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The best solutions for organizing business in Russia by a foreign person

Russia wants to be open to foreign investment. It strives to create favorable conditions for foreign business, including clear and convenient conditions for opening and starting a business. Any investor who has decided to work on the territory of the Russian Federation will have to make a decision: which of the four existing ways of doing business suits him:
  1. open a Russian legal entity;
  2. buy a share in an already operating Russian enterprise;
  3. open a branch or representative office of a foreign legal entity;
  4. work with distributors;
  5. become a member of the Russian cooperative or create it.
Let's analyze these options in more detail and evaluate the conditions and opportunities that exist for a foreign investor.

1. Opening of the company

Limited Liability Company (LLC) and Joint Stock Company (JSC) are organizational and legal forms of a legal entity that operates under its own charter. Many points related to the registration of LLC and JSC are the same. Therefore, let's consider the conditions, terms and cost of opening a company on the example of LLC, as the most common form of doing business in Russia. The LLC is independently responsible for its obligations, has a separate balance sheet and independently keeps accounting reports. The scheme of operation of the LLC will be largely familiar and understandable to a foreign investor.
Advantages: LLC has the opportunity to apply a simplified taxation system (STS), which is beneficial to small and medium-sized businesses, as the state has provided a preferential taxation regime for this type of organization. To open an LLC, a foreign citizen or a foreign legal entity can be a 100% participant, i.e. the sole owner.
When creating an LLC "from scratch", a foreign founder can be sure that the development and business reputation of the company will depend entirely on him.
Conditions: To open, you need a legal address, authorized capital (at least 10 thousand rubles), as well as the general director and chief accountant.
A foreign citizen who is going to become a founder of an LLC must legally stay on Russian territory, i.e. he must have a business visa, a temporary residence permit or a residence permit.
The opening procedure takes 5 working days from the date of submission of documents to receipt of the certificate. Expenses (on average 10-15 thousand rubles) include the costs of translation, certification and forwarding of documents, as well as a state duty of 4 thousand rubles.
If one of the founders of the LLC is a foreign company, it will additionally be necessary to provide legalized documents from the country of incorporation containing basic information about the company. Documents must be translated into Russian and certified by a Russian notary.
Nuances: a foreign citizen, if he plans to hold any position in an LLC, needs a work permit. Obtaining such a permit in general is a long time: first, a quota and/or permission to attract foreign labor are required, after which you can apply for a work permit, it can be obtained 30 calendar days after submission of documents. However, these terms and conditions do not apply to highly qualified specialists who receive at least 167 thousand rubles per month before tax. When hiring such a specialist, it will also not be necessary to obtain permission to attract foreign labor, place a vacancy in the Employment Center, provide a document confirming knowledge of the Russian language and medical certificates.
The optimal legal solution to accelerate the registration of an LLC is the appointment of a citizen of the Russian Federation as a general director, who can be replaced by a foreign citizen after receiving all permits.

2. Opening of a joint venture (JV)/introduce of a new participant into the company

The opening of a joint venture involves the creation of a new company with the participation of a Russian individual or legal entity in the authorized capital. In addition, a foreign investor can acquire a share in the authorized capital of a Russian company or become a new participant of this company by increasing the authorized capital.
Advantages: the Russian partner is aware of the situation on the market, is familiar with the legislation and has the necessary knowledge, contacts in the industry for a confident start of a new joint venture. For its part, a foreign founder can, for example, ensure the import of industrial equipment, analogues of which are not produced in Russia. In accordance with paragraph 7 paragraph 1 of Art. 150 of the Tax Code of the Russian Federation, such equipment is exempt from import tax.
Conditions: the procedure and costs are similar to those applicable to the opening of an LLC if the joint venture is established by Russian and foreign founders. If a foreign investor buys a share in an existing Russian company or becomes a new participant of this company by increasing the authorized capital, registration of changes takes 7 working days, while certification of documents by a notary usually costs about 15-17 thousand rubles. In addition, in case of an increase in the authorized capital, a state duty of 800 rubles is also paid. In addition, costs for translation, certification and forwarding of documents will be required.

