Since 2021 it has become easier and faster to establish a Branch or Representative office in Russia
Since August 2021 it has become easier and faster to establish a Branch or Representative office of foreign company in Russia
Since August 2021 it has become easier and faster to establish a Branch or Representative office of foreign company in Russia. Here are the main changes made in summer 2021 into the Law on Branches and Representative offices of foreign companies in Russia:
Registration (accreditation) of Branch or Representative office of a foreign entity in Russia will be carried out within 15 working days (instead of 25 working days as it was before)
In case of not submitting of necessary documents for the registration of Branch or Representative office in Russia or submitting of incorrect documents, the Registering body will put on hold the registration (accreditation) process for up to 15 working days so that the company could provide the needed documents and correct mistakes. Previously, the Registering body refused registration (accreditation) of a Branch or Representative office of foreign entity in Russia in case of not submitting of any required documents or submitting of incorrect documents, and did not pay back the company the registration state fee in the amount of 120.000 rubles (appr. 1.600 USD or 1.400 EUR)
What are the pros and cons of establishing a Branch or Representative office of foreign company in Russia
Foreign companies usually set up business in Russia either by way of establishing of a Branch or Representative office in Russia or creating of a subsidiary (LLC) with 100% foreign ownership or in the form of joint ownership with Russian partners.
If a foreign company is not going to conduct any commercial activities in Russia, and the main purpose of its presence in Russia is representing of the Head office on the territory of Russia (searching for partners, carrying out of market researches, advertising etc.), the best solution will be to establish a Representative office of foreign company in Russia.
If it is the purpose of a foreign company to conduct commercial activities in Russia, it should decide between a branch or subsidiary.
A branch is a part of a foreign company, and not a separate legal entity. It is created in compliance with the laws of the residence country of the main company.
An LLC is a separate legal entity. In general, the liability of its shareholders is limited to their shares in the charter capital of an LLC. An LLC is established in accordance with the laws of the Russian Federation.
Here are the main pros of establishing a Branch office in Russia:
money may be freely transferred from the bank account of the Head office to the bank account of the Branch office (without drafting additional service or marketing agreements, without reporting and providing numerous documents to the Russian foreign currency control bodies)
incomes and expenses of the Head office related to the Branch office may be transferred from the Head office to the Branch office, and vice versa
there is no such control from the tax authorities over loss-making in Russia
Director of the Branch office acts based on a Power of Attorney (so, the foreign company has more control over his or her activities)
Opening of a Branch of foreign company in Russia is not a good idea, if:
the company is going to import goods into Russia with the purpose of selling them. Branches of foreign companies may import goods into Russia only for their own needs (not for sale)
the company is going to participate in tenders. There may be some restrictions for foreign entities in Russia
the company is going to engage in licensable activities. There may be some restrictions for foreign entities in Russia
Other cons of creating a Branch of foreign company in Russia:
higher amount of the state fees (for branches and representative offices these are 141.000 rubles (appr. 1.880 USD or 1.660 EUR) in contrast to the state fee for LLC registration in the amount of 4.000 rubles (appr. 55 USD or 45 EUR)
the registration process is not so fast (LLCs are registered within 3 working days, branches and representative offices are accredited within 15 working days)
more documents are required for state registration (e.g., for LLC (subsidiary of a foreign company) it is needed to provide only extract from trade register; for branches and representative offices it is needed to provide charter of the Head office, extract from the trade register, tax residence certificate etc.)
A.J.CONSULTING experts may analyze your goals in Russia and provide free advice, which legal form will be better to choose.
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