To establish a company first you need to choose your form of business entity. The forms are set out in the Civil Law of the Russian Federation. Full partnership and limited (trust) partnership are rarely used, all the more so as the commercial partnerships do not provide any tax benefits. Due to the partners’ personal liability these forms are hard to come by.

In practice foreign investors in Russia more often choose to establish commercial companies to take advantage of the liability limitation mechanism. The liabilities of the company are discharged with its own property only. Shareholders are liable only in exceptional cases; generally, they risk losing only their contribution to the registered capital.

Usually, there are no specific limitations applicable to foreigners wishing to incorporate a company. The only general rule in effect is that a company may not have a sole member that, in turn, also has a sole member.

Companies may be established in the form of a limited liability company (OOO) or joint stock company (AO).

In practice the most common form of incorporation is OOO.

All companies are to have certain registered capital. The registered capital of an OOO or non-public AO shall not be less than 10,000 roubles. This minimum amount of the registered capital of a business company is to be paid in cash. Besides, contributions to the registered capital may be made with property. Under certain circumstances a foreign investor’s property contribution may be exempt from the import tax duty and import VAT.

In order to make the application for the State registration of your company you need to determine the registered address that will be used, in particular, for communications and where the company’s managing body will be located.

A company shall have one or more directors. The general rule is that each director may act individually on the company’s behalf. The statute may include the “two keys” principle, whereunder a decision by two directors is required for a transaction or an act. Directors’ details are to be entered into the Unified State Register of Entities.

To supervise directors’ activities, a supervisory board may be established in an OOO or AO. Directors may be members of the supervisory board but may not exceed 25 % of the total number of its members.

Founders of a commercial company conclude written agreement among themselves that sets out their joint activities to incorporate a limited liability company (OOO) or, as the case may be, joint stock company (AO), the amount of its registered capital, the amount and par value of share of each founder of the limited liability company (shares in the joint stock company), as well as amount of, procedure and time limits to make their contributions in the registered capital of the limited liability company or, in case of AO, classes of shares issued by the joint stock company and their allocation procedure.

The constituent document of a limited liability company is its statute, drafted and approved by its founders. The founders may use model statute adopted by the Ministry of Economic Development of the Russian Federation.

The statute of a limited liability company, drafted and approved by the its founders, shall contain, inter alia, information regarding the company’s tradename and seat, the registered capital amount, the composition and competence of its bodies, and the decision-making procedures for them.

A company is established by a decision of incorporation. In case there are two or more founders, the decision of incorporation shall be made by all the founders unanimously.

The decision of incorporation shall include information on incorporating the entity and approving its statute or notice that entity acts according to the model statute. It shall also include provisions regarding forming of, the amount of, and ways and time limits for forming the registered capital of the company and for electing (appointing) the governing bodies of the company.

Notarized application for State registration filed with the registering authority shall be accompanied by several documents, such as the decision of incorporation, the constituent document (unless the model statute is used), an extract from the register of foreign entities of the respective country of origin or similar legal evidence of the legal status of foreign founder, documents evidencing the future company seat location, and the document evidencing the payment of the state duty in the amount of 4,000 roubles.

The entity is deemed incorporated on the date when the respective entry is made in the Unified State Register of Entities. The State registration is followed by automatic registration with the tax authority and compulsory-insurance funds.

Russian labour law is binding on all employees and employers, it applies to foreign companies’ branches or representative offices and to employees who are foreign citizens. The Labour Code of the Russian Federation is the primary source of law.

In practice, competent authorities adopt a very formalistic approach in interpreting Russian labour law. That is why when doing business in Russia one should carefully check to what extent provisions consistent with foreign labour laws can be directly planted into the Russian context. Besides, Russian labour laws protect the employee’s interests first and foremost and are dominated by the principle of non-deterioration of employee’s position: the general rule is that conditions improving employee’s position compared to local legislation in force are always deemed valid, and conditions that prejudice his position will be held void.

Internal Documentation

Each employer has to adopt many internal regulations. Those include, for instance, internal work regulations, staffing list including all staffing positions and job titles in the company, regulations on the work compensation system, regulations on employees’ personal data, occupational safety and health rules and instructions, etc. The employer shall familiarize his employees with these regulations, this has to be confirmed by their signatures.

Individual Employment Contract

Within three days after an employee actually started to perform his work tasks, the employer must conclude a written employment contract with him (electronic employment contract is allowed for remote employees only). All amendment to this contract shall also be in writing.

Note that agency work is generally prohibited in Russia. In other words, the employee may not work being instructed by the employer but in the interests and under the authority and control of a third-party person or entity. Certain exceptions exist, but they should be considered on a case-by-case basis.

Contents of Employment Contract

In addition to the employee’s personal details (last name, first name, patronymic, etc.), an employment contract under Russian law includes mandatory and supplementary terms and conditions.

