Many Russian citizens carrying out activities that bring them profit are not properly registered with regulatory authorities, and therefore do not make mandatory payments to the budget. The legislator qualifies this act as “illegal business activity.” What is the threat to a “shadow entrepreneur” from such a violation of the law?
Illegal entrepreneurship: essence and content of the concept
According to the provisions of the Civil Code of the Russian Federation, entrepreneurial activity is understood as any activity systematically carried out by a person at his own risk with the aim of making a profit. The legislator establishes the need for a citizen performing such actions to obtain the status of an individual entrepreneur or a legal entity - an organization of any organizational and legal form ().
Illegal entrepreneurship is a business activity conducted by a person or organization in violation of the requirements established for the registration procedure by current legislation.
Illegal business activities include:
- activities aimed at regularly generating profit, carried out without registration with the tax authorities;
- conducting business in areas not registered by this entrepreneur as core areas with the regulatory authority;
- lack of a license to perform work/provide services, the licensing of which is mandatory;
- deliberate distortion of registration information submitted when creating an individual entrepreneur or legal entity.
One of the main signs of illegal entrepreneurship is the systematic nature of activities aimed at making a profit. Thus, the sale of a car by its owner cannot be qualified as an illegal business. Renting out your own apartment or house cannot be considered illegal business.
Types of liability for illegal business
The legislator provides several types of liability for persons engaged in illegal business. These include:
Administrative responsibility
Occurs by decision of the magistrate's court on the basis of a case of administrative offense initiated by the prosecutor. Such liability occurs if the entrepreneur’s proven illegal income does not exceed 250 thousand rubles. Based on Part 1 of Art. 14.1 of the Code of Administrative Offenses of the Russian Federation, the fine for this act ranges from 500 to 2,000 rubles.
Criminal liability
Occurs for persons engaged in illegal business on the basis of a court decision in a case initiated by the prosecutor. In this case, the amount of income received as a result of this activity must exceed 1,500 thousand rubles (large amount) or 6 million rubles (especially large amount). Depending on the amount of income, the punishment is differentiated:
- for a large amount: a fine of up to 300 thousand rubles, or compulsory labor for up to 480 hours, or arrest for up to six months;
- for a particularly large amount: a fine of 100 to 500 thousand rubles, or forced labor for a period of up to 5 years, with a fine of up to 80 thousand rubles (or without it). The same punishment is applied to a group of persons carrying out illegal business activities by prior conspiracy.
Tax liability
The Tax Code establishes liability for conducting business activities without registration (even if documents for registration have already been submitted, but no decision has been made on them, and a certificate of state registration has not been issued).
The amounts of fines are established in Article 116 of the Tax Code of the Russian Federation:
- for violation of the established deadline for filing an application for registration: 10 thousand rubles;
- for carrying out activities without tax registration: in the amount of 10% of the amount of income received, but not less than 40 thousand rubles.
Of course, illegal entrepreneurship harms the country's economy. Millions of rubles in unpaid taxes are not the only reason for outlawing such activities.
Consumers of low-quality services and goods also suffer, losing not only money, but risking their health.
What does commercial activity mean?
To answer the question of what entrepreneurial activity is, you should refer to Article 2 of the Civil Code. It determines that a person sells goods, provides services, and rents out property systematically for the purpose of making a profit.According to Article 23 of the Civil Code, such activities can be carried out from the moment of state registration as an entrepreneur or registration of a legal entity.
For example, a one-time sale of any property is not considered entrepreneurship. If a person does not receive profit from his activities (for example, a person rents out an apartment to his relatives without payment), then this is also not entrepreneurship. The issue of systematicity in legislation has not been fully clarified; in each specific case, the court individually determines whether it takes place.
