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.
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 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.
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 financing of representative offices and branches at start-up stage differs from the financing of subsidiaries. Representative offices and branches can be financed easily from the mother company abroad as they are considered foreign establishments and are not subject to currency control. However, cash flows between the foreign mother company and the subsidiary are subject to currency control and there has to be legal reasoning like re-payment of loans or payment of dividends.
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.
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.
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 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.
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 financing of representative offices and branches at start-up stage differs from the financing of subsidiaries. Representative offices and branches can be financed easily from the mother company abroad as they are considered foreign establishments and are not subject to currency control. However, cash flows between the foreign mother company and the subsidiary are subject to currency control and there has to be legal reasoning like re-payment of loans or payment of dividends.
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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Learn more about start-up of a business in Russia. Stop by the site of Rusconsult24 where you can find out all about our consulting-, company registration- and bookkeeping services in Russia.
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