Mandatory conditions are:

• work location: as a rule, this is the employer’s premises;
• job function, that is, the exact designation of the position held;
• work commencement date: this date is stated in the contract. If the employment contract is for a limited term, it shall also contain the term and explanation why the contract is made for a limited term;
• working arrangements: in accordance with applicable legislation, an employment contract shall contain provisions on the duration of working day and/or working week, daily start and end time, rest time, and order of working days and holidays if different from conditions set in the internal work regulations.

The Labour Code of the RF differentiates between the work within normal working hours and work outside normal working hours (if the employee works overtime or has irregular working hours). The normal working hours are 40 hours a week, that is, 8 hours a day. Overtime may not exceed 4 hours during two consecutive days and 120 hours a year. Overtime work is allowed only with consent of the employee (with certain exceptions). Overtime shall be compensated in cash or (if the employee so agrees) with extra rest time.

An employment contract may provide for irregular working hours. This is a special working regime where an employee may sometimes work outside the regular working hours if ordered by the employer. This regime does not offer pecuniary compensation, but instead the employee is provided with extra paid leave of at least three calendar days a year. It means in practice that the employees, especially the skilled ones, work outside normal working hours as part of irregular worktime regime.

• Vacation: an employee shall be provided with a paid vacation of at least 28 calendar days a year. Besides, there are 14 public holidays in Russia. If a rest day falls on a public holiday date, this rest day is usually moved to the working day immediately following the public holiday. The duration of the working day immediately preceding the public holiday is reduced by one hour.
• Work compensation: the minimum wages are set in legislation. The legislation also provides, that remuneration shall be twice a month, in the Russian currency.
• Workplace environment: the employment contract shall set, in general terms, whether the working environment is (and to which extent it is) good, tolerable, harmful, or hazardous (dangerous). To this end the employer shall conduct a special assessment of the working environment.

Depending on the result of this special assessment, the employee may be provided with certain benefits to be set the contract (such as an extra vacation, increased remuneration, and (or) the reduced working week hours) for working a in harmful or hazardous (dangerous) environment.

• Special conditions (where applicable) characteristic to the nature of job (such as itinerant work).
• Provisions on compulsory social insurance and other statutory terms and conditions are to be included in the employment contract.
• The Labour Code of the RF allows secondary job. It may be internal (i.e. more than one position with the same employer) and external (working for another employer). The secondary job may be banned in the employment contract (unless consent of an authorized body, such as the general meeting, is provided) only for the CEO.
• Supplementary Conditions of the Employment Contract

An employment contract may also include optional (supplementary) terms and conditions, such as:

• a probation period not exceeding three months (or up to six months for positions such as directors, deputy directors or chief accountant);
• employment contracts in Russia are generally concluded for indefinite term; only if so provided by applicable legislation a fixed-term contract may be concluded, where the term shall not exceed five years;
• an employment contract may also contain provisions regarding confidential information regime.

General Grounds for Terminating an Employment Contract

An employment contract in Russia may generally be terminated only subject to prescribed conditions and time periods.

• Employment contract terminated by agreement of the parties: the parties may upon mutual consent discontinue employment relations at any time. Legislation provides neither a timeframe nor compensation for that scenario. However, in reality the employee is often gets compensation.
• Employment contract terminated by the employee: an employee has the right to terminate the employment contract by so notifying the employer in writing at least two weeks in advance (at least a month in advance if the employee is a top manager or at least three days in advance during a probation period). This short term may not be extended in the contract.
• Employment contract terminated by the employer: this type of termination may be complicated as the employer has to follow lots of formalities. Laying off certain groups of employees, such as pregnant women, mothers of young children or members of trade unions, is difficult or even impossible. Generally, an employee may not be dismissed unless there is a good ground for that. Russian employment legislation contains exhaustive list of admissible grounds.
• An employee may be dismissed for committing a violation such as unjustified repeated breach of duty or single major breach of duty in specified situations.
• аn employee may be dismissed if he is unfit for his position due to health situation or insufficient skills and qualifications. In the latter case, grounds for contract terminations shall be skills assessment conducted in accordance with a special procedure.
• Dismissal may be caused by the situation of the company, i.e. during liquidation or under staff reduction process.
• External reasons: employment may be terminated for reasons beyond control of the parties to the employment contract. For instance, employment of a driver may be terminated if his driver’s license is revoked.

In some situations, like organizational or technological changes of labour conditions (such as changes in manufacturing technologies or techniques, structural reorganization of manufacturing, and other reasons) the working conditions agreed by the parties cannot be kept. In this case labour conditions except for the employee’s job function, may be changed by the employer. If the employee disagrees with the new conditions, (s)he may quit.

CEO Dismissal

The general rule is that a CEO may be dismissed at any moment for reasons beyond his control, by virtue of a decision of the company’s authorized body (for instance, the general meeting of members or shareholders). In this case the contract should provide for compensation amounting to at least three month’s average income. However, the CEO enjoys the same general guarantees as other employees (such as prohibition to lay off pregnant women at the employer’s initiative).