Administrative responsibility and entrepreneurship: grounds for their occurrence
Russian legislation contains not only criminal, but also administrative liability for engaging in illegal business. Article 14.1 of the Code of Administrative Offenses establishes liability for entrepreneurship without a specific legal status.Only individual entrepreneurs or legal entities can engage in commercial activities; otherwise, entrepreneurs face a fine ranging from 500 to 2000 rubles.
The second part of the article contains responsibility for those who engage in business without a license, if one is required (for example, a license is needed to sell alcohol, medicines, etc.). The amount of the fine depends on the subject of the offense:
- Individuals pay a fine of 2000 - 2500 rubles;
- From 40,000 to 50,000 rubles are imposed on legal entities;
- From 4000 to 5000 rubles for officials.
Part 3 of Article 14.1 of the Code of Administrative Offenses imposes liability on those persons who have a license but have violated any of its rules (for example, an alcohol seller sells alcohol in a kiosk or stall, and not in a store). Here, as in the previous part, the amount of the fine depends on the subject:
- from 1500 to 2000 rubles for citizens - individuals;
- 3000 - 4000 rubles for officials;
- 30,000 - 40,000 rubles for legal entities (business entities).
There are penalties for this:
- officials and individuals – within 4000 - 5000 rubles;
- legal entities - from 40,000 to 50,000 rubles.
The fine in both cases can be replaced by suspension of business activities for up to 90 days.
Russian legislation is quite loyal to the procedure for establishing legal entities, as well as acquiring the status of an individual entrepreneur. For example, the minimum fee for registering an LLC is 10 thousand rubles; even one person can establish it.
This state policy is aimed at ensuring that business comes out of the shadows and becomes legal.
Criminal prosecution: violators face not only fines
Part 1Article 171 of the Criminal Code contains the same offense as Parts 1 and 2 of Article 14.1 of the Code of Administrative Offences, with the difference that illegal entrepreneurship additionally:
Caused major damage to citizens, organizations, and the state;
Or it brought large profits to its owner.
Possible penalties under the article are as follows:
- A fine of up to 300,000 rubles;
- The amount of income, for example, the salary of the convicted person for 2 years;
- Mandatory work within 480 hours;
- Arrest for up to 6 months.
Contains a qualified crime Part 2 of Article 171 of the Criminal Code, when the same illegal business:
1. Was carried out by an organized group;
2. His activities were accompanied by the receipt of income (net profit) in an especially large amount (more than 6 million rubles - note to Article 169 of the Criminal Code).
Punishments for crimes here are noticeably stricter:
- Fine in the range of 100,000 - 500,000 rubles;
- The amount of income, for example, the salary of the convicted person for a period of 1 to 3 years;
- Up to 5 years of forced labor;
- Up to 5 years of imprisonment with simultaneous payment of a fine of up to 80,000 rubles, or in the amount of 6 monthly earnings, or simply imprisonment for up to 5 years.
Every person has to enter into business relationships from time to time.
Even if a person is far from business, he can be involved in small business, providing services, selling goods of his own making, or receiving rent for the use of his property. Naturally, such small work, although formally considered entrepreneurship, given its insignificance, is usually not considered by law as a business activity, and, accordingly, there is no requirement to pay taxes on income. However, some types of earnings are taxed, but not everyone knows about it. It is worth recalling that ignorance of the laws does not exempt you from responsibility for illegal actions.
Illegal business activities lead to administrative, criminal or tax liability. Entrepreneurship is defined by two main criteria. Firstly, it is systematic training, and secondly, making a profit. The income can be anything, even a penny; the main criterion is to receive payment in cash. In this case, natural calculations are not taken into account.
Thus, both huge companies engaged in international trade and a grandmother selling vegetables grown in her garden are engaged in business; Before the law, both subjects are equal. Moreover, if the grandmother exchanged vegetables, for example, for stewed meat, then this would not be considered as income and, accordingly, would not require payment of income tax.
