Because they were under communist rule for almost 70 years, it is not expected that older Russian businessmen will understand modern commerce as a product of capitalism. You should be patient while explaining your company's position.
- Dress formally for business meetings. Women's skirts should reach the point above the knee. Wear formal and well-polished shoes.
- Print your business cards in English and Russian. Do the same for all documents that you have, including advanced degrees in your business cards to impress your Russian counterparts.
- Each meeting usually ends with a “protokol” equivalent to a summary of the meeting and you will have to sign it.
- You should schedule business meetings several weeks in advance. For meetings with government representatives, the schedule is usually set six weeks before the meeting. Confirm the meeting two days before the actual date. Be sure to arrive on time but be prepared to wait for your Russian colleagues.
3. Business Negotiations in Russia
Business negotiations in Russia often take a long time to conclude. Since they have a sense of hierarchy, your meeting attendees should match their Russian counterparts in terms of age and position in the company. The Russians won't compromise it's up to you to make the right concessions.
Patience and a cool head are your shields when negotiating with potential Russian business partners. Avoid mentioning deadlines as they can use them against you. Know that canceling important meetings is a common occurrence. That's a typical tactic for negotiations. You may see your Russian colleagues going out while you meet in a meeting, another common behavior. You have to wait until they come back. Remember that putting pressure on them won't work.
These are the most important things you must know when thinking about doing business in Russia. Their culture, behavior and way of doing business can be very different from what you are used to. Be sure to do extensive research and know more about Russia and its people before you come to the country. At the same time, it is also advisable to hire a professional translator if you want to enter the Russian market as all your documents should have Russian translations.
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You are viewing the article Things You Need to Know When You Want to Do Business in Russia. Hopefully this article will help you gain more knowledge about business, as well as understand more about the customs and habits in Russia, to make it easier for you to do business in Russia or cooperate with businesses in Russia. Russia. Good luck.