3. Opening a branch or representative office

Branch and representative office of a foreign company are separate divisions acting on the instructions of the parent company and performing all or part of its functions. The divisions are fully subordinate to the company that founded them, the parent company is responsible for their obligations.
What is the difference between a branch and a representative office?
The representative office is vested with a minimum amount of authority and is not entitled to conduct business activities (parts 1, 3 of Art. 55 Civil Code of the Russian Federation). It can only engage in marketing and advertising activities, search for potential partners, conclude contracts, resolve conflict situations, but cannot fully carry out economic activities.
The branch can fully carry out the same economic activity as the parent foreign company (Part 2 of Art. 55 of the Civil Code of the Russian Federation), i.e. the functionality of the branches is basically the same as that of Russian companies.
Branches and representative offices of foreign companies in Russia:
  • can open and close accounts in Russian and foreign banks, conclude transactions, sign contracts.
  • are managed by the appointed heads/directors of these separate units. The parent company, each branch/representative office separately or one of them can keep accounting records of one or more divisions and submit documents to the tax service.
  • when opening a branch or representative office, a foreign company will be considered a non-resident, and its taxation will be governed by a bilateral double taxation agreement, if any, is concluded between the countries.
  • when renting an office, VAT is not included in the rent, in accordance with the Tax Code of the Russian Federation.
  • material support of branches and representative offices is carried out at the expense of the property and assets of the parent company. "Movement" of such property and assets between the parent company and branches/representative offices occur within the company itself, which is much easier than, for example, in the case of the transfer of property of a foreign company to a subsidiary in the Russian Federation. This also applies to bank transfers. Thus, the foreign company will be able to transfer funds more quickly for expenses related to activities in Russia.
Conditions: To start working in Russia, branches and representative offices undergo an accreditation procedure, which lasts 25-30 working days and will require payment of a state duty of 120 thousand rubles.
Branches and representative offices are essentially a form of presence in the Russian market, popular with medium and large foreign businesses. Turning to these branches and representative offices, Russian customers understand that they are turning to representatives of a well-known brand, whose reputation and reliability are well known. For a foreign company, the presence of a branch/representative office in Russia definitely increases efficiency when interacting with Russian and foreign clients working in the Russian Federation.

4. Work through distributors

Working with distributors is an optimal, economically feasible option for foreign enterprises. At this stage, the company does not yet have full-time employees and reliable mechanisms for marketing products in Russia. Therefore, a foreign company turns to distributors, concludes supply contracts with them. The company sells its products to a distributor, who then sells them in Russia. The distributor can participate in tenders and public procurements conducted by Russian companies.
Conditions: This form of work does not require the opening of a separate legal entity on the territory of Russia. We need a reliable distributor and a legally competent supply contract, which the parties will be guided by in their cooperation. .
Cons: Lack of legal possibility of full control over the distributor's management bodies, which may lead to a decrease in product sales and loss of assets. In addition, it should be taken into account that the customer base is not permanent, as the distributor may decide to cooperate with other foreign companies (competitors), and will have to look for another distributor to enter the Russian market.
Source: Clerk.Ru

5. Become a member of a Russian cooperative or create it, ensure full control over the Russian distributor

The best solution for ensuring full control over the Russian distributor is to create, together with Russian citizens, a consumer cooperative in accordance with Federal Law 3085-1 "On Consumer Cooperation (Consumer Societies, Their Unions) in the Russian Federation". This will allow the management bodies of the cooperative to be formed mostly from foreign citizens and fully influence the decisions made, as well as to establish an unlimited number of distributors in the form of LLC and ensure full control over their activities.
The foreign economic activity of cooperatives is carried out on the basis of open membership collective self-government and self-financing, providing economic benefits to all its participants. Cooperatives have the right to carry out foreign trade operations with foreign partners both directly and by creating commercial organizations and international associations.
Around the world, cooperatives make a significant contribution to the sustainable economic development of territories, demonstrate high survival as the most effective form of corporate governance, economic sustainability in a crisis. This allows to ensure the movement of goods, services and finances between countries under sanctions and restrictions, to significantly reduce the tax burden.
We suggest you to consider the options of your company's participation in the system of international cooperation Read more

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