Setting Up a Business in Russia
Marina Parshukova
Summary. The following report provides updated information on the business registration forms and procedures for foreign companies in Russia. Depending on the purpose of doing business in Russia, U.S. business people may open a branch of a company, accredit (register) a representative office, or set up a company. The report explains differences in the legal status of the above entities and describes the registration procedure for each. Contact information can be provided by CS Moscow on request. End summary.
Basic Business Registration Issues
Business registration in Russia is regulated by the following basic laws and Government resolutions:
- The 1999 Federal Law ⌠On Foreign Investment in the Russian Federation■,
- The 1999 Civil Code,
- The August 8, 2001 Federal Law ⌠On State Registration of Legal Entities■ (entrepreneurs),
- The Russian Government Resolution No. 319 ⌠On Authorized Federal Entity of the Executive Power, Providing State Registration of Legal Entities■ of May 17, 2002, and
- a number of legal acts.
Conducting business without registration is illegal. Although the federal law governing the process is uniform throughout Russia, it is often subject to local interpretation.
Russian law offers several commonly used modes to conduct business:
- Limited liability company (OOO),
- A privately held, closed joint stock company (ZAO),
- Publicly held, open joint stock company (OAO) (the above three modes are referred to as Companies in the text below),
- Representative or branch office of a foreign company,
- Registration as an individual private entrepreneur.
Branch offices and accredited representative offices are both legally distinct from Russian corporations, which may be established by foreign firms either as joint-stock companies with partial Russian ownership, or as wholly-owned subsidiaries of the foreign firm. Foreign ownership can be as high as 100 percent, except in certain sectors. For example, foreign stakes are restricted to 25 percent at defense-related enterprises.
Branch Offices
In Russian terminology, branches are not considered independent legal entities, though they can negotiate, market or provide other business support on behalf of firms based outside Russia. However, they can not technically generate a profit on their operations in Russia. Setting up a branch may be worthwhile if a foreign company has started to pursue business in Russia and is exploring opportunities. Many large U.S. firms originally began their Russian operations as locally established branches. U.S. firms should not use the term branch with registration authorities if the purpose is to register as a company. Branches could be accredited from a one to five-year term.
Accredited Representative Offices
Like branches, accredited representative offices are not independent legal entities and can not earn profit in Russia. Advantages of an accredited office include annual (rather than monthly) reporting requirement for some activities (including some tax payments), and greater leeway in issuing invitations for U.S. partners to visit Russia on business visas. Up to five foreign employees may work with an accredited office of a foreign company. Offices are usually accredited for one to three year terms.
Registration of Branches and Accredited Representative Offices
Accredited Representative Offices and Branches should register with the State Registration Chamber (with the Ministry of Justice of the Russian Federation), and Accredited Representative Offices may also register with the Russian Chamber of Commerce and Industry. Several Russian government agencies and ministries supervising the industry in which a company operates may also require accreditation. Such agencies include the Central Bank, the Ministry of Economic Development and Trade, the Ministry of Finance, the Ministry of Transportation, and the Ministry of Industry, Science and Technologies of the Russian Federation.
According to the law, accreditation of a representative office or of a branch should take 21 days. Accreditation fees vary from $1,000-1,500 for one year to $3,000-3,500 for three, and $3,500 for 5 years (for branches only). Above those amounts, an additional $500 should be paid for an expedited accreditation within seven days.
Further information is available on the State Registration Chamber website: http://www.palata.ru
Companies and Company Registration Procedures
Beginning July 1, 2002, companies (full-fledged businesses) should be registered with the local Tax Inspectorates (based on their official address in Russia). Documents for the state registration should be prepared and submitted to the local Tax Inspectorate in accordance with Chapter 12 of the August 8, 2001 Federal Law ⌠On State Registration of Legal Entities■. The list of documents to be submitted for the company registration may be obtained from the following web site: http://www.mosnalog.ru.
In accordance with state registration procedures, companies should be registered within five days of the receipt of registration documents, for a fee of 2,000 rubles (about $65).
The Moscow Department of the Ministry of Taxes and Levies of the Russian Federation, the authorized legal entity for company registration (15 Tulskaya Street, Moscow) is currently providing counseling to business people on the new registration procedure and registration documents.
Further information on state company registration, including the list of documents to be submitted for registration, as well as contact information for local tax authorities and their operation may be obtained from the following web site: http://www.mosnalog.ru.
Note: beginning July 1, 2002, all legal entities that were established (registered) in Russian before August 8, 2001, are requested to reregister with local State Tax Inspectorates. If they fail to submit the necessary documentation for re-registration by January 1, 2003, they will be liquidated. Branches and Representative Offices do not fall under this requirement, because they are not considered to be legal entities under the Russian law.
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