FORMS OF DOING BUSINESS
Foreign investors can adopt a number of different forms of business representation in Russia. These include joint stock companies, limited liability companies, representative offices and branches of foreign legal entities. The country's Civil Code (Part 1) created a number of other legal forms (eg general and limited partnerships) and introduced significant changes to the procedure for registering legal entities.
'Open' and 'closed' joint stock companies have legal personality and are broadly equivalent to public and private companies respectively. The 'open' form is the only permitted legal form for a holding company. The minimum 'charter' (share) capitals for open and joint stock companies are 1,000 and 100 times (respectively) the monthly minimum wage as set periodically by the Government.
Representative offices are not considered to be resident legal entities under Russian law. Strictly, they may undertake only liaison and support functions, but in practice the authorities accept a much broader range of activities being undertaken, although with the result - subject to the terms of any relevant double tax treaty - that these are taxable. In terms of taxation, there is little practical distinction between a representative office and a branch (which can certainly undertake most types of activity in Russia), and hitherto branches have not been a commonly used form of business entity.
Limited partnerships may also be formed, but have a legal personality and are taxed as companies. General, unlimited partnerships and contract based agreements for joint activity, neither of which have legal personality, may also be suitable for certain types of business.
FORMAL REGISTRATION REQUIREMENTS
The registration procedure for all joint stock companies is a complex one which will normally be undertaken through the Federal authorities. `Shelf' companies are not available and the incorporation process can take two or three months. Registration is also required for a branch or representative office of a foreign legal entity.
In addition, `accreditation' is also available for a representative office of a foreign legal entity through a variety of Federal and local bodies. Accreditation confers certain benefits, including exemption from VAT on the rent of property and the duty free import of office equipment on a temporary basis, but in some parts of Russia is effectively compulsory, since the local banks and authorities may not recognise the office without this form of registration.
Accrediting organisations charge and annual fee in the region of $1,000 - $1,500 per annum. The registration and accreditation procedures are fairly complex, but can normally be completed within two months. Tax and Social Fund registration requirements
Every entity must register with the tax authorities in each tax district in which there is a presence. This applies equally to representative offices even though there may be no liability to any tax (although this would be an unusual situation). Separate registrations are required with each of the Social Funds where there is a liability in respect of remuneration.
A foreign legal entity must notify the tax authority in each tax district in which it has a source of income. Notification should also be sent to the tax office dealing with the location in which real property belonging to a foreign legal entity is situated.
When registration has been completed, a bank account can be opened and activity may commence. All Russian legal entities are required to collect receipts into a local bank account, unless permission to do otherwise has been granted by the Central Bank of Russia. In order to open a foreign currency account, the bank will require various documentation to be provided.
REPRESENTATIVE OFFICE OR LEGAL ENTITY?
With a representative office able to engage in many kinds of trading activity, many investors opt for this form of entity at the start, on the basis that it is easier to establish and reporting requirements are much less onerous. The practical limitation on this form of entity - not being able to make sales in roubles - no longer applies, but the nature of many investments - joint ventures, production plants or privatisation issues, may mean that a Russian legal entity is the required form of entity.
IMPORTANCE OF PROPER ADVISERS
While it is usually possible to achieve registration with the various bodies without professional assistance, it is advisable to seek legal or other advice to assist in the process, especially when attempting to register outside of Moscow where the local authorities are unaccustomed to dealing with anything other than Russian enterprises.
For further information contact Bauke van der Meer on tel: +7 503 232 5511 fax: +7 503 232 5522 or e-mail directly: Click Contact Link or enter a text search 'Coopers & Lybrand' and 'Business Monitor'
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Foreign investors can adopt a number of different forms of business representation in Russia. These include joint stock companies, limited liability companies, representative offices and branches of foreign legal entities. The country's Civil Code (Part 1) created a number of other legal forms (eg general and limited partnerships) and introduced significant changes to the procedure for registering legal entities.
'Open' and 'closed' joint stock companies have legal personality and are broadly equivalent to public and private companies respectively. The 'open' form is the only permitted legal form for a holding company. The minimum 'charter' (share) capitals for open and joint stock companies are 1,000 and 100 times (respectively) the monthly minimum wage as set periodically by the Government.
Representative offices are not considered to be resident legal entities under Russian law. Strictly, they may undertake only liaison and support functions, but in practice the authorities accept a much broader range of activities being undertaken, although with the result - subject to the terms of any relevant double tax treaty - that these are taxable. In terms of taxation, there is little practical distinction between a representative office and a branch (which can certainly undertake most types of activity in Russia), and hitherto branches have not been a commonly used form of business entity.
Limited partnerships may also be formed, but have a legal personality and are taxed as companies. General, unlimited partnerships and contract based agreements for joint activity, neither of which have legal personality, may also be suitable for certain types of business.
FORMAL REGISTRATION REQUIREMENTS
The registration procedure for all joint stock companies is a complex one which will normally be undertaken through the Federal authorities. `Shelf' companies are not available and the incorporation process can take two or three months. Registration is also required for a branch or representative office of a foreign legal entity.
In addition, `accreditation' is also available for a representative office of a foreign legal entity through a variety of Federal and local bodies. Accreditation confers certain benefits, including exemption from VAT on the rent of property and the duty free import of office equipment on a temporary basis, but in some parts of Russia is effectively compulsory, since the local banks and authorities may not recognise the office without this form of registration.
Accrediting organisations charge and annual fee in the region of $1,000 - $1,500 per annum. The registration and accreditation procedures are fairly complex, but can normally be completed within two months. Tax and Social Fund registration requirements
Every entity must register with the tax authorities in each tax district in which there is a presence. This applies equally to representative offices even though there may be no liability to any tax (although this would be an unusual situation). Separate registrations are required with each of the Social Funds where there is a liability in respect of remuneration.
A foreign legal entity must notify the tax authority in each tax district in which it has a source of income. Notification should also be sent to the tax office dealing with the location in which real property belonging to a foreign legal entity is situated.
When registration has been completed, a bank account can be opened and activity may commence. All Russian legal entities are required to collect receipts into a local bank account, unless permission to do otherwise has been granted by the Central Bank of Russia. In order to open a foreign currency account, the bank will require various documentation to be provided.
REPRESENTATIVE OFFICE OR LEGAL ENTITY?
With a representative office able to engage in many kinds of trading activity, many investors opt for this form of entity at the start, on the basis that it is easier to establish and reporting requirements are much less onerous. The practical limitation on this form of entity - not being able to make sales in roubles - no longer applies, but the nature of many investments - joint ventures, production plants or privatisation issues, may mean that a Russian legal entity is the required form of entity.
IMPORTANCE OF PROPER ADVISERS
While it is usually possible to achieve registration with the various bodies without professional assistance, it is advisable to seek legal or other advice to assist in the process, especially when attempting to register outside of Moscow where the local authorities are unaccustomed to dealing with anything other than Russian enterprises.
For further information contact Bauke van der Meer on tel: +7 503 232 5511 fax: +7 503 232 5522 or e-mail directly: Click Contact Link or enter a text search 'Coopers & Lybrand' and 'Business Monitor'
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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