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.
A foreign company wishing to be present in the Russian market can do so by choosing different corporate forms. The most popular choices are the foundation of a representative office, a branch or a subsidiary. With respect to the foundation of a company in Russia you can say: "What you have you can hardly change later." Therefore choosing the optimal legal form from the very beginning is essential to make your business development and strategy fit with the legal structure you chose in the long term.
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 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.
Representative offices, branches and subsidiaries are considered permanent taxable establishments in Russia. They need to calculate taxes for payroll, determine social security fees, issue financial accounting statements at the end of each quarter and another 15 reports that need to be sent to various 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.
Prior to establishing a company in Russia there are several other factors that should be considered before making the final decision for the establishment of a business in Russia. You also might want to discuss your case with a Russia business consultant.
A foreign company wishing to be present in the Russian market can do so by choosing different corporate forms. The most popular choices are the foundation of a representative office, a branch or a subsidiary. With respect to the foundation of a company in Russia you can say: "What you have you can hardly change later." Therefore choosing the optimal legal form from the very beginning is essential to make your business development and strategy fit with the legal structure you chose in the long term.
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 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.
Representative offices, branches and subsidiaries are considered permanent taxable establishments in Russia. They need to calculate taxes for payroll, determine social security fees, issue financial accounting statements at the end of each quarter and another 15 reports that need to be sent to various 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.
Prior to establishing a company in Russia there are several other factors that should be considered before making the final decision for the establishment of a business in Russia. You also might want to discuss your case with a Russia business consultant.
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