7 Common Mistakes of Accounting By Newbies in Russia

When you decide to do a company registration in Russia, there are many detailed provisions and rules.

This is why you must follow proper accounting procedures that are very important for navigating the intricacies of conducting business in Russia and ensuring long-term success.

That is why you must know what generally happens when businesses make these mistakes.

We have compiled 7 common accounting mistakes new businesses often make in Russia and practical solutions for avoiding them.

If we become aware of these loopholes and adopt effective strategies, we are confident that your LLC registration will flourish within this fantastic market.

7 Common Accounting Mistakes

The most important part comes next, where we address the common mistakes as well as their remedies:

Mistake 1: Combining Personal And Business Finance

Should you combine your finances with business dealings, it is advisable to remember that this could lead to inaccurate record keeping. Apart from that, it becomes difficult for you to trace income, expenses, and profitability later on.

For example, suppose the above occurs during tax season when filling out Form 1040 or Schedule C filings. In that case, it may cause tax complications and potential personal liability concerns due to financial troubles engulfing the enterprise.

Mistake 2: Not Keeping Accurate Records

In a complicated Russian market, businesses require accurate bookkeeping.

Tax compliance requires these records to be correct so that the filing of exact returns without penalizations can happen.

To sum up, this information is essential for financial analysis by showing the financial health of a company and its weaknesses and strengths.

Suggestion: Apply Russian-specific accounting software. These solutions are tailor-made to suit the local conditions, including simple user interfaces, automated task performance, and meeting regulatory requirements.

For example, if you prefer using another company’s expertise in managing your accounts instead of employing more personnel, look at the best accounting in Russia, including income statements, receipts, and expense tracking.

Mistake 3: Not Understanding Russian Tax Regulations

The tax regime is famously labyrinthine, full of dues and stipulations that may make opening an LLC in Russia difficult for newcomers. Non-compliance with this law can have serious consequences, such as hefty fines, penalties, or even the closure of a company.

Key Tax Concepts: New enterprises in Russia should be aware of:

A value-added tax (VAT) is levied on the consumption of goods and services at every stage of production and distribution based on the value added. The regular rate of VAT in Russia stands at 20% today.

Income Tax: Businesses in Russia pay corporate income tax at a flat rate presently at 17%.

Social Contributions: Employers in Russia are required to make mandatory social contributions towards the workers’ retirements, medical care, and other forms of social security. These payments are often calculated as a percentage of the employee’s earnings and are commonly known as Unified Social Tax (UST).

Solution: It might be highly recommended that you consult a certified Russian accountant or a tax advisor to ensure compliance without complications due to taxation. They can explain the intricacies of tax legislation, advise on the most efficient ways to reduce your taxes and help you correctly file your income documents.

We also suggest you read all about basic tax and tools on the official website of the Russian Federation’s Federal Tax Service so you can stay informed.

Mistake 4: Not Staying on Top of Invoicing

You must invoice on time for your business to have a safe cash flow. This is because late payments from customers due to delayed invoices will create a gap in cash flow, affecting your ability to meet obligations. A report by Intuit indicated that in 2023, 42% of small businesses experienced clients who made late payments, emphasizing this issue’s prevalence.

Essential Invoice Requirements: Russian invoices should contain the following details:

• Issue Date
• Company information: Name, address, and TIN
• Customer data: Name, address, and TIN
• The purpose of goods or services rendered
• Number and price for each item
• The total amount payable
• Payment conditions

Solution: Regarding accounting services, top providers offer invoicing best practices to simplify the process, minimize errors, and ensure that invoices are delivered promptly.

Mistake 5: Neglecting Payroll Obligations

Employers in Russia need to adhere to the country’s labor laws on salaries, deductions, and social charges to avoid legal and financial liabilities. Failure to do so might result in penalties, fines, or even legal suits.

Understanding the Unified Social Tax (UST): It is a mandatory social security contribution imposed on all employers in Russia and covers such contributions as retirement pensions, healthcare, etc. The current UST rate in Russia is 30.2% of an employee’s gross earnings, with the employer contributing a share while the employee takes care of the balance through payroll deductions.

Solution: Ensure compliance by:

• Outsourcing payroll processing to a specialized company to ease your managerial burden and ensure accuracy.
• Use of payroll software designed specifically for the Russian market.
• If you decide to manage payroll yourself, consult a professional accountant or tax consultant who can assist you in understanding tax rules and calculating employee remittances.

Mistake 6: Ignoring Accounting Deadlines

Meeting the tax filing deadlines and giving out correct reports is fundamental to avoid penalties and the possible collapse of a business. Late filings may lead to huge fines and interest charges, while incorrect reports may raise red flags or even prompt audits.

Key Filing Deadlines: Below are some expected deadlines for new businesses in Russia, although specific ones vary depending on tax type and structure of business;

• VAT Return: This should be done by the 25th day of the month following the period reporting.
• Income Tax Return: Usually, it is every year, with a deadline of April 30th for the following year.
• UST Reports: These are submitted monthly and are due every 15th of the following month.

Solution:

• Hire a professional accountant who ensures timely submission at all costs and complies with all tax deadlines or obligations.
• Use accounting software with timely warning signs of due dates and automated document preparation functionality, including filing returns online.
• Subscribe to official tax newsletters or check their websites regularly for deadline updates.

Mistake 7: Not Utilizing the Best Accounting Servies in Russia

Once incorporated, new businesses in Russia often have to focus on the complexity and intensity of time required for proper accounting. Attempting to do everything by yourself can result in errors, thus leading to missed deadlines and eventually impeding your business’s progress.

Benefits from Accounting Services and Software:

• Automation saves time – Accounting service providers utilize top software that automates repetitive tasks like data entry, calculations, and report generation, among others, allowing you to concentrate on the core activities of your business.
• Increased accuracy – The software they use can significantly mitigate the chances of human error when doing calculations and data entry, thus ensuring more accurate financial records and reports.
• Simpler data analysis – Many modern-day accounting service operators use applications that come with insightful dashboards plus reporting tools so you can quickly examine your financial performance, identify trends, and make informed business decisions.

Solution: Research various Russian accounting service vendors and software options. Consider your business size, budget, and specific needs as you choose one.

You can use some of the best accounting services like LowLands, Awara, Konsu, 1C Accounting, FBK Grant Thornton, and PKF Audit and Consulting.

Let’s Wind up!

So for all the newbies, it is our advice to get help handling their accounting in Russia.

With this, you will stay clear about the above-mentioned common errors. Plus, by accepting the right accounting procedures and practices, you will be able to run your business smoothly, observe regulations, and create a thriving business ahead.

So, do your research, and take the help of a professional, as they will guide you in the best way possible for your accounting needs.