HOW TO SET UP YOUR OWN BUSINESS?

	Who can be a private entrepreneur? The Civil Code gives an answer to this question in Article 18. Any person disregarding whether he is a citizen of the Russian Federation has the right to free realisation of his entrepreneurial aptitude provided his activity is conducted within the framework established by law. Any person, if he is capable of carrying out by himself any kind of activity which is not prohibited by law, and provided he is officially recognised as a private entrepreneur and has a permit to conduct a certain kind of business, has the right to start up his business and develop his entrepreneurial initiatives. As a rule, law links the entrepreneurial capacity of a citizen with his age capacity, but there are some exceptions from this rule. Firstly, when the law permits a marriage for persons who are under 18 years old, an under-aged married person acquires full legal capacity from the date of the marriage. Secondly, when there is an issue of emancipation of a person who is under 16 years old, and who works as a contractor or deals in business with consent of his parents.
	How to become an entrepreneur and issues to address if you decided to be self-employed? The Civil Code in p. 1 Article 23 stipulates that a citizen has the right to conduct business without setting up a company from the date of him being officially registered as a private entrepreneur. In accordance with the Presidential Decree dated 08.07.94 "On refining the state registration of entrepreneurial businesses in the RF" citizens can be registered as private entrepreneurs at the place of their residence by the district administration. On the basis of recommendations of the St. Petersburg Registration Chamber, the registration departments of the district administration keep record of citizens who want to be self-employed. As a rule, personal appearance is not required since the documents can be sent by mail. However, as practice has shown, this advantage can result in undesirable consequences. In accordance with the Regulation on the procedure of the state registration of entrepreneurs, a person who wants to be self-employed is required to submit to the registrar the following documents: a formal application, a receipt of registration fee payment (maximum amount of which should not exceed the minimum monthly salary established for the date of registration, if required, a document certifying professional qualifications for a certain kind of activities (a qualification certificate) and a passport. As we know, over recent years theft and use of counterfeit passports has grown. Using such passports enterprising "businessmen" set up companies by sending the required documents to registration agencies by mail. Afterwards, the tax authorities raising claims for unpaid taxes by founders of a "private organisation" find out that they have no idea of any business handled by them since such a "partnership" was registered on the basis of counterfeit documents. We suggest that foundation documents should be certified by a notary and in his presence the authenticity of the foundation agreement and the persons who really intend to set up their business should be established.
	What is a certificate of official registration of a private entrepreneur, and to what should attention be paid when obtaining it? A certificate is a perpetual document which entitles its holder to conduct business and represents the official recognition of a citizen as an entrepreneur. When completing an application form for obtaining a certificate of registration, one should pay special attention to indicating the area of business to be conducted by a private entrepreneur. It is very important because an entrepreneur is entitled to conduct only those types of business that are indicated in the certificate of registration. The area of business indicated in the application form will be copied into the certificate of official registration.
	Can the registration be denied on the grounds of absence of a license and a qualification certificate (diploma) at the date of registration? In accordance with the RF Government Regulation dated 24 12.94 "On licensing some types of businesses", a person is required to hold a license to conduct business, but, as a rule, it is not required at the date of registration. The exception is the registration of a private detective business when a citizen can be registered as a private entrepreneur only if he holds a license to carry out this activity (the Law dated 11.03.92 "On private detective and security businesses in the RF"). This is the only case when denial of registration on the grounds of absence of a license can be considered lawful. A qualification certificate, being a faculty document, is not a mandatory requirement for registration, but in accordance with the recommendations of the Registration Chamber, in certain cases citizens can be registered only if they provide such a document.
	How does one register with the tax authorities? After being registered in accordance with the "Temporary recommendations on accounting of tax payers and keeping the State Register of businesses in connection with official registration of entrepreneurs", an entrepreneur is obliged to register with the tax authorities. He should file an application in which he indicates the reason for registration and what kind of business he is going to conduct. After that, a tax-payer identification number (INN) is assigned to the citizen (the Regulation "On the procedure of accounting for tax-payers" dated 13.07.96). From this date a private entrepreneur comes within the purview of the Law on income taxes payable by private individuals.
