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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.
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 a 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 a branch or representative office must issue comprehensive documentation for deals exceeding value of USD 5.000. Because of this local Russian firms avoid doing 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). A 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 for doing business.
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 as 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 to register 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 a 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 a branch or representative office must issue comprehensive documentation for deals exceeding value of USD 5.000. Because of this local Russian firms avoid doing 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). A 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 for doing business.
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 as 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 to register your company.
About the Author:
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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