Tests of doing business and penalties for unregistered entities considered as doing business in Russia

1) What is considered doing business without registration?

Doing business without registration means regularly engaging in activities to earn income without being officially registered as a legal entity, individual entrepreneur or self-employed person. Such activity carries risks of legal liability and imposes restrictions on the use of banking accounts. As a general rule, an unregistered business activity results in administrative liability, however if significant harm is caused or considerable income is received, criminal liability may follow.

2) What are the key indicators of doing business?

According to the current civil legislation of the Russian Federation, including Article 2 of the Civil Code (CC RF), entrepreneurial activity is defined as:

• independent activity;
• activity carried out at one's own risk;
• activity aimed at systematically generating profit from the use of property, sale of goods, performance of work, or provision of services.

3) What are the legal consequences of doing business without registration?

Several types of liability are provided for:

Article 14.1 of the Code of Administrative Offenses of the Russian Federation establishes administrative liability for conducting entrepreneurial activity without state registration as an individual entrepreneur or without state registration as a legal entity. Pursuant to this article, an administrative fine may be imposed on the individual ranging from RUB 500 to RUB 2,000.

Article 171 of the Criminal Code of the Russian Federation provides for criminal liability for conducting entrepreneurial activity without registration, if the act caused significant damage to citizens, organizations, or the state. According to this article, the individual may be subject to one of the following penalties: a fine of up to RUB 300,000 or an amount equivalent to the convicted person's salary or income for a period up to 2 years; compulsory labor for up to 480 hours; or detention for up to 6 months.

Article 116 of the Tax Code of the Russian Federation provides for a fine of RUB 10,000 for late submission of the registration application to the tax authority, and a fine amounting to 10% of the income earned during the relevant period by the organization or individual entrepreneur conducting activity without registration with the tax authority, but not less than RUB 40,000.

4) What is the penalty amount in 2025?

According to the provisions of Part 1 of Article 14.1 of the Code of Administrative Offenses of the Russian Federation (the Code of Administrative Offenses of the Russian Federation), engaging in entrepreneurial activity without state registration as an individual entrepreneur or without state registration as a legal entity, with the exception of cases provided for in Part 2 of Article 14.17.1 of the Code of Administrative Offenses of the Russian Federation, entails the imposition of an administrative fine in the amount of RUB 500 to RUB 2,000.

It should also be borne in mind that, in accordance with Part 1 of Article 14.1 of the Code of Administrative Offenses of the Russian Federation, carrying out entrepreneurial activity without a special permit (license), if such permit (license) is mandatory, entails the imposition of an administrative fine on citizens in the amount of RUB 2,000 to RUB 2,500, on officials from RUB 4,000 to RUB 5,000, on legal entities from RUB 40,000 to RUB 50,000, with or without confiscation.

5) Is criminal liability possible?

Russian law establishes criminal liability for carrying out business activities without registration (or without a license or accreditation in respect of certain types of activities), provided that such act has caused major damage to individuals, legal entities or the state. Damage is considered major if the amount exceeds RUB 3,500,000 (approximately 43,000 USD). A lower amount is established for activities related to illegal production and/or trafficking of alcohol, alcoholic and tobacco products, which is RUB 100,000 (approximately 1,200 USD). The sanctions provided for these crimes include fines, community service, arrest, and, in certain cases (e.g. organized crime), imprisonment.

6) Who identifies unregistered business activity?

The primary authority authorized to identify unregistered entrepreneurial activity is the Federal Tax Service of Russia (FTS Russia). These powers are enshrined in the Tax Code of the Russian Federation (clause 2, article 32), according to which tax authorities are obliged to conduct inspections of compliance with legislation on entrepreneurial activity.

Credit institutions play an important role in identifying unregistered businesses. In accordance with Federal Law No. 115-FZ, banks are obliged to monitor client transactions that have signs of entrepreneurial activity (for example, regular payments from counterparties) and transmit the relevant information to Rosfinmonitoring. The latter, in turn, interacts with tax and law enforcement agencies.

7) What should be done if the activity is already ongoing without registration?

To determine the most appropriate taxation system and/or organizational form for conducting entrepreneurial activities, complete the registration process, and pay taxes in accordance with the procedure established by law.

8) What obligations arise after registering a business?

After state registration, a legal entity or individual entrepreneur acquires a number of ongoing obligations. The key one is compliance with the requirements of the chosen tax system, maintaining accounting and tax records, timely reporting to the Federal Tax Service (even in the absence of activity), and timely tax payment (Article 44 of the Tax Code of the Russian Federation).

An obligation arises to register with extra-budgetary funds (the Pension Fund of the Russian Federation and the Social Insurance Fund) as an insurer (Article 6 of Federal Law No. 167-FZ) for the calculation and payment of insurance contributions for employees.

When hiring employees, obligations arise to conclude employment contracts (Articles 16, 57 of the Labor Code of the Russian Federation), maintain personnel documentation, ensure safe working conditions, and pay wages on time (Article 136 of the Labor Code of the Russian Federation).

An obligation arises to comply with licensing requirements — for certain types of activities (medical, transport, educational, etc.), it is necessary to obtain a license in accordance with Federal Law No. 99-FZ "On Licensing of Certain Types of Activities".

9) From what income level must an individual register as an entrepreneur?

The legislation does not link the obligation to register as an individual entrepreneur with the amount of income.

An individual may:

• pay personal income tax (PIT) at the following rates depending on income: 13% for income up to RUB 2.4 million, 15% for income up to  RUB 5 million, 18% for income up to  RUB 20 million, 20% for income up to  RUB 50 million, and 22% for income exceeding  RUB 50 million;
• register as a self-employed person and pay professional income tax at a rate of 4% on transactions with individuals or 6% on transactions with legal entities, provided that the annual income does not exceed  RUB 2.4 million; if the income exceeds this threshold, the person must either pay personal income tax or register as an individual entrepreneur and switch to special tax regimes.

Authors: Andrey Borovkov, Alena Ivanova, Aleksandra Levenkova, Vyacheslav Khorovskiy