Registration of individual entrepreneur in Russia
Individual entrepreneur (IE) registration in Russia passes through several, each of which is regulated by law. Not only Russian citizen may become an IE, but also a foreigner who has legal grounds for living in the Russian Federation. A visa is not enough for IE registration, but it is possible to apply for a temporary permit or residence permit.
Registration as an entrepreneur requires a not refundable state fee payment. Officials can refuse if there are any errors in documentation process, so it is important to fill out the application correctly and submit the paper to the tax office. Theoretically, you can go through all the steps of the registration procedure by yourself, however, it is better to seek the help of qualified lawyers in order to reduce risks and speed up documentation process.
It is necessary to comply the following criteria in order to pass an IE registration successfully:
- Age – not younger than 18 years. Only adult people have the right to do business, but there is an important point: minors from 14 years old can register as entrepreneurs with the consent of their parents or after receiving of emancipation.
- Legal capacity, which implies the absence of mental and other diseases that affect a person’s ability to make decisions.
- The presence of a temporary residence permit, or a residence permit in Russia with a foreigner.
There are few restrictions for registering of IE in Russia. Pensioners, parents on maternity leave, stateless persons, founders of limited liability companies and citizens working under an employment contract can run a business. The exception is only citizens working the public service.
When the registration of IE in Russia is impossible
If you are already entered in the state register as an individual entrepreneur, you cannot submit documents again to start a new business. This is contrary to applicable law. The restriction is based on the fact that information about the private business is recorded and checked on the basis of the state register.
One of the possible reasons for the refusal in registering of IE in Russia is the existence of an injunction on commercial work. This may be the result of a court decision on business’s involuntary termination. After the sentencing, an individual is not entitled to register a new business within a year. If this period has not passed, it is useless to submit documents to state bodies – they will refuse in creating of IE.
Please note that the same rule applies to entrepreneurs who were declared bankrupt due to the impossibility to pay debts. They would also have to wait a year before they can start a business again.
Specific types of work
Individual entrepreneurs cannot engage in certain types of economic activity, produce and sell certain goods, or provide certain services. This list includes:
- production and sale of alcoholic beverages;
- development, maintenance and sale of aviation and military equipment;
- all types of activities related to weapons and explosives, including holiday pyrotechnics;
- protection of property or people;
- employment of Russians abroad;
- investment funds, mutual and pension funds;
- manufacture and sale of drugs and narcotic substances;
- air transportation;
- related to the space program of work.
Therefore, if you plan to engage in one of the listed types of work, it is better to choose a different form of doing business instead of registering an IE in Russia. Consider that you will not only be unable to register as an entrepreneur-seller of alcohol or pyrotechnics, but you will not be able to add this activity later. Violation of these aspects of the law is associated with heavy fines, administrative and even criminal liability.
It is also impossible to work in the field of education, medical care and leisure activities for minors, if you had a criminal record. Submission of a certificate of no criminal record or termination of cases on rehabilitative grounds is one of the prerequisites for entrepreneurial activities related to children.
If the criminal record has not ended by full rehabilitation, individuals cannot register entrepreneurship in the following areas:
- children’s and youth camps;
- children’s education, including circles;
- preparation of applicants for enrolment in universities;
- medical practice and sanatorium treatment;
- all types of social assistance;
- art and entertainment;
- culture and sport.
As soon as you apply for starting a business in one of the above areas, the tax inspectorate will send an official request in order to establish a criminal record. If there are none, there will be no problems, but if you have a criminal record, IE registration in Russia will be impossible. Please note that this does not apply to entrepreneurship in general, but only to individual areas and industries.
If there are no obstacles to registration of IE in Russia, you can proceed to the next crucial stage: determining the type of future activity and tax system.
Choosing of Russian Classification of Types of Economic Activity (OKVED)
We are talking about Russian Classification of Types of Economic Activity. Here, each type of work is assigned to a numerical code. It is necessary to determine your code in advance, since these details are indicated when submitting the application. Using these details government bodies determine the type of economic activity that you will be engaged.
The classifier divides the activity into classes, subclasses, groups, subgroups and, finally, species. It’s not easy to find the right code, so it’s important to consult with a lawyer before applying. He will tell you which optimal code to choose so that difficulties do not arise at the time of application and during further work.
