Russia’s Simple Small Business Tax System

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I remember a few years back, an American businessman by the name of Herman Cain ran for president on the platform of introducing a flat tax.

To most Republicans the idea of a flat tax is a pretty progressive idea.  To most Democrats it’s very backwards.  So, if you are a Republican, you might find Russia’s tax law to be an object of envy.  If you are a Democrat, I would remind you that socialized health care has been here since sometime around Woodrow Wilson’s term in the Oval Office.

So, here it goes:  If you open a small business in Russia (sole proprietorship or LLC), you can apply for the simplified tax rate.  I have never heard of anyone being denied such application.  And here are the numbers:  6%.  That’s the flat rate you pay on any income.  The only other “hidden cost” is a payment to the pension fund, which for simplicity’s sake, we will say is about 1% of total income.

If you are a sole proprietorship, the rest of the money (roughly 93%) is then just yours.  You can do whatever you want with it.  I believe this is a fantastic set up, particularly for solopreneurs who are offering a simple service and have few expenses.

However, if your business has expenses, you can apply for a tax rate of 15% of total profit.  This is a situation where you would then go the American route of hiring a good accountant to help you find expenses in order to avoid taxes.

And if you are not interested in registering a business, your personal income is taxed at a flat rate of 13%.

Now to be fair, things change drastically if you take on a payroll or your business grows beyond 60 million rubles per year (slightly north of $1 million).  But my view is that you can cross that bridge when you come to it.

This blog post is not to provide any tax advice.  I’m simply arguing that the Russian government has made it easy to open a small business, and I would like to give them credit for that.  Whenever I need real advice for my business, I go to the Business Development Agency (BDA).  They charge very reasonable rates and are always happy to answer my questions and offer options of real solutions.  This is not a paid advertisement!  I am just letting you know who I trust, in the event that Russia’s siren song of simplified tax rates would encourage you to start your own business here.  Because you would probably then want professional assistance and not just a blog post.

It’s a little humorous how, as an American, I spend time trying to convince my Russian friends how fantastic their tax system is.  And it’s a little baffling to me how unimpressed they are.

Well, I guess I should say I love the simplified tax system for small business.  But particularly as I work in the area of real estate, I would submit that the tax on sales of real estate could use some improvement.  If you are a non-resident, it is a flat rate of 30% of the total sale, regardless of whether the property increased or decreased in value.  Let that sink in for a moment.

Because I really want folks to be encouraged to buy real estate in Russia.

So, start a business in Russia.  And before you buy any property, read the small print.

Because perhaps in comparison to other countries around the world, Russia should not have the reputation as being the bureaucratic one.  It’s quite simple, really.


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