Russia is a large economy and the European Union is Russia's most important foreign trade partner. In the first half of 2013 imports from European countries to Russia increased by 3.6 percent. Every year new foreign companies step into the Russian market to sell their products and services to increase their revenues and profits. This article is intended to give you a rough overview about corporate forms that can be established in Russia and their specifics and can be used as a first orientation on the way of choosing the optimal corporate form for the Russian market.
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.
A decade ago the most popular corporate form chosen by foreign companies was the representative office. They count as permanent establishment of a foreign company within Russia. Representative offices regularly don not have any business activities and are usually used for marketing activities and to initiate contracts with the foreign mother company abroad. Among Russian local business participants the representative office is not very popular nowadays as they consider the foreign company does not prioritize the Russian market sufficiently.
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.
There are 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.
Depending on your products and services and your derived business strategy for the Russian market the one or the other corporate form might more fit into your business plans. Besides of choosing the right legal form, there are other considerations that have to be done before starting your business in Russia and it is recommended to visit a a business consultant in Russia as well.
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.
A decade ago the most popular corporate form chosen by foreign companies was the representative office. They count as permanent establishment of a foreign company within Russia. Representative offices regularly don not have any business activities and are usually used for marketing activities and to initiate contracts with the foreign mother company abroad. Among Russian local business participants the representative office is not very popular nowadays as they consider the foreign company does not prioritize the Russian market sufficiently.
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.
There are 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.
Depending on your products and services and your derived business strategy for the Russian market the one or the other corporate form might more fit into your business plans. Besides of choosing the right legal form, there are other considerations that have to be done before starting your business in Russia and it is recommended to visit a a business consultant in Russia as well.
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