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 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. After 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 a 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 a 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 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 prioritized corporate form among foreign companies and Russian local businesses is nowadays the subsidiary, which can exist in the form of a Limited Liability Company (LLC) or Joint Stock Company (JSC). The LLC is the preferred form between those as it has only small capital requirements (RUB 10.000 or USD 350). Another positive fact is that the subsidiary is not subject to currency control. It is, therefore, very welcome for doing business among local Russian firms.
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 security 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.
There is big differencing with regards to the start-up financing of representative offices or branches and subsidiaries. Representative offices and branches are uncomplicated from the currency control point of view as they are considered as foreign companies. However, subsidiaries, being a company by Russian law, are subject to currency control. Payments from and to abroad for financing purposes require a legal reason and may take several working days, as the bank executing the transfer needs time to check all documents.
Prior to establishing a company in Russia there are several other factors that should be considered before making a final decision for the establishment of business in Russia. You also might want to discuss your case with a Russia business consultant.
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. After 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 a 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 a 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 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 prioritized corporate form among foreign companies and Russian local businesses is nowadays the subsidiary, which can exist in the form of a Limited Liability Company (LLC) or Joint Stock Company (JSC). The LLC is the preferred form between those as it has only small capital requirements (RUB 10.000 or USD 350). Another positive fact is that the subsidiary is not subject to currency control. It is, therefore, very welcome for doing business among local Russian firms.
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 security 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.
There is big differencing with regards to the start-up financing of representative offices or branches and subsidiaries. Representative offices and branches are uncomplicated from the currency control point of view as they are considered as foreign companies. However, subsidiaries, being a company by Russian law, are subject to currency control. Payments from and to abroad for financing purposes require a legal reason and may take several working days, as the bank executing the transfer needs time to check all documents.
Prior to establishing a company in Russia there are several other factors that should be considered before making a final decision for the establishment of business in Russia. You also might want to discuss your case with a Russia business consultant.
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