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Incorporation

Setting up a company in Russia

When setting up a company you may want to consider these factors:

  1. Business Factors

    When setting up a company you may want to consider these factors:

    • The industry and type of business
    • Nationality of headquarters/individuals
    • Presence of existing trade agreements or relationships
  2. Location

    Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.

  3. Regional Language

    Regional Language may be an important consideration. Russian is the only official language used in Russia, however there are 35 different major languages used across various regions of Russia. It must be noted that only 15% of Russians know a foreign language; 80% of which can speak English freely.

Your Options

There are broadly two categories of business forms for foreign companies in Russia when establishing a legal entity, which are setting up a new Russian legal entity or through the subdivision of a foreign company. Of these two categories there are four methods of incorporation. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases, it will depend on the degree of commitment a company has to Russia and the planned business activity.

When setting up a company in Russia, the following options are available:

  • Limited liability company (LLC)
  • Private joint stock company (PJSC)
  • Representative office (RO)
  • Company branch

This page provides a general guideline for foreign businesses on entering Russia for business purposes. In particular it looks at common pathways to establishing a business presence in Russia, generally through a representative office, branch office or establishment of a legal entity.

Representative Office

A representative office (RO) is designed to enact ancillary functions of its founding company in Russia to promote the business. ROs are not legally permitted to engage in commercial activities, and as such are not subject to profits tax, unless the ROs activities create a “permanent establishment” status through engaging in regular commercial activity through the RO without establishing a branch.

Legal Status

The RO is not considered as a separate legal entity, but rather a subdivision of a foreign company. They are considered as a Russian non-resident entity for currency control purposes.

Capital Requirements

No requirement for the authorized capital.

Management Structure

An executive body is to be appointed by the foreign legal entity as the Head of Representative Office. The executive will act as Power of Attorney issued by the foreign legal entity.

Accounting & Tax Compliance

The Branch and RO are treated the same in terms of tax compliance. Reports on business activities, income streams, payroll and social taxes must be reported every quarter to the Special Tax Inspectorate.

Process of Registration

  • Lodge the registration form with the Federal Tax Service (Федеральная налоговая служба, ФНС России) of the Russian Federation to gain accreditation.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the State Statistics Committee.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening of bank account.

Documentation Required

  • Memorandum and Articles of Association.
  • Certificate of Incorporation or relevant except from Trade Register.
  • Letter of Recommendation from a bank to validate good credit standing.
  • Company’s Resolution to establish the RO and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Advantages

  • No minimum capital requirements.
  • Greater exercise of control over HR and Tax processes than other types of businesses.
  • The fastest and cheapest method of establishing a legal business presence.

Disadvantages

  • Business activities are restricted and the RO is prohibited from engaging in any profit-generating activities.

Costs: Accreditation charges: US$1000 (1 year)

Time: 18 – 31 days on average for the entire registration process.

Branch Office

A branch may engage in any function that the parent company engages in as stipulated in the corporate rules, as long as the activities of the branch are permitted by Russian law and regulations. The wide range of activities available to branches makes it an advantageous method of establishing a business presence in Russia over a RO.

Legal Status

The branch office is not considered as a separate legal entity, but rather a subdivision of a foreign company. They are considered as a Russian non-resident entity for currency control purposes.

Capital Requirements

Under Federal law, assets must be formed; however, the amount is not stipulated.

Management Structure

An executive body is to be appointed by the foreign legal entity as the Head of Branch. The executive will act as Power of Attorney issued by the foreign legal entity.

Accounting & Tax Compliance

The Branch and RO are treated the same in terms of tax compliance. Reports on business activities, income streams, payroll and social taxes must be reported every quarter to the Special Tax Inspectorate.

Process of Registration

  • Lodge the registration form with the Federal Tax Service of the Russian Federation to gain accreditation.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the State Statistics Committee.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening of bank account.

Documentation Required

  • Memorandum and Articles of Association.
  • Certificate of Incorporation or relevant except from Trade Register.
  • Letter of Recommendation from a bank to validate good credit standing.
  • Company’s Resolution to establish the branch and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Advantages

  • Greater exercise of control over business operations.
  • Fewer obligations with regards to accounting, HR and tax.

Disadvantages

  • Long and possibly costly incorporation process.
  • Parent company is responsible for any debts and liabilities of the branch, possibly exposing the parent company to lawsuits and tax debts of the branch office.
  • Potentially length and complicated tax dealings with the tax authorities with regards to branch tax obligations.
  • As a branch is considered a permanent establishment of the foreign parent, it is generally subject to double taxation.

