There are four ways to make your foreign business functional in Russia. Those are opening a Russian legal entity, buying a stake in an already-operating Russian enterprise, opening a branch/rep office of a foreign legal entity or working with distributors. Let's look at each of those in details.
1. Opening a Russian Legal Entity
Limited Liability (LLC) and Joint-Stock (JSC) are legal organizational forms that allow an entity to conduct activities according to their own charter. Registration procedures for LLC and JSC are very similar. Therefore, we will consider the terms and costs of opening an LLC, as it is the most common business form in Russia.
Advantages: Each participant answers only for that percentage of the company's debts proportional to the participant's share size. This company type can use Russia's simplified taxation system, which is beneficial to small and medium-sized businesses. To open an LLC, a foreign citizen or a foreign legal entity can be a 100% participant, i.e. a sole proprietor.
Conditions: To open, you need a legal address, authorized capital of no less than 10 thousand rubles, as well as a general director and a chief accountant.
A foreign citizen who intends to found an LLC in Russia must legally reside in Russia on the basis of a business visa or residence permit (temporary or permanent).
The opening procedure takes 5 working days. Expenses (on average 10-15 thousand rubles) include costs for translation, certification and transfer of documents, as well as a state duty of 4,000 rubles.
2. Opening a Joint Venture / Buying a Stake in an Already-operating Russian Enterprise
Advantages: the Russian partner should be aware of the market situation, relevant laws, and have industry contacts. For its part, the foreign participant can, for example, ensure the import of industrial equipment, analogues of which are not produced in Russia. In accordance with article 150, paragraph 7 of the Russian Tax Code, such equipment is exempt from import tax.
Conditions: If a foreign investor buys a stake in an existing Russian company or becomes a new participant in this company by increasing the authorized capital, the change in the registration takes 7 working days.
3. Opening a Branch or Rep Office
A branch or rep office of a foreign company is a separate subdivision acting at the direction of the parent company and performing all or part of its functions. The branch or rep office is fully subordinate to the founding company and the parent company is responsible for all obligations.
Advantages: Branches and rep offices can open and close accounts in Russian and foreign banks, conclude deals, and sign contracts.
- Branches and rep offices are managed by the appointed heads of these separate units. The parent company or each branch / representative office can submit reporting for one or several units to the Tax Service.
- When a branch or rep office is opened, the foreign company is considered a non-resident and its taxation is governed by a bilateral agreement on the avoidance of double taxation, if such is concluded between countries.
- When a branch or rep office rents and office, VAT is not charged to the rent.
- Material support for branches and rep offices is carried out using the assets of the parent company. The "movement" of such assets between parent company and branches / rep offices is much simpler than, for example, the transfer of assets between a foreign company and a Russian subsidiary company.
Conditions: To start working in Russia, branches and representative offices must be accredited, which takes 25-30 working days and will require payment of a state duty of 120 thousand rubles.
4. Work through Distributors
Work with distributors is an optimal, economically feasible option for foreign small businesses. At this stage, the company does not yet have full-time employees in Russia and reliable mechanisms for marketing products. Therefore, a foreign company contacts a distributor and concludes a supply agreement. The company sells its products to the distributor, which then sells those products onward in Russia. This arrangement does not require opening a separate legal entity in Russia.
Translated by Alinga Consulting Group.
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