Protection against Unjustified dismissal

Generally, an employee may not be dismissed by the employer during temporary disability to work (due to illness or otherwise) or during his vacation. Also, the employer may not unilaterally dismiss pregnant women, other than in situation where the company is liquidated. Women with children under three years of age and single mothers of children under 14 years of age or children with disabilities under 18 years of age are also protected from dismissal.

Temporary Stay

Generally, foreign citizen will need a visa to stay in the Russian Federation for a certain period.

Visa-free entry is available only for persons who enter Russian territory from certain countries having visa-free travelling agreements with Russia (in particular, countries of the Eurasian Economic Union (EAEU)). Foreign citizens who enter the Russian Federation under the visa-free regime can validly stay here only with a duly issued migration card (except for citizens of the Republic of Belarus, they do not need migration card).

Invitation for Visa

Russian visas are issued on the basis of invitations, including invitations from companies, governmental authorities, Russian citizens, or foreign citizens who permanently reside in the Russian Federation. Invitations are issued by the Ministry of Foreign Affairs and the migration authority (the Ministry of Internal Affairs) and their territorial bodies.

Visa Types and Validity Periods

There are several types of Russian visas depending on the planned purpose of travel and the duration of stay.

Visas can be one-, two-, or multiple-entry.

Depending on the purpose of travel there are ordinary and other visas. Ordinary visas, in their turn, are divided into the following groups.

• An ordinary business visa. The purpose of travel may be negotiations, business trips, and other purposes, not related to working in the Russian Federation. Maximum duration for this type of visa is three months (a one- or two-entry visa) or one year (in certain cases up to five years) (a multiple-entry visa). The maximum total duration of foreign citizen’s stay in the Russian Federation under a multiple-entry visa is 90 days in each 180-day period.
• An ordinary work visa. The purpose of travel is to work in Russia. The term for this visa is three months; after entry it can be renewed by way of issuing a multiple-entry work visa for the effective period of the employment contract, but it shall not exceed one year (a new visa is to be issued every year) (exception is made for highly skilled professionals). To convert the visa, the foreign citizen does not have to leave the Russian Federation.

In case of highly skilled foreign professionals the Russian consulate or embassy may issue a multiple-entry work visa for up to three years.

There are also other visa categories (such as a visitor visa, tourist visa, etc.); we do not describe them here.

Obligatory Work Permit

Generally, a foreign employee cannot proceed to work unless and until he/she obtains a work permit (for foreign citizens entering Russia with visa and for all highly skilled professionals) or work patent (for foreign citizens entering Russia under the visa-free regime). Citizens of EAEU member states (apart from Russia, it now includes Belarus, Kazakhstan, Armenia, and Kyrgyzstan) enjoy the exemption: they can work in Russia without obtaining patent or work permit.

General Procedure

• Quota

The general rule is that foreign citizens who arrived in Russia with visa may be hired only within quotas approved by legislators. The quotas set the maximum allowed number of foreign employees and are revised annually.

In certain professional areas, foreign employees may be hired without quotas. The list contains 80 positions, including top management (such as CEO or a director of department, branch, representative office, or manufacturing facility) and some engineering professions (such as process engineer, automated manufacturing control systems engineer, etc.)

• Permit for Employer

Before filing application for a work permit for specific employee, the employer must obtain permit to hire foreign employees for his company.

• Work Permit for Employee

After the employer obtains the permit for his company, he may proceed to file with the competent (territorial) migration authority the application for an individual work permit for the specific employee.

The foreign citizen is required to demonstrate his knowledge of the Russian language, Russian history, and fundamentals of Russian law.

• Validity period

Permit for employer and work permit (for employee) are issued for up to one year. They are valid only in one constituent entity of the Russian Federation.

Special Procedure for Highly Skilled Professionals

• General Information

Highly skilled professionals follow a special simplified procedure to obtain work permits.

• Who is a highly skilled professional?

The general indicator of a highly skilled professional is monthly salary of at least 167,000 roubles, that is set in the employment contract and taxed with the Russian personal income tax (usually at rate of 13 %). In case of any interruptions in working activities such as disease, unpaid leave or otherwise, due to which the salary was not paid, in full or in part, the total salary for the quarter (that was paid during the quarter) shall not be less than 501,000 roubles.

• Procedure

This procedure has the following advantages in particular:

hiring of these employees is not subject to quotas;

the employer does not have to obtain an employer’s permit;

a work permit may be issued for more than one constituent entity of the Russian Federation if the employer has standalone subdivisions in each of these entities.

Timeframes

• The application is to be processed within 14 days.

A personal work permit and a work visa are issued for up to three years. Both documents may be renewed.
Patent

• General Information

Only limited number of employers may hire foreign citizens with patent. Branches and representative offices of foreign companies are not allowed to do that.

• Procedure

Foreign citizen shall file application for a patent with the migration authority of the respective constituent entity himself or through designated entity within 30 calendar days after entering Russia. Along with application he shall submit documents, that are required to be submitted by law.

The hiring or dismissal of a foreign employee is to be reported to the migration service within three business days after their employment contract is executed (signed) or terminated.