Administrative responsibility
The lowest degree of responsibility for illegal business practices occurs with administrative influence. The Administrative Code specifies the maximum fine for this offense in the amount of up to 2,000 rubles inclusive. The smallest fine is 500 rubles. When imposing a fine, it is taken into account whether the law is being violated for the first time or whether it is being violated repeatedly. Also, the size of the fine depends on what type of offense was committed. The Code of Administrative Offenses defines three types of offenses:
- Violation of licensing rules.
- No license.
- Work without registration.
The specific punishment is determined by the court. Providing services or selling goods without a license are considered more serious offenses than failure to register a business activity. After all, poorly produced goods or services provided can harm the health, life or well-being of people. The court also determines guilt for the offense, preventive measures, penalties and other penalties. The court can establish a measure of responsibility - both at the place of residence of the offender and at the place of the offense.
Bodies such as the tax service, law enforcement agencies, antimonopoly services, prosecutors, employees of consumer protection agencies and trade inspectorates have the right to identify facts of illegal business activities. Punishment for illegal activities cannot occur two months after the discovery of the offense, if the discovered fact has not been recorded and brought to court.
Criminal liability
If illegal business activities have been recorded more than once, then the offender may face more serious liability, even criminal liability. Possible penalties are indicated in Article 171 of the Criminal Code. Criminal liability may arise in three cases:
- as already mentioned, in the case of systematically recorded illegal business activities;
- in case of receiving particularly large amounts of income from illegal commercial activities;
- when significant damage is caused to citizens of the Russian Federation, organizations and state interests in the course of illegal business activities.
Profit received in the course of illegal business is considered sufficient to incur criminal liability if the amount exceeds 250,000 rubles. Facts of receiving large incomes, causing damage to consumers and systematically engaging in illegal business activities are established during special inspections. If, as a result of illegal business activities, material damage in the amount of up to a million rubles was caused, then the maximum fine is 300,000 rubles, and imprisonment for up to six months is also possible.
Protection from illegal business activities
If you receive damage from illegal business activities, you can initiate the application of enforcement measures against violators. To do this, you should contact government agencies and services empowered to initiate investigations into cases of illegal business activities. There are several such services, as already mentioned.
Stable and regular employment in one activity or another that generates income belongs to the field of entrepreneurship. This area of activity is clearly regulated by government documents, legislative acts and by-laws in the field of administrative, tax, and criminal law.
Definition of business activity
Dear reader! Our articles talk about typical ways to resolve legal issues, but each case is unique.
If you want to know how to solve exactly your problem - contact the online consultant form on the right or call by phone.
It's fast and free!
The most complete and comprehensive definition is the wording proposed by Article 2 of the Civil Code of Russia. In this case, it is generating income through the use of your own skills, abilities and initiative.
Legislative documents not only form the definition itself, but also describe the main features that are characteristic of entrepreneurship.
The letter of the Ministry of Finance No. 03-05-01-05/3 dated January 14, 2005 stipulates the following implementation of its own initiative:
- Activities for the production or acquisition of property with the goal of subsequently extracting profits from all types of its use and subsequent sale.
- Carrying out business accounting of transactions related to transactions.
- Logical and financial relationship of the entire volume of transactions completed during the reporting period.
- The presence of strictly fixed stable connections between the seller, buyer and other counterparties, that is, a developed stable commercial network.
- The mandatory presence of business risk, consisting in the probable occurrence of events, the result of which is the impossibility of further work.
The presence of all these points confirms the engagement in entrepreneurial activity, which requires registration in accordance with the law.
Wrongful conduct of business entails serious liability that you need to be aware of.
Types of liability for illegal activities
Civil law
The main document of the state is the Constitution, which regulates the rights and obligations of every citizen. That is, employment is stipulated for the free receipt of income based on the application of abilities and one’s own property for entrepreneurial and any other economic activity that does not violate the letter of the law.
The domestic structure of building relations in the business sphere is distinguished by the fact that its main positions are regulated by the Civil Code. Article 2 of the Civil Code accurately describes that exclusively civil positions form the circle of relations between entities having financial relationships occurring in the economic space.
