Russia is a large economy and the European Union is Russia\'s most important foreign trade partner. In the first half of 2013 imports from European countries to Russia increased by 3.6 percent. Every year new foreign companies step into the Russian market to sell their products and services to increase their revenues and profits. This article is intended to give you a rough overview about corporate forms that can be established in Russia and their specifics and can be used as a first orientation on the way of choosing the optimal corporate form for the Russian market.
Foreign companies 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 the 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. After 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 a foreign mother to the Russian market. This and a large bureaucracy related to currency control make the representative office rather unpopular between local firms.
The branch is another corporate form. Being also considered to be a foreign entity established in Russia it usually has business activity, can import goods and have trade activity in Russia. Representative offices and branches are subject to currency control as they are considered as foreign companies. That means that any business with local companies exceeding USD 5.000 must be comprehensively documented and reported by the local Russian company. This process is very unpopular.
The most popular corporate form in terms of business appearance and operability is the subsidiary, which can appear as a Limited Liability Company (LLC) or Joint Stock Company (JSC). Between those, the LLC is regularly the preferred form as it is easy to register and the capital requirement is low (RUB 10.000 or USD 350). A subsidiary is a company by Russian law and, therefore, not subject to currency control. It can import goods and have trade activity. Between local businesses, the subsidiary is the preferred corporate form to do for doing business.
Representative offices, branches and subsidiaries, are considered permanent taxable establishments in Russia. They need to calculate taxes for payroll, determine social security fees, issue financial accounting statements at the end of each quarter and another 15 reports that need to be sent to various Russian authorities.
There is big differencing with regards to the start-up financing of representative offices or branches and subsidiaries. Representative offices and branches are uncomplicated from the currency control point of view as they are considered as foreign companies. However, subsidiaries, being a company by Russian law, are subject to currency control. Payments from and to abroad for financing purposes require a legal reason and may take several working days, as the bank executing the transfer needs time to check all documents.
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 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 an business consultant in Russia, as well.
