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The Russian market has been and remains interesting for foreign businessmen. When starting a business in the Russian Federation, foreign investors wonder how to open a company in Russia.
To begin with, it is necessary to highlight the various forms of making investments in Russia, in particular:
This article is devoted to a comparative analysis of the two main forms of starting a business in Russia: opening an LLC with foreign participation and accrediting a branch (representative office) of a foreign company. At the end of the article, there are links to detailed step-by-step instructions on these options for setting up a business in Russia. As for the latter method of "entering" the Russian market, only general recommendations can be given on this option, as a detailed analysis of the specific circumstances is required.
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LLC with foreign participation |
Branch of a foreign company |
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Legal status, founders |
In this case, the new organization is an independent legal entity, must have founders (at least one founder, the legislation of the Russian Federation allows participation in LLC of individuals and legal entities, Russian and foreign, including 100% foreign participation is allowed. |
A branch is part of the parent foreign organization and has no independent status as a legal entity. |
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Property rights |
LLC with foreign participation is the owner of the transferred property, has independent property rights. The opening of an LLC also requires the authorized capital of the company, but the minimum amount of the authorized capital is only 10,000 rubles. The property of an LLC with foreign participation is separate from the property of the parent organization. In certain cases defined by Russian legislation, in particular in case of intentional bankruptcy of an LLC, other violations during bankruptcy proceedings, it is possible to bring the founder and director of the LLC to vicarious liability for the debts of the LLC. |
A branch has no independent property rights. All property of the branch is owned by the parent organization. |
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Hiring of foreign workers |
To hire foreign workers in some cases requires a work permit, permission to hire foreign workers, the procedure for hiring foreigners to work depends on the status of the foreign worker, in some cases, no work permit is required, but it is necessary to notify the authorized body about hiring, firing, etc. |
The branch does not have to obtain a permit to hire foreign workers, nor is it required to obtain a work permit for a foreign citizen. However, the employee must obtain personal accreditation from the Chamber of Commerce and Industry of the Russian Federation. The cost of personal accreditation for an employee is 6000-7200 rubles for one employee. The personal accreditation procedure can take up to 6 calendar months. A temporary personal accreditation certificate can be issued for the period of personal accreditation procedure. |
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Position of the Head, management |
Management of LLC is carried out by the general meeting of founders (on issues of exclusive competence defined by the law and the Articles of Association) and the sole executive body (general director, director, president, etc. - the title of the position is determined by the founders), this person is appointed by the general meeting of founders by voting, acts on behalf of the organization without power of attorney, information about him/her is contained in the register of legal entities |
The branch is managed by the branch manager appointed by the governing body of the parent organization and acting on the basis of a power of attorney. Head of the branch is directly subordinated to the managing body of the parent organization. The powers of the head of the branch are terminated on the basis of the decision of the authorized body of the parent organization in accordance with the legislation of the country of registration of the parent organization, with revocation of the power of attorney. |
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Transactions between the parent organization and LLC (branch) in Russia, transactions with Russian organizations, other persons |
A foreign legal entity and LLC in Russia, including those with the participation of a foreign legal entity, are separate legal entities, so transactions between them are concluded under the general rules of foreign economic transactions, taking into account the restrictions of customs, currency and tax legislation of the Russian Federation. Besides, in some cases transactions between affiliated persons may be recognized as controlled transactions and are subject to additional tax control, particularly, in terms of determination of market price of the transaction. In transactions concluded by LLC with foreign participation with Russian legal entities, citizens, other foreign persons, the rights and obligations are acquired by this LLC. It is also responsible for such transactions. In the event of termination of the LLC, the counterparties cannot as a general rule make claims on these transactions against the foreign founder, except in some cases of subsidiary liability of the founders. |
Since the branch is not a separate legal entity, it is impossible to conclude transactions between the parent organization and the branch, such transactions are relations within a foreign company, and not transactions between legal entities, this must be taken into account in accounting and tax accounting. It is also necessary to make an important conclusion that whoever acts in civil turnover on behalf of a foreign organization in the Russian Federation (director of a branch, representative office, person by proxy), the rights and obligations under the transaction arise directly from the foreign legal entity, including the closure of the branch does not terminate the obligations under the transaction. Accordingly, the responsibility for such transactions is also borne by the foreign legal entity.
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Opening date |
Term of registration of LLC - 3 working days. |
Not less than 30 working days from the moment of submission of the required set of documents to the authorized body. In addition, it is required to certify the number of foreign workers (even if it is zero) at the Chamber of Commerce and Industry of Russia before submitting the documents for accreditation. The time for providing this service by CCI RF is about 3-5 days. Accreditation may be denied if the goals and objectives of a branch of a foreign organization threaten sovereignty, political independence, territorial integrity and national interests of the Russian Federation, contradict the Russian Constitution, international agreements of the Russian Federation, the Russian legislation. |
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Costs of starting a business |
State duty for registration - 4000 rubles; notarial expenses, translation - 10 000-15000 rubles; legal services - 25000-40000 rubles. Total: 39 000 - 49 000 rubles. |
State duty for accreditation of one branch - 120 000 rubles; certification of number of employees - 18000-21000 rubles; notarial expenses, translation services - 15000-20000 rubles, legal services for registration and accreditation - 100000-200000 rubles. Total: 253 000 - 550 000 rubles. |
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Taxation |
In each case it is necessary to describe the specifics of taxation individually, as they depend on a number of conditions (the taxation system applied, types of activities, etc.). In general, it should be noted: - with some exceptions LLC can apply the simplified system of taxation - Payment of funds to the founders as income from the activity of the LLC is possible through the payment of dividends (distribution of profit), while the founder's income in the form of dividends is subject to income/profit tax |
Branches of foreign companies are not entitled to apply the simplified taxation system. In general, the income taxation system for a branch of a foreign company is the same as for Russian companies, subject to certain peculiarities. |
Thus, the opening of an LLC with foreign participation involves the creation of a separate legal entity, endowed with its own rights and obligations. On the one hand, it minimizes the risk of liability from the foreign founder for the activities of the new company in Russia, on the other hand, in this case the new LLC is given quite extensive rights, freedom of action, which in the case of illegal actions from the head of the organization, other founders may entail material and reputation losses for the foreign company. So, it is necessary to provide a mechanism of “checks and balances”, leverage on the head and the activities of the company in the creation of an LLC. At the same time, an undoubted advantage of opening an LLC with foreign participation is a small price and a short period of business opening.
A branch of a foreign company is a dependent and more manageable subdivision of a foreign legal entity, which is in some situations, a plus, in others, a minus. It depends on the wishes of the owners of the business, the scope of activity. An undoubted advantage of an accredited branch of a foreign company, as opposed to an LLC with foreign participation, is the relative freedom to hire foreigners. However, the cost of opening a branch in Russia is quite high and the period of accreditation is considerably longer than that of LLC registration. In some cases it may be reasonable to open an LLC with foreign participation and accredit a branch to perform various functions. Experienced lawyers in corporate and tax law can help to build a rational legal system for business in Russia.
Detailed step-by-step instructions for starting a business in Russia:
Registration of an LLC with foreign participation
Accreditation of a branch (representative office) of a foreign company
