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.
About 10 years ago the representative office was the most popular choice for foreign companies opening a business in Russia. Representative offices are considered as a permanent establishment of a foreign company in Russia. They are no Russian companies and usually have no business activity. Nowadays the perception of the local market participants is that a foreign company gives the Russian market only a minor priority and is not sure about the long-term business strategy in Russia.
Another corporate form available is the branch. As well as the representative office the branch is conceived as a foreign entity established in Russia. The branch can have business activities like trade, service and import of goods. The branch is also subject to the currency control mechanism. That local firms doing business with the branch or representative office must issue comprehensive documentation for deals exceeding value of USD 5.000. Because of this local Russian firms avoid to do business with branches and representative offices, if possible.
The most popular corporate form in terms of business appearance and operability is the subsidiary, which can appear as a Limited Liability Company (LLC) or Joint Stock Company (JSC). Between those the LLC is regularly the preferred form as it is easy to register and the capital requirement is low (RUB 10.000 or USD 350). The subsidiary is a company by Russian law and therefore not subject to currency control. It can import goods and have trade activity. Between local businesses the subsidiary is the preferred corporate form to do business with.
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.
About 10 years ago the representative office was the most popular choice for foreign companies opening a business in Russia. Representative offices are considered as a permanent establishment of a foreign company in Russia. They are no Russian companies and usually have no business activity. Nowadays the perception of the local market participants is that a foreign company gives the Russian market only a minor priority and is not sure about the long-term business strategy in Russia.
Another corporate form available is the branch. As well as the representative office the branch is conceived as a foreign entity established in Russia. The branch can have business activities like trade, service and import of goods. The branch is also subject to the currency control mechanism. That local firms doing business with the branch or representative office must issue comprehensive documentation for deals exceeding value of USD 5.000. Because of this local Russian firms avoid to do business with branches and representative offices, if possible.
The most popular corporate form in terms of business appearance and operability is the subsidiary, which can appear as a Limited Liability Company (LLC) or Joint Stock Company (JSC). Between those the LLC is regularly the preferred form as it is easy to register and the capital requirement is low (RUB 10.000 or USD 350). The subsidiary is a company by Russian law and therefore not subject to currency control. It can import goods and have trade activity. Between local businesses the subsidiary is the preferred corporate form to do business with.
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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