Domestic legal scholars clarify the positions of civil and legal authorities in the implementation of civil and legal liability for carrying out illegal business activities. At the same time, responsibility lies in the plane of civil law norms that regulate a self-sufficient system of social relationships.
The responsibility of a citizen in this offense should be considered derivative from the combination of administrative or criminal. This precedent arises as a consequence of the private appeal of victims to the courts.
Administrative
Admin. The Code of the Russian Federation in paragraph 1 of Article 14 defines the positions at which liability for illegal conduct of business occurs.
The most important points are the following:
- Conducting a business that is not registered by law, a legal entity or individual is subject to a fine of 500 to 2000 rubles.
- Illegal licensed activity without obtaining a permit. Fine 2000 – 2500 rubles. and confiscation of products, goods, raw materials for individuals. Officials are subject to a fine of 4,000 – 5,000 rubles. with confiscation, legal entities are fined in the range of 40,000 - 50,000 rubles. with subsequent seizure of products, goods, raw materials.
- Violation of the conditions stipulated by the license, from 1500 – 2000 rubles, 3000 – 4000 rubles, 30000 – 40000 rubles. respectively.
- Gross violations of business, operations with a specific licensed type of activity provided for by a special license. Fines range from 4,000 to 50,000 rubles or suspension of work for 90 days.
Tax
Tax penalties are allowed to be applied exclusively by the courts. This type of penalties is determined and regulated by domestic legislation. The Tax Code implies liability in the form of fines and more serious penalties, which is regulated by Art. 122. Delay in payment of taxes is fraught with the accrual of penalties and fines in the amount of 20% of the accrued amounts.
Clause 1.2 Art. 116 of the Tax Code provides for the following violations:
- The deadlines for filing an application for tax registration were not met. In this case, the entrepreneur worked until registration, but the person registered before the inspection. Subject to a fine of 10,000 rubles.
- There is no work outside of registration and during the inspection period. Subject to a fine of 10% of total income, not less than 40,000 rubles.
Criminal
Criminal liability is provided for in Article 171 of the Criminal Code of the Russian Federation.
Here are the exact regulations and scope of responsibility to which citizens who receive income without proper registration are subject:
- business activity without registration;
- violation of state registration rules;
- submission to state registration authorities of documents from legal entities and individuals with knowingly false information;
- business activity under licensing without such special permission;
- violation of licensing requirements under the conditions that the act caused major damage to citizens, organizations or the state;
- activities that resulted in income on a large or especially large scale;
Criminally, it is punishable by a fine of up to 300,000 rubles, or performing compulsory work for a period of 180 to 240 hours, or arrest for 4 months. up to six months.
In aggravating circumstances, such as the formation of organized groups with the extraction of high incomes, a fine is imposed from 100,000 to 500,000 rubles. or imprisonment for up to 5 years.
General judicial practice
Nowadays, very often in judicial practice there are precedents when acts that are completely not such are subject to criminal or tax prosecution. A trivial situation is when a person has a dacha or a personal plot and is engaged in growing agricultural products there for his own consumption.
He sells the resulting surplus on the market or to neighbors, and certain competent authorities regard this as unauthorized entrepreneurship. In the judicial practice of lawyers, they use the Resolution of the Plenum of the Armed Forces of the Russian Federation dated November 18, 2004, No. 23.
Here are the conditions for registration, violations, conducting business activities and other nuances:
- According to the explanations of the PVS, the main thing in deciding how legally a person receives income is the initial goal, that is, the signs of regularity and its focus on generating income.
- In addition, courts often consider activities without a license, production of products without special documents, and in the manufacture of pharmaceuticals - a danger to the life and health of buyers.
- A special category of court cases is the business activities of civil servants and other persons who, due to their duties, are prohibited from engaging in banking, lawyering or insurance activities.
How to legitimize?
