Russia

Key benefits

Russia, officially known as the Russian Federation, is the largest country in the world and is located in Eastern Europe extending all the way to Northern Asia. In addition to being the largest country in the world Russia spans 9 time zones and is the 9th most populous country in the world with an approximate population of 142 million. The capital city is Moscow and the official language is Russian.

Russia is a vast and diverse country. Since the collapse of communism Russia has emerged as a political and economic powerhouse moving from a globally-isolated centrally-planned economy to a market-based, globally-integrated one. The country has vast reserves of oil, natural gas, coal and precious metals. In 2009 Russia was the world’s largest exporter of natural gas, the second largest exporter of oil and the third largest exporter of steel and aluminum. These vast natural reserves and an increase in agricultural exports have contributed to ensuring Russia currently has the twelfth largest economy in the world.

Russia is a member of the UN Security Council, G8 and G20, the Council of Europe and the Organization for Security and Cooperation in Europe and is the leading member of the Commonwealth of Independent States.

Key benefits of company registration in Russia.

Russia has many resources and huge potential which in recent years has led to a significant increase in foreign investment. This has led to local authorities in many of the regions attempting to stimulate the investment environment and form a culture of investment.

There have been several initiatives in order to enhance the investment environment, some of which are outlined below:

  • The Development of Regional Investment Legislation – The Republics of Tatarstan and Komi are particularly active along with the Yaroslavskaya Oblast Region.
  • Development of Benefits by Local Authorities - Investment is being supported by local authorities through the provision of benefits
  • Creating an Advantageous Investment Environment – Increasing the transparency and attractiveness for investment opportunities.
  • Actively Increasing Foreign Investment Opportunities – There are certain regions within Russia that are leaders in attracting foreign investment and providing the right climate for foreign investors. The main regions which provide this are Nizhny Novgorod and Nizhny Novgorod Oblast, Orenburg Oblast and the Komi Republic. The regions of Central Chernozem and the Volga are also active in this respect as government support has increased leading to these regions becoming more attractive for foreign capital and investment.
  • Formation of Investment Infrastructure – Five regions have established mortgage funds which have increased the regions attractiveness to foreign investors. Mortgage funds are an opportunity to provide state guarantees on the part of the Federation. An example of this is the Reinsurance Company which operates in the Komi Republic. In addition to initiatives such as the mortgage fund other projects are being created such as the development of business centers and the improvement and upgrading of communication systems. There has also been additional emphasis on the improvement of economical justification for investment projects. To strengthen these ongoing programs, it is important to engage banks in this activity and in order to do this the implementation of regional passports has been proposed. These will contain the information necessary for potential investors as Russia’s regions differ strongly regarding investment potential and also risk investment.

The greatest investment potential is located in Moscow and St. Petersburg and in the donor regions due to the vast potential resources and raw materials available.

Tax and accounting regulations

Companies of all organization forms can use General and Simplified Tax Systems. There are restrictions on usingSimplified Tax System (STS) concerning asset size (no more than USD 3m), number of workers (no more than 100) and trade turnover (no more than USD 2m). Using Simplified Tax System, the Company is not allowed to have more than 25% corporate shareholders (the Nominee Shareholder should be).

The Company has two options of income tax payment:

  • 15% of profit (proceeds less expenses)
  • 6% of proceeds

The Tax has to be paid quarterly. The reporting is filed once a year.

VAT. The Company is not a VAT payer except the import operations и the VAT payment for foreign counterparty. It is possible to register a Company as a VAT payer on your own initiative.

The General Tax System (GTS). The income tax is 20%.  It is paid to the difference between profit and expenses. The components of expenses are strictly regulated and under control of Tax Service. The VAT is 18%. The Property tax (fixed assets) is 2.2% of the cost. The reporting is filed quarterly.

The Social security tax is 34% of the expenses spent on workers’ salary.

The income tax on workers is 13%.

The fee for Company support (including accounting, fiscal accounting, accounting and tax reporting submission):

 

GTS

STS

Less than 100 transactions/quarter

700

300

Over 100 transactions/quarter

700 + EUR3 /transaction

300 + EUR2 /transaction

 

Procedure of company registration

The form of organization created affects all aspects of a company's activities including transactions, tax consequences, financial and accounting, the ability to hire foreign nationals, repatriation of income and the application of international agreements etc therefore when incorporating a company in Russia special attention should be paid to the organizational and legal structure.

There are several possible forms of legal entity that a foreign investor can choose when incorporating a company in the Russian Federation. A legal entity may be registered in the form of a Limited Liability Company, Joint Stock Company (which may be open or closed) or a Partnership. Representative Offices or a branch of a Foreign Company may also be registered in Russia.

Legal entities in the Russian Federation:

Limited Liability Company (LLC) & Joint Stock Company (JSC)

  • Both LLC & JSC may exercise any form of commercial activity which is not prohibited by Russia Law. Licenses may however require to be obtained depending on the type of activity the company wishes to carry out.
  • The number of shareholders / participants should not exceed 50. For Public JCS there are no limits on the number of shareholders / participants.
  • The minimum number of shareholders is one.
  • The founders / shareholders of a LLC and JSC can be Individuals, Russian or Foreign Companies.
  • The Annual General Meeting should be held annually. The company may be run by the Individual Executive (The General Director) or by the Collegiate Authority (The Board)
  • The Tax Authorities register companies the details of which are then registered in the United State Register
  • A LLC and PJSC must also be registered with the State Committee for Statistics, Pension Fund, Insurance Fund and Social Insurance Fund.
  • The authorized capital is divided into shares / units which represent the rights and obligations of a shareholder / member in accordance with their shareholding in the authorized capital
  • Quarterly reports must be submitted to the tax authorities.

Branches and representative offices of foreign companies

  • A Representative Office and Branch of Foreign Entity are not separate legal entities but rather the unit of a foreign company. A Representative Office is a division of a foreign entity that has no right to engage in commercial activities in Russia whilst a Branch, although still a foreign entity, is permitted to engage in commercial activities.
  • Both Branches and Representative Offices must be registered with the Tax Authorities, the state Statistics Committee, the Pension fund, Insurance Fund and Social Insurance Fund.
  • There is no minimum capital requirement needed to create a Representative Office. Branch Offices are formed in accordance with legislation which requires an input of capital but the amount is not stipulated.
  • The Executive Authority should be appointed as a foreign entity in both the Branch and Representative Office.
  • In respect of taxation, there is little difference between the Branch and a Russian Legal Entity.
  • Representative Office entities are required to report their activities and any resulting income to the relevant authorities.

 

Formation of a Russian legal entity – general information:

Summary of Registration of a Russian Legal Entity:

  • Registration with Tax Authorities (5-7 working days)
  • Registration with State Committee of Statistics (2-5 working days)
  • Company Stamp (2-5 working days)
  • Registration in the Extra-Budgetary Funds (Pension Fund, Insurance Fund and Social Insurance Fund )
  • Opening a bank account (dependent on bank)
  • Registration and issuing of shares (25-30 working days) – only applicable to Joint Stock Companies.

List of Documents required from the Foreign Shareholder for the formation of a Russian Company:

  • Certificate of Incorporation / Extract from Trade Register
  • Directors Certificