How to Sell Games Abroad While Developing in Russia: A Practical Guide from FUTURA

In the face of sanctions, Russian game developers and publishers find it challenging to generate revenue from international markets. One way to address this issue is to establish a new company abroad that can receive income from foreign users. Roman Motorin and Nazar Volkov, lawyers at FUTURA, shared their guide for App2Top on how to approach this and what to be aware of.

Disclaimer: This article is for informational purposes only and is not a legal, tax, or other professional consultation. Before making decisions based on the information provided, it is essential to consider the individual characteristics of each case and consult with relevant specialists.

Roman Motorin and Nazar Volkov

What should be considered when choosing a country for company registration?

First and foremost, we emphasize that there is no universal solution suitable for every development studio. The choice of any country and the setup of your corporate and contractual structure will depend on your specific circumstances and will require compromises—one country might be more expensive to maintain a company, another might have higher taxes, and a third might have limitations such as restrictions on transferring money to Russia.

Where to open a company is a question dependent on several factors. These need to be clarified before choosing a country for registration. In particular, consider the following:

The passport held by the company's founder. The situation is simpler if there are founders with foreign passports. When establishing companies, particularly opening bank accounts abroad, the citizenship of the founders and directors can play a significant role. In some countries, companies with Russian founders may be unable to open bank accounts, while in others, such companies might face additional compliance procedures, and so forth.
Distribution platforms for your games. For example, if your game is on PC and distributed via Steam, look for a country that has a double taxation avoidance agreement with the U.S.: Valve might withhold tax at source as high as 30% if your country does not have such an agreement.
Do you need a legal entity in Russia? Consider whether tax benefits available to IT companies in Russia (like a 5% profit tax, grants, and benefits from Skolkovo) are necessary for you.
Employee work format. Are your employees ready to register as individual entrepreneurs or self-employed and start working for a foreign company? Or do you need to keep them on employment contracts with a Russian company?
Does Russian revenue cover development costs? If not, and you rely on foreign revenue for this part, remember that only certain countries allow money transfers to Russia. If Russian revenue covers development expenses, there are more options where foreign companies can retain revenue for other purposes.
Relations between your Russian and foreign companies. Legal and corporate relationships between your companies can be organized in various ways:
- make all your companies “sister” companies by distributing shares among the founders;
- create a single holding that owns all companies;
- appoint one founder as shareholder of one group of companies (e.g., Russian ones) and another as owner of a different set (e.g., all UAE companies). Each option has its benefits and drawbacks: some structures protect you from losing control over part of your business or from business splitting, others are more convenient for attracting investments, while others eliminate transfer pricing issues, and so on. It's crucial to consider your needs and these factors when deciding how to organize your business.
Where would you like to store rights to your games? Different companies prefer different approaches regarding where to consolidate rights to their main assets. Some prefer securing rights with a holding in a safe and stable jurisdiction to avoid risks such as nationalization or business takeover, while others prefer keeping rights where tax benefits are offered (as in Kazakhstan). Many in the 2020s prefer not to put all eggs in one basket and distribute game rights across various countries.
Where do founders plan to live in the coming years? The ultimate goal of most companies is to generate income for their founders, whether through creating profit, explosive company growth, or cash-out options. Where founders live, under what visa, and on what residency basis determine their tax residency status. Relocating from Russia to another country usually means becoming a tax resident of that new country. This involves numerous tax implications. For example, if your Russian company pays dividends to you in Kazakhstan, Russia will withhold 10% of these dividends from you. Alternatively, if you live in Armenia, depending on various factors, you might lose 5% or 10% of these dividends to Russian taxes. If you reside in Portugal, you could lose as much as 15%.
Moreover, founders are often required to pay taxes in the country they reside in, adhering to a variety of rules on deductions and offsets. For example, in Kazakhstan, you can offset the withholding tax (10% from the above example) against your personal income tax in Kazakhstan, while in the U.S., it's unlikely. In the UAE, there is no personal income tax at all.

Remember that each case is unique. We listed the critical questions to answer before choosing a country for company registration.

These responses should ideally be communicated to your consultant before they start suggesting options for your company setup.

Currently, among our clients expanding to foreign markets, the most popular choices are the United Arab Emirates, Kazakhstan, and Cyprus.

We will now discuss the key parameters that influence founders’ decisions—taxes and the cost of establishing and maintaining companies—in relation to these countries.

