Choosing a Partner
“It‘s when someone from France, Germany, America or any other country expresses the desire to head the enterprise himself, to be, for example, Managing Director, that things become more complicated,” says lawyer Lev Korchagin of the Moscow Region Chamber of Lawyers. “Then, a more serious set of documents is needed, like a work permit and registration. In such cases, enlisting the services of partners from amongst Russia‘s citizens, and entrusting them with administrative duties, may well help.”
Ignoring the help of Russian citizens, who know the particulars of doing business in their own country better, seems not to be a sensible option.
“There is no shortage of candidates for partnership,” notes Lev Korchagin. They bring experience, knowledge and even premises. In other words, they can be a positive asset. On the one hand, ignoring the help of Russian citizens who know the particulars of doing business in their own country better than those who have just arrived seems not to be a sensible option. However, caution should be exercised in drawing up legally significant documents, especially the company charter. It is not unheard of for partners to decide on selling their share of the business, which could put the whole venture on the verge of bankruptcy. “In this case, it is better if the foreigner is the sole proprietor,” suggests the Russian legal expert. “Or to decide on a more stable and legally safer structure like, for example, a Closed Joint Stock Company (CJSC).”
“It is important also to formalize in writing any dealings with your partners, specifically setting out the scope of their participation in the business and their obligations,” affirms Lev Korchagin. And it is essential to do this at the very first stage of establishing the venture, at the stage of registering the business.
In particular, with any partner, it is essential to enter into a detailed contract in which working conditions, the procedure for receiving renumeration, and issues around social security are clearly set out. A key moment should also be the recruitment of the person responsible for financial matters – the accountant. “Even when registering the company, it is important not to make a mistake with him,” Lev Korchagin is convinced. “A lot will depend on his competence further down the line.”
An enterprise established in Russia by a foreign national has the right to apply for the state financial assistance.
Let‘s say the accountant is working at the company with foreign capital: he will have to deal with the calculation and payment of Russian taxes and, if the means for establishing the company were based on credit terms received abroad, with paying the interest on a foreign loan.
As Lev Korchagin points out, most foreigners know little of the particulars of conducting business in Russia. They lose their way amidst legalities and tax regulations and the changing requirements of government employees...
For the foreign citizen who has decided to set up his business in Russia, there are definite difficulties, including understanding of the Russian labor laws. Employee protection has become more of a reality. For example, Russian labor law sets out clearly how dismissal of an employee must be carried out in various situations, and which procedures should be followed. In this respect, Russian labor law corresponds to present-day world-wide norms. Russians today know their rights and, if need be, are prepared to stand up for them in court. It is important that the foreign businessman bears this in mind to avoid the need to pay out huge amounts of compensation in the case, let‘s say, of unlawful termination. “Relationship-building with employees should be based not on emotions but on observing labor laws,” warns Lev Korchagin.
Naturally, a key question for the foreign national setting up business is that of attracting finance and investments. Protection of investments is built on the national and international level. It should be pointed out that foreign investment is protected by the appropriate legislation: Federal Law “On Foreign Investments in the Russian Federation.”For the foreign investor it is essential to find out, in any given situation, to what extent the nature of the legislation is practically applicable or declaratory in character. International legal regulation is based on international bilateral agreements on incentives and the mutual protection of investments and on multilateral international investment agreements linked to the activity of international economic organisations.
Registering a business in Russia takes on average from two weeks to a month. The procedure for a foreign owner is no different than that for a Russian citizen.
In order to qualify for such protection, it is necessary to document the transfer of funds into the Russian Federation, in other words, to have verified accounts. Then, there will be the possibility of tax-free reinvestment, transfer of profits back home and also the possibility of appealing against the actions of government bodies. There is no limit to the amount of profit which can be withdrawn: once all appropriate taxes have been paid, it is fully at the disposal of the owner.
It is interesting to note that an enterprise established in Russia by a foreign national has the right to apply for the state financial assistance. That is because now in the Russian regions a whole range of programmes aimed towards supporting small and medium businesses are in effect. And just as a company founded by a foreign national enjoys the same rights as a Russian one, this legal entity not only bears the same responsibilities as any other Russian enterprise, but also enjoys the very same rights and privileges, guaranteed by the state.
Ensuring Legal Protection
As regards to the legal protection of businesses founded by foreigners, it is conducted primarily by the Russian judicial system. Although there unquestionably exists the right of the foreign national to refer to judicial bodies in his own country, such cases are rare. However, notes Lev Korchagin, foreign businessmen do refer to Russian arbitration tribunals which are similar to international courts of arbitration where each side chooses a judge for the proceedings and these judges choose a third. The decisions of such tribunals are final, having the status of a state decision, and are binding.
Registering a business in Russia takes on average from two weeks to a month. The procedure for a foreign owner is no different than that for a Russian citizen. There are firms that specialize in these matters, providing the full spectrum of services from starting the paperwork to opening a bank account. On average their services cost between 500 and 1,000 dollars.
“It is possible to do business in Russia if you know the rules and keep to the law,” says Lev Korchagin. “The most crucial stages, essential for the foreign businessman to prioritise, are the registration process, carefully considered from a legal angle; the observance of tax regulations, labor laws and leasing arrangements; and the accurate forming of relationships with your partners and contractors.
”On the whole, for the foreign investor wishing to work in Russia, it is recommended to find a consultant specializing in the same field. Most of all, from the legal point of view.
“You need professionals with practical knowledge of the business world who are competent, able to evaluate ideas and ready to suggest solutions in specific situations,” reckons the lawyer Korchagin. “Moreover, they should be not only lawyers but also business consultants, auditors. It is good if such specialists are recommended by one of your countrymen who has already established himself in Russia. In small and medium business, recommendation is the best form of advertising.”