The largest trade partner of the European Union is the Russian Federation. Compared to 2012 the volume of imports into Russia soared by 3.6 percent for the first six months of 2013. For foreign companies the Russian market is a very interesting business field and new firms entering the market every year. At this place we want to give a short overview over popular corporate form available for your choice.
A foreign company wishing to be present in the Russian market can do so by choosing different corporate forms. The most popular choices are the foundation of a representative office, a branch or a subsidiary. With respect to the foundation of a company in Russia you can say: "What you have you can hardly change later." Therefore choosing the optimal legal form from the very beginning is essential to make your business development and strategy fit with the legal structure you chose in the long term.
At the end of the century the representative office foreign companies chose mainly the representative office for market entry. By Russian law representative offices are conceived a taxable long-term establishment of a foreign company in Russia. They are usually used to execute marketing activities in Russia and arrange for agreements between a Russian local firm and the mother company abroad. Usually representative offices do not execute business activities like import and trade. Russian local businesses perceive the representative office as giving only a minor priority of the foreign mother to the Russian market. This and a large bureaucracy related to currency control make the representative office rather unpopular between local firms.
Another corporate form available is the branch. As well as the 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 the branch or representative office must issue comprehensive documentation for deals exceeding value of USD 5.000. Because of this local Russian firms avoid to do business with branches and representative offices, if possible.
The most prioritized corporate form among foreign companies and Russian local businesses is nowadays the subsidiary, which can exist in the form of a Limited Liability Company (LLC) or Joint Stock Company (JSC). The LLC is the preferred form between those as it has only small capital requirements (RUB 10.000 or USD 350). Another positive fact is that the subsidiary is not subject to currency control. It is therefore very welcome for doing business among local Russian firms.
All permanent corporate establishments in Russia, like representative offices, branches and subsidiaries, are taxable, social securities fees need to be calculated, financial accounts have to be issued and up to 15 different reports have to be provided to various Russian authorities on a quarterly basis.
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 like re-payment of loans or payment of dividends.
Depending on your products and services and your derived business strategy for the Russian market the one or the other corporate form might more fit into your business plans. Besides of choosing the right legal form, there are other considerations that have to be done before starting your business in Russia and it is recommended to visit a a business consultant in Russia as well.
A foreign company wishing to be present in the Russian market can do so by choosing different corporate forms. The most popular choices are the foundation of a representative office, a branch or a subsidiary. With respect to the foundation of a company in Russia you can say: "What you have you can hardly change later." Therefore choosing the optimal legal form from the very beginning is essential to make your business development and strategy fit with the legal structure you chose in the long term.
At the end of the century the representative office foreign companies chose mainly the representative office for market entry. By Russian law representative offices are conceived a taxable long-term establishment of a foreign company in Russia. They are usually used to execute marketing activities in Russia and arrange for agreements between a Russian local firm and the mother company abroad. Usually representative offices do not execute business activities like import and trade. Russian local businesses perceive the representative office as giving only a minor priority of the foreign mother to the Russian market. This and a large bureaucracy related to currency control make the representative office rather unpopular between local firms.
Another corporate form available is the branch. As well as the 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 the branch or representative office must issue comprehensive documentation for deals exceeding value of USD 5.000. Because of this local Russian firms avoid to do business with branches and representative offices, if possible.
The most prioritized corporate form among foreign companies and Russian local businesses is nowadays the subsidiary, which can exist in the form of a Limited Liability Company (LLC) or Joint Stock Company (JSC). The LLC is the preferred form between those as it has only small capital requirements (RUB 10.000 or USD 350). Another positive fact is that the subsidiary is not subject to currency control. It is therefore very welcome for doing business among local Russian firms.
All permanent corporate establishments in Russia, like representative offices, branches and subsidiaries, are taxable, social securities fees need to be calculated, financial accounts have to be issued and up to 15 different reports have to be provided to various Russian authorities on a quarterly basis.
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 like re-payment of loans or payment of dividends.
Depending on your products and services and your derived business strategy for the Russian market the one or the other corporate form might more fit into your business plans. Besides of choosing the right legal form, there are other considerations that have to be done before starting your business in Russia and it is recommended to visit a a business consultant in Russia as well.
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