Easing procedures of company registrations - what does the future hold?

In the past years the Russian authorities have made various efforts to simplify the procedures and rules which govern the registration of legal entities and sole entrepreneurs. The significance of these efforts were not lost on the World Bank “Doing Business” rankings who adjusted Russia’s rankings in the “Ease of Doing Business” from the 51st to 40th place. In the category “Starting a Business” the ranking was reduced from to 41st to 9th. This is a significant improvement from previous years.

Notwithstanding these positive observations, the process of company registrations remains complicated. The following are barriers preventing a fast track registration:

  • Choosing of a company name;
  • Selecting of a correct activity type according to the activity classification codes;
  • Searching for a legal address;
  • Choosing an optimal tax structure;
  • Selecting appropriate definitions of business activities and their correct reflection in the company’s memorandum of incorporation;
  • Notarial certification of documents;
  • Filing of registration documents.

Registration documents which are prepared incorrectly may lead to a rejection by the Federal Tax Service – official body in charge for company registrations. Registration fees are non-refundable thus increasing the cost of the overall registration process and the overall time required. To avoid such delays it is advisable to use the services of specialized companies.

Compliance: To prevent fraudulent activities the Federal Tax Service of Russia has sent instructions to its regional offices requiring them to verify the information filed in the Unified State Register of Legal Entities (EGRUL). Particularly for legal entities registered after 01.08.2016 and where the following questionable features are identified:

  • CEO of the legal entity is also CEO in over than 5 additional legal entities;
  • Shareholders of legal entity are also shareholders in over other 10 legal entities;
  • The registered address of the legal entity is also the registered address of more than 10 legal entities;
  • CEO is a disqualified person.

A pilot scheme designed to simplify the procedures of business registrations by Russian citizens was launched on November 1, 2016. Two of the biggest Russian banks Sberbank and VTB are assuming the registration functions. Future entrepreneurs are not obligated to go to the local registration bodies - it is enough to apply to one of these banks where they are clients. They may contact the bank distantly or visit the bank’s office to register as individual entrepreneur or as an LLC with a sole shareholder. It is sufficient to fill out an application, for example, on foundation of a Limited Liability Company. The applicants may receive the digital signature, which will be affixed on the application form in case of remote applications. Thereafter after the bank will be responsible for security issues and dealing with registration and tax body without the client’s participation.

The pilot scheme will be operational until 2017. If successful the Russian authorities will assign more banks to extend the initiative nationwide.

Federal tax service will manage insurance fees to the state non-budgetary funds

Since January 1, 2017 the Federal tax service (FTS) will proceed with managing of insurance fees to the Pension fund of the Russian Federation (PFR), Social Insurance Fund of the Russian Federation and Federal Compulsory Medical Insurance Fund (FCMIF). This is fixed by two Federal laws as of 03.07.2016 №243-FL and 03.07.2016 №250-FL.

The new order provides:

  • registration as insuring party for mandatory pension insurance in the Pension fund only for the purpose of filing the personified reports. FTS will give all registration data of companies and their separate subdivisions, individual entrepreneurs and other taxpayers;
  • continuation of registration of companies and entrepreneurs as insuring parties for compulsory health insurance in FCMIF as from registration in FTS. Procedure of registration is unchanged;
  • keeping the insuring parties registration in the Social insurance fund based on the data from tax authorities. Separate subdivision and individual entrepreneurs entered with natural person into civil or labor contract with a condition of fees payment are registered in the Social Insurance Fund through filing of the relevant application.

In case of registration as of January 1, 2017 companies and individual entrepreneurs are not obliged to file any additional applications.

The procedure of reporting was also amended.

Annually up to March 1 (since 2018) it is required to provide the Pension fund authorities with data for personified record keeping of all natural persons entered into civil or labor contract. These data have to include the following: insurance individual account number (SNILS); first name, patronymic, surname; hiring or leaving date; date of entering into civil contract requiring fees payment or its termination; periods of activity included in labor experience by the relevant activity types; amount of fees paid for the employee under the system of non-mandatory non-state pension provision; other information necessary for granting non-contributory and funding pension.

When the employee has a right to a pension, the employer is obliged to provide personified data to the Pension fund of Russia within 3 consecutive days after the application receiving date.

Procedure and delivery time for reporting to the Social Insurance Fund authorities remain the same.

It will be necessary to inform tax authorities of salaries and charged pension and medical payments as parts of insurance fees, as well as report on insurance fees for compulsory social insurance as to temporary disability and maternity.

From 01.01.2017 the Social Insurance Fund will continue to take charge of fees for occupational injury and disease insurance.

All non-budgetary funds will keep an obligation to supervise over reporting periods expired before 01.01.2017.

In general, amendments are aimed at simplifying the system of payments managing and economy of budget expenses. Rates of insurance, including benefits, are unchanged. The existing four forms of insurance fees reporting will be united into a unified form. There will be one inspection authority with unified regulations. Information on insurance fees managing is obliged to be added to the taxpayer’s personal account.