Russia is the largest European foreign trade partner. During the first six months of year 2013 imports to Russia grew by 3.6 percent. Year by year new companies enter the Russian market to sell their good and services with the aim to increase profits and revenues. With this article we want to give you a first rough overview about the mostly used corporate forms for establishing a business in Russia. It shall give you an orientation which path to go towards your new company in Russia.
There are different corporate forms a foreign company may choose to become present in the Russian market. Namely these are the representative office, the branch and the subsidiary. As Russian legal system and bureaucracy is rather complicated the proper legal form should be chosen with a long term view because it will be difficult to change the corporate form later on.
At the end of the century the representative office foreign companies chose mainly the representative office for market entry. By Russian law representative offices are conceived a taxable long-term establishment of a foreign company in Russia. They are usually used to execute marketing activities in Russia and arrange for agreements between a Russian local firm and the mother company abroad. Usually representative offices do not execute business activities like import and trade. Russian local businesses perceive the representative office as giving only a minor priority of the foreign mother to the Russian market. This and a large bureaucracy related to currency control make the representative office rather unpopular between local firms.
The second corporate form here to mention is the branch. As the representative office the branch is not a separate legal entity but is a part of the foreign company. Branches usually have business activity and they can import goods to execute trade activities in Russia. As representative offices and branches are considered as a part of a foreign company they are subject to a currency control mechanism. All payments for goods and services to local businesses exceeding USD 5.000 require comprehensive documentation to be issued by the Russian company. This makes representative offices and branches quite unpopular.
The most popular choice of corporate establishment in Russia is the subsidiary. The subsidiary can be established as a limited liability company (LLC) or joint stock company (JSC). Usually the LLC is the preferred variant as it is easy to register with the local authorities and the capital requirements are very low (RUB 10.000 or USD 350). The subsidiary is a company under Russian law. It can execute full business activity, import goods and is not subject to the currency control mechanism. The LLC is the highest acknowledged corporate form among Russian business participants.
With respect to taxes the three legal forms are similar. Representative offices and branches are considered as a taxable permanent establishment in Russia. Therefore they have to calculate payroll tax and social securities fees and furthermore need to issue financial accounting statements at the end of each quarter and up to 15 other reports to be issued to different Russian authorities.
The start-up financing of representative offices and branches is easy as are considered as foreign companies. Cash transfers can be done without complication. However, the subsidiary as a corporate form by Russian law is subject to currency control. Cash transfers and payments from outside Russia need to have a legal reason like loan- or dividend payment. They also take much longer as documents have to be prepared for the currency control and banks have to check those. Incorrect documents may lead to a reject of cash transfers.
Which corporate form to chose depends pretty much on the business activities you plan in Russia, be it active trade-, service- or simply marketing activities. You also should arrange a meeting with a Russian business consultant as there are a number of other considerations to be done before deciding registering your company.
There are different corporate forms a foreign company may choose to become present in the Russian market. Namely these are the representative office, the branch and the subsidiary. As Russian legal system and bureaucracy is rather complicated the proper legal form should be chosen with a long term view because it will be difficult to change the corporate form later on.
At the end of the century the representative office foreign companies chose mainly the representative office for market entry. By Russian law representative offices are conceived a taxable long-term establishment of a foreign company in Russia. They are usually used to execute marketing activities in Russia and arrange for agreements between a Russian local firm and the mother company abroad. Usually representative offices do not execute business activities like import and trade. Russian local businesses perceive the representative office as giving only a minor priority of the foreign mother to the Russian market. This and a large bureaucracy related to currency control make the representative office rather unpopular between local firms.
The second corporate form here to mention is the branch. As the representative office the branch is not a separate legal entity but is a part of the foreign company. Branches usually have business activity and they can import goods to execute trade activities in Russia. As representative offices and branches are considered as a part of a foreign company they are subject to a currency control mechanism. All payments for goods and services to local businesses exceeding USD 5.000 require comprehensive documentation to be issued by the Russian company. This makes representative offices and branches quite unpopular.
The most popular choice of corporate establishment in Russia is the subsidiary. The subsidiary can be established as a limited liability company (LLC) or joint stock company (JSC). Usually the LLC is the preferred variant as it is easy to register with the local authorities and the capital requirements are very low (RUB 10.000 or USD 350). The subsidiary is a company under Russian law. It can execute full business activity, import goods and is not subject to the currency control mechanism. The LLC is the highest acknowledged corporate form among Russian business participants.
With respect to taxes the three legal forms are similar. Representative offices and branches are considered as a taxable permanent establishment in Russia. Therefore they have to calculate payroll tax and social securities fees and furthermore need to issue financial accounting statements at the end of each quarter and up to 15 other reports to be issued to different Russian authorities.
The start-up financing of representative offices and branches is easy as are considered as foreign companies. Cash transfers can be done without complication. However, the subsidiary as a corporate form by Russian law is subject to currency control. Cash transfers and payments from outside Russia need to have a legal reason like loan- or dividend payment. They also take much longer as documents have to be prepared for the currency control and banks have to check those. Incorrect documents may lead to a reject of cash transfers.
Which corporate form to chose depends pretty much on the business activities you plan in Russia, be it active trade-, service- or simply marketing activities. You also should arrange a meeting with a Russian business consultant as there are a number of other considerations to be done before deciding registering your company.
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