	A registered private entrepreneur falls under the traditional taxation system defined by the Law "On income taxes payable by private individuals" dated 07.12.91. What are the advantages of a simplified taxation of private entrepreneurs, and what is Form N 8 Patent established by St. Petersburg Law dated 11.06.96? One of the advantages of being a private entrepreneur is not only the tax privilege provided by law for certain categories of private entrepreneurs but also the possibility to choose a simplified system of taxation. This means that instead of paying a set of federal, regional and local taxes established by RF legislation, an entrepreneur can pay a single tax based on business performance in the accounting period. In accordance with the Law dated 20.12.95 "On simplified system of taxation, accounting and reporting for owners of small businesses", a single tax from private entrepreneurs is collected in the form of payment of a patent for the right to apply a simplified taxation system. In addition to the Federal Law dated 20.12.95, the Legislative Assembly of St. Petersburg passed the Law "On applying a simplified system of taxation, accounting and reporting for owners of small businesses" which also stipulates that a single tax is paid by contributing an annual cost of a patent to the tax authorities. In accordance with the law, a private entrepreneur is entitled to apply for obtaining Patent N 8, which is issued by the tax authorities at the place of tax registration for the term of one year. The annual cost of the patent is established on the basis of a minimum salary and depends on the earnings of a private entrepreneur. The information on earnings is submitted to the tax authorities at the end of the accounting year, otherwise the cost of the patent is determined by the results of auditing businesses of private entrepreneurs carrying out similar activities. Tax authorities update the amount of taxable income of a private entrepreneur annually and define the cost of the patent for the next calendar year. In order not to pay the overpriced cost of the patent inconsistent with the actual earnings, we recommend entrepreneurs to submit the required reports to tax authorities accurately since the lack of information on the earnings may result in overpricing of the patent cost.
	How is the annual cost of a patent determined? The annual cost of a patent depends on the nature of business conducted by a private entrepreneur. The payments are made quarterly in the amount of 25% of its annual cost.
	Do any benefits for private entrepreneurs exist in St. Petersburg since not every private entrepreneur is able to pay 600 MROT (minimum salary) in order to deal in commerce? Yes, there are some. First, the organisations 50% of whose staff consists of disabled persons pay 50% of the annual cost of the patent which is left in St. Petersburg. Second, new organisations (with the exception of the reorganised ones) are exempt from payment of the part of the cost of the patent which is left in St. Petersburg in the quarter when the organisation was officially registered. Third, disabled private entrepreneurs pay 50% of the annual cost of the patent.
	What are next steps after the registration with the tax authorities and what allocations to the government social extra-budgetary funds are mandatory? After registration with the tax authorities, a private entrepreneur is entitled to open a settlement account in a bank which will inform the tax authorities and the Pension Fund authorities that an account is open ("On additional measures of strengthening the discipline of payment to the RF Pension Fund"). Additionally, after registration with the tax authorities, all private entrepreneurs must make contributions to the RF Pension Fund, the Mandatory Health Insurance Fund, the State Employment Fund and the Social Insurance Fund. (The Law dated 21.12.95 "On tariffs of insurance contributions to the RF Pension Fund, the State Employment Fund, the RF Social Insurance Fund and funds of mandatory medical insurance"). In accordance with Law N 1207-ęś dated 21.12.95, a private entrepreneur shall contribute 5% of his earnings to the Pension Fund. If he uses hired employees, his insurance contribution as an employer shall be 28% of the imputed payroll, including carrying out work on contracts and commissions. In addition, an individual entrepreneur is liable to impute and deduct 1% of contributions to the Pension Fund from the amounts earned by his employees. One should also bear in mind part 1 of Article 6 of the Law "On income taxes payable by private individuals". As an employer, a private entrepreneur must deduct from the amounts earned by his contractor the income tax in accordance with the rates established by the Law dated 24.06.95 "On income taxes payable by private individuals. Contributions to the Social Insurance Fund are made at 5% rate and only if hired employees are used. The tariff of the contribution to the Health Insurance Fund is 3.6% of the private entrepreneur's earnings in accordance with RF Law dated 30.04.93 N 4696. And finally, an employer pays 1.5% of the mandatory contribution rate to the RF Employment Fund.
	A simplified taxation system also offers a simplified system of accounting and reporting for a private entrepreneur. What is it like and what are its advantages? In accordance with the Law "On liability of legal entities for breach of the State Statistical Reporting", all legal entities are subject to mandatory registration with the Government Statistical Reporting Agencies. Private entrepreneurs are entitled to keep their books on the basis of a simplified accounting system and file their annual reports. A citizen has the right to execute primary accounting documents on his own and keep book records based on a simplified accounting system without having professional education in accounting. The book contains: the private entrepreneur's first name, patronymic and surname; the area of business; his permanent residence address; numbers of bank accounts; information on clients; revenues and expenditures. In other words, it is a documentary justification of the entire activity carried out by a private entrepreneur during the whole year. Based on the book, the tax authorities obtain information on the entrepreneur's earnings at the end of the accounting period and determine the cost of the patent for the next calendar year. At the same time, citizens and organisations that use the simplified accounting system must follow the established procedure for keeping the cash book and submitting the required statistical reports.