What problems can arise when choosing a classification? For example, the organization of leisure and entertainment is included in several groups at once. You can specify as one group as several at once in the application. The law does not limit you in the number of codes, however one of them will have to be specified as the main one. The type of activity encrypted in it will be considered the one that brings the main part of the profit.
After the registration you can enter additional codes or exclude irrelevant ones. However, the main code affects insurance rates, so it is important to approach its determination with caution. In addition, if over time it emerges that the main income does not come from the type of activity indicated by the base, you will have to pay the highest insurance premiums.
Another important aspect: if future activities are related to minors and to the social sphere, the applicant must submit a certificate of criminal record for IE registration in Russia. The request should be made in advance, since the certificate is being prepared a month. Plus, for some types of activities, additional licenses are required. It is important to determine in advance whether licensing is required and start the process.
Also consider the following: if the entrepreneur has not indicated certain codes, but carries out activities by such codes without notice, he faces a fine. The amount of fine will in case of untimely notification of the tax office. In addition, this can lead to a loss of confidence in the bank and restrict operations on the bank account, therefore, lawyers do not advise to take such risks. So, it is important to think over codes in advance for the same reason.
Choosing of a tax system
The law provides several taxation options for entrepreneurs. It can be a general or special system: simplified, patent, unified imputed income tax or unified agricultural tax. If the entrepreneur does not declare the transition to a special system, the standard mode is automatically applied. The key difference between the general and the special tax system is that up to 5 different taxes are paid at the general taxation system and no more than two taxes at special regimes.
Simplified tax system
Simplified Tax System is applied in two cases. In the first case, a single tax in the amount of 6% of income is payed. The second option provides for the payment of 15% of the difference between income and expenses. The annual income of the entrepreneur should not be more than 150 million rubles. In order to use this system, a notification of the transition to a special mode must be attached to the registration package of documents or filed within a month after the request to create a business.
Unified imputed income tax
This type of tax regime is not legally suitable for everyone – the list of activities in which this regime can be applied is limited. Unified imputed income tax involves the payment as a tax of a fixed amount, which depends on different indicators. In addition, it is important to consider that from 2021 this regime will cease to exist.
When using this system, an entrepreneur does not pay tax, but buys a patent for a period of a month to a year – permission to run a specific business. The cost of a patent is determined by the state. This system is suitable for a narrow range of activities.
Unified agricultural tax
This option is designed for entrepreneurs who receive more than 70% of income from agricultural production. With this system, tax is paid in the amount of 6% of the difference between income and expenses, and VAT.
Documents required for IE registration in Russia
To start a business, a citizen or non-resident will need the passport original or other identification document. An important condition: it should indicate the place of residence. Copies of all pages of the passport are submitted with the original. If you act through a representative, submit a package of documents by mail or through the center of public services, you need copies of all pages of the passport certified by a notary in addition to the standard set of documents.
It is also required to fill and file an application on a state registration as well as a state fee receipt. It can be paid both at the bank and online. In case if you contact the authorities through the official website, a notary or «My Documents» service center, you do not need to pay a state fee. Upon request, a notarized power of attorney is drawn up through a representative – on the base of this document, a lawyer or other specialist can act on your behalf.
If a minor over the age of 14 is registered as an entrepreneur additional documents must be submitted to the tax office:
- the consent of child’s parents or other legal representatives to his entrepreneurial activity confirmed by a notary;
- a copy of the guardianship authority’s decision or a copy of the court decision recognizing the child as legally competent.
The application is considered within three business days. You ask about the readiness of documents, contacting the inter-district tax office or monitoring the status of the request online vial electronic service. Also, do not forget that since 2017, registration certificates have not been issued; instead, the entrepreneur receives a registry entry sheet and a notification of registration with the tax authority.
VALEN lawyers have years of experience in registering of IE in Russia. The list of our services includes consultation on all issues of individual entrepreneurs’ registration in Russia, analysis of possible risks and ways of eliminating them. Our experts will also help you to collect the necessary set of documents and carry out its submission to a government agency.You can leave a request on our website or contact our lawyers via phone +7 (495) 7-888-096 to get a consultation. We are also waiting for you at our office in Moscow.