Costs:

Accreditation charges: RUB60, 000 (approx. $US2,150)
State duty: RUB60, 000

Time: 18 – 31 days on average for the entire registration process.

Limited Liability Company

A Limited Liability Company (LLC) is the most common corporate form in Russia, as they are easier to establish, maintain and finance, while offering flexibility in corporate governance. A participant in an LLC is entitled to exit the company and receive their proportionate share of the value of the LLCs assets. If the number of participants in a LLC exceeds 50, it must be reorganized into a joint stock company or a production cooperative.

Legal Status

The LLC is considered a Russian legal entity, and may conduct any commercial activity permitted by Russian law.

Capital Requirements

The minimum authorized capital for a LLC is RUB10, 000 (approximately US$370). At least 50% of the authorized capital must be paid-up before the company is registered.

Management Structure

LLCs have a three-tiered management structure, consisting of a general meeting, board of directors and the executive body. The general meeting takes place once a year with top management. The Board of Directors is responsible for the general supervision of the company’s business activities.

Share Structure

A share in an LLC is not considered a security. They can be sold anyone, but there may be some prioritization for the purchase of a unit.

Accounting & Tax Compliance

The LLC and JSC are treated the same in terms of tax compliance, i.e. a legal entity. Reports on business activities, income streams, payroll and social taxes must be reported every quarter to the Federal Tax Service, while a report on VAT is filed every month.

Process of Registration

  • Preparing the company’s documents of incorporation and notarizing signatures.
  • Minimum share capital to be deposited in a bank account.
  • Registration fee is paid.
  • Delivering relevant company documents for registration with the local Federal Tax Service.
  • Registration with the State Committee for Statistics.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening a bank account.

Documentation Required

  • Certificate of Incorporation or relevant excerpt from Trade Register.
  • Directors Certificate and Registered Address Certificate.
  • Company’s Resolution to establish the branch and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Costs: Registration duty: RUB2, 000 (approx. US$70)
Registration charges: approx. US$80

Time: 4-6 weeks

Joint Stock Company

Joint Stock Companies (JSCs) are a business entity in Russia where different stocks may be bought and owned by the company’s shareholders. Public JSCs allow shares to be transferred to the public, while private JSCs may only transfer shares between shareholders.

Private JSCS have flexible corporate governance rules, although the shares issued by a JSC are deemed securities which must be registered with the Central Bank of Russia. As such, financing JSCs are relatively more time consuming.

Legal Status

The JSC is considered a Russian legal entity.

Capital Requirements

The minimum authorized capital for a LLC is RUB10, 000 (approximately US$370). At least 50% of the authorized capital must be paid within three months of registration.

Management Structure

JSCs have a three-tiered management structure, consisting of a general meeting, board of directors and the executive body. The general meeting takes place once a year with top management. The Board of Directors is responsible for the general supervision of the company’s business activities.

Share Structure

A share in the company is considered a security. The allotment of shares must be registered with the state body of Russia.

Accounting & Tax Compliance

The LLC and JSC are treated the same in terms of tax compliance, i.e. a legal entity. Reports on business activities, income streams, payroll and social taxes must be reported every quarter ot the tax authorities, while reports on VAT is filed every month.

Process of Registration

  • Preparing the company’s documents of incorporation and notarizing signatures.
  • Minimum share capital to be deposited in a bank account.
  • Registration fee is paid.
  • Delivering relevant company documents for registration with the local Federal Tax Service.
  • Registration with the State Committee for Statistics.
  • Creating the Company Stamp/Seal of the Company.
  • Registration with the Extra-Budgetary Funds, i.e. Pension Fund, Insurance Fund and Social Insurance Fund.
  • Opening of bank account.
  • Registration of the issuance of JSCs shares with the Bank of Russia.

Documentation Required

  • Certificate of Incorporation or relevant excerpt from Trade Register.
  • Directors Certificate and Registered Address Certificate.
  • Company’s Resolution to establish the branch and the appointment of the director.
  • Power of Attorney.
  • Certificate of Registration with Federal Tax Service.

*All documents require legalization through the consulate and all documents not in Russian must be notarized and translated into Russian.

Costs
Registration duty: RUB2, 000 (approx. US$70)
Registration charges: approx. US$80

Time: 4-6 weeks

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in Russia, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in Russia they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in Russia
  • the company needs help with tax, employment, immigration and payroll compliance in Russia

The complexity of employment regulations in Russia makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in Russia allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Russia.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Russia. Read more about outsourced employment through Shield GEO.

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