What taxes need to be paid in the UAE, Kazakhstan, Cyprus?

The primary tax aspects to consider when choosing a country for company establishment are the following:

Corporate tax rate. Corporate tax is the main tax payable to the country where the company is registered. This tax is levied at a specific percentage on the company’s profit (i.e., the difference between its income and expenses).
Corporate tax benefits. Many countries aim to attract businesses through various incentives, the most notable for this article being corporate tax benefits.
These tax benefits can vary widely, such as:
- a fixed preferential tax rate that requires special registration or meeting specific formal criteria (a prime example is the reduced 5% rate for companies accredited by the Ministry of Digital Development);
- reducing the taxable profit amount (for example, IP-Box in Cyprus or Qualifying Intellectual Property Income in the UAE). This benefit is flexible—depending on how much development the company does in-house versus outsourcing to affiliates;
- increased deductible ratios for development expenses (e.g., you spent N dollars on development, but you can deduct N*2);
- tax exemption up to a certain amount (e.g., Small Business Relief in UAE) or from certain sources (e.g., Hong Kong's territorial tax system allows exemption of foreign income not connected with Hong Kong business under specific conditions).
Is there a tax on royalties or dividends? Most countries have specific rules for withholding tax on foreign income from royalties, dividends, or loan interest (withholding tax, WHT).
Tax treaties. Withholding tax on royalties, dividends, and interest can be legally reduced if countries have double taxation avoidance agreements—under such treaties, tax rates are usually lowered to preferential rates of 0/5/10%, along with other benefits like the ability to offset foreign withholding tax against national corporate/personal income tax.

The table below outlines these and additional aspects for the UAE, Kazakhstan, and Cyprus.

How quickly and for what cost can you open companies in the UAE, Kazakhstan, Cyprus?*

When planning a budget to establish a company abroad, several factors should be considered:

Costs of setting up the company. Generally, establishing a company involves paying a state fee, contributing share capital, paying a local service provider, opening a bank account for the company, and carrying out several other actions.
Ongoing costs. Beyond registration expenses, there will be ongoing costs to maintain the company—for example, office rent, secretarial services, accounting and tax filing, and more.

The table provides the approximate costs and timescales for opening companies regarding the UAE, Kazakhstan, and Cyprus.

Please note that the parameters in the table are only approximate and are subject to change over time.

They also do not include costs for consultants who assist in opening and operating the company, registration in preferential zones like Astana Hub in Kazakhstan, or travel expenses (e.g., personal presence of founders is required to open a company in Kazakhstan).

*parameters may vary depending on the specific territories within the UAE where the company is registered.

What contracts are necessary to start operating a group of companies?

Once you’ve registered the company and opened a bank account, you’re ready to set up the relationships between your companies.

Often, it is necessary to enter into several contracts between the new company and the one in Russia to:

allocate responsibilities—who handles distribution, who is in charge of development, who holds the rights to your games, and so forth;
grant the new company the right to collect revenue from international platforms;
organize the financial flows between the companies.

In most cases, this can be addressed by publishing agreements that detail the interaction between companies.

Furthermore, contracts need to be established with employees involved in development through the new company. This also applies to other employees interacting with the Russian company (if no contracts have been established yet). These contracts should include provisions stating that all product rights belong to the company.

Remember: the main asset of a growing IT business is its intellectual property. Don't overlook the proper formal accounting of your developments and the distribution of rights. Unfortunately, neglect can lead to negative consequences later on, such as reducing the company's valuation during an investor sale.

What’s next?

Legal issues do not end with the establishment of an international company and the setup of financial flows. Game companies continuously encounter them in product distribution, such as:

What are the regulations on game content and advertising in various countries, and do they need to be followed?
How can you protect your brand from competitors in the market?
Can a game be registered to secure rights?
How do you employ remote workers, and what would be the tax consequences?
How to properly integrate third-party products into your game?
Can I legally create different game versions for different markets?
How to formalize agreements between the company founders?
How to structure an option program to incentivize top employees?
How to manage relations with new investors?
How to properly sell your stake in the company or issue stocks for a new partner?
How to recover a debt from a counterparty?

Paying attention to such legal details will help you avoid numerous additional risks, creating a strong foundation for growth and stability in the international market. Assistance in addressing these questions can be found with specialists at FUTURA, and it is available on the WN Hub platform.