In order not to risk your money, your nerves, or your freedom, you need to legalize your desire to do something at your own discretion. Today this procedure is not particularly difficult. Thanks to the unification of all document flow, this procedure is available to almost every adult citizen.
In order to clarify the scope of the entire package of necessary documentation, you should contact the local government authorities, where the registration process begins.
After receiving the registration certificate, you must submit an application to the local tax authorities within the period established by law. Obtaining a certificate of registration requires further registration with extra-budgetary funds. Modern communication technologies make it possible to legalize on the websites of all listed organizations online and then receive original documents.
Registration of IP/LLC
There are significant differences in the choice of legal form for LLC and LLC.
An individual entrepreneur has many advantages:
- Simplified system of taxation and tax reporting.
- Easier handling of cash.
- No need for detailed accounting.
- The legislation stipulates that there is no need to accrue and pay taxes on property and profits.
In this case, it is necessary to decide on the legal address, taxation system, and select types of economic activity according to OKVED. The registration process takes five working days, after paying the state fee and submitting the package of documents necessary for registration.
Legislative registration of an LLC requires a larger number of documents, which include protocols, Articles of Association, confirmation of ownership of share property, and the payment of the required portion. At the same time, full-fledged accounting and personnel records will be carried out, and tax reporting will be comprehensive, including the calculation and payment of income taxes and VAT.
The required documents for individual entrepreneurs are:
- Original and copy of passport and certificate, in some cases, a certificate of registration of a citizen at the place of residence is required.
- Completed forms as an attachment to the application, the actual application and receipt for payment of the state fee, which are submitted to the business registration department.
This is the minimum package that will make you the owner of a legitimate business in five working days.
A large number of our compatriots, wanting to improve their financial situation, begin to engage in “business” in parallel with their main job. This is often the resale of certain goods, the provision of small services (plumbing work, repair of household appliances, etc.), taxation, construction work, and, sometimes, the manufacture of certain goods. If such activities are systematic, and you are not registered as an individual entrepreneur, then be prepared that sooner or later the “competent authorities” will come to you. And here you can expect a fine (from 500 rubles to 500,000 rubles or more) and even criminal liability. Sometimes people who want to open their own business decide to work a little “in the dark”, evaluate profitability before registering, and then get involved and don’t pay taxes. It's a slippery slope. Thousands of people slipped on it. To understand where the risk is, we will help you understand the liability for illegal business activity and what illegal business activity is.
Let us immediately exclude from the discussion such criminal activities as the manufacture and sale of drugs, unlicensed production of alcoholic beverages or medicines. Everything is clear here and punishment will definitely come sooner or later. But sometimes people violate the law out of ignorance (although, as you know, ignorance of the laws does not exempt from responsibility) or the principle “in general it’s impossible, but a little bit possible.” This is what we will discuss.
So, in order.
Illegal entrepreneurship is, in general terms, the systematic receipt of profit from the sale of goods and services of the same type.
Let's explain what it is. If you sold your grandmother's (kingdom of heaven) apartment within one year, and then sold your old car and collection of postage stamps, then there will be no claims against you. Even if you regularly sell your old items at online auctions, this is not a business activity. If you overhauled the engine of a neighbor in a cooperative garage for money, and then (also for money) changed the plumbing for another neighbor, then there will be no complaints against you. But if you regularly repair cars and have also hung a sign “Auto Mechanic and Auto Electrician” on your garage or advertise yourself (on the Internet, an ad on a fence, or by distributing leaflets) as an experienced specialist (a qualified plumber, builder), then this is already an entrepreneurial activity that, if it is not registered, it is illegal.
Many people believe that they can avoid conflicts with the law by registering as an individual entrepreneur. This is true, but you need to take into account the nuances. If, for example, you are registered as an individual entrepreneur providing car repair services, but also sell spare parts, then such trade is illegal and you face a fine for illegal business activity. In addition, many activities require special permission, license or patent.