	Is the tax authority entitled to revise the cost of the patent for the next calendar year? No, the tax authority is not entitled to revise the fixed tax rate to be paid in the form of the annual cost of the patent. Pursuant to RF Ministry of Finance Regulation N 222-ęś dated 29.12.95 "On a simplified system of taxation, accounting and reporting for private entrepreneurs", a respective financial authority in conjunction with tax authorities establish the calculation method of a single tax on the basis of indicators of typical representatives of a certain business. The patent cost is calculated with regard to the average aggregate income of entrepreneurs on the territory on a particular subject of the Federation. Final calculation of the cost of patents for different business activities with regard to the single tax rate is affirmed by the decision of the government on a subject of the RF. Thus, a tax authority can only select the cost of a patent for the next year for a particular entrepreneur on the basis of the type of business and the taxable income. Alternatively, it can issue a new (annual) patent with reference to an application filed by an organisation or a private entrepreneur (when the previous patent has expired) with registration of new record books. However, it does not mean that the growth of entrepreneur's aggregate income does not affect his right to use a simplified taxation system. In this case, a private entrepreneur or an organisation should remember that if they wish to obtain a patent for the next year and be entitled to use a simplified taxation system, their aggregate earnings for the previous 12 months must not exceed 100 thousand MROT.
	What are the consequences of exceeding this limit? If this requirement is not observed, a private entrepreneur or an organisation that uses the simplified taxation system are subject to pay an income tax in a general way. This will be on the basis of their aggregate annual income with the allowable deduction of expenses associated with conducting the business and benefits and deductions provided for in accordance with the RF Law "On income tax payable by private individuals". This regulation is also applied to procurement, trading and supplying businesses for which annual turnover is used instead of earnings. In our opinion, the drafts of decisions of the governments of subjects of the Russian Federation should provide for an opportunity to revise the cost of a patent since aggregate earnings of private individuals from different types of business can change considerably. At present, the Federal Law does not provide for accounting for the difference between the amounts paid for the patent and the amounts determined on the basis of actual earnings (according to the refunding rate of the Central Bank of Russia, as it is provided for the general income taxation system).
	What are the single tax rates in St. Petersburg? At present, the rate of the single tax payable to the St. Petersburg and local budgets is 6.67% of the entrepreneur's earnings. Contributions to the Federal budget total to 3.33%.
	Is the annual cost of the patent the only tax on entrepreneurial activity to be paid by private entrepreneurs in St. Petersburg? The Law, which requires that a private entrepreneur should keep accounting for businesses stated in the patent separate from other businesses, stipulates: if a citizen conducts such businesses, all earnings from them are subject to an income tax as established by existing legislation (an income tax is also payable if there is no separate accounting, and from the payable amount the paid cost of the patent is deducted). If a citizen conducts business within the framework of his patent, its annual cost, which can not exceed 30% of the entrepreneur's aggregate income, is the only payable tax. The cost of the patent is counted in the single tax payable by a private entrepreneur. If an entrepreneur conducts several businesses at the same time, the patent must be paid for separately for each type of business in accordance with the respective cost of each patent. At the same time, with reference to private entrepreneurs and organisations that use a simplified taxation system, the established procedure of payment of customs charges and duties, a tax on purchasing automobiles, license fees and allocations to the state extra-budget funds are also applicable.
	Can a private entrepreneur refuse a simplified taxation system after he has been registered with the tax authority and obtained Form N 8 Patent? Yes, he can. A private entrepreneur must choose one of the taxation, accounting and reporting systems before he is registered with the tax authority and assigned an identification taxpayer number (INN). When changing over to a simplified taxation, accounting and reporting system, a private entrepreneur has the right, if a simplified system is used voluntarily and does not break the established contemporary traditional procedure of paying taxes, to refuse the simplified system and return to tax payment in accordance with the RF Law "On income tax payable by private individuals".
	What is a license for entrepreneurial activity, and what documents are required to obtain such a licence from a licensing agency? In accordance with the licensing procedure established by Governmental Regulation N 1418 dated 24.12.94, a private entrepreneur is entitled to deal in certain types of businesses, for instance, retail trade of excise goods, only if he holds a permit (license). A licence is an official document which allows to deal in the established in it business for the specified term and regulates the way it should be conducted. In order to obtain a license, one should submit to an agency authorised to issue licenses the following documents: an application, copies of foundation papers, and if they are not certified by a notary, the originals of these documents, a certificate of registration with the tax authority and the Pension Fund, a certificate of official registration, a receipt of payment of a license fee, as a rule, - a qualification certificate, and other documents required for a particular type of business. For example, a certificate issued by sanitary and epidemiological inspection that a particular warehouse complies with the sanitary standards, which is essential for protecting the rights of consumers. This fact may affect the quality of products purchased by the public. Usually, a license provided for the term of three years is issued after a receipt of payment for the said license. It permits the holder to conduct a certain type of business and cannot be passed to third parties. At present, there is no statistical data on illegal business, but so-called shadow business certainly exists. We hope that this legal information on the rules of conducting business within the law will shed some light on the vague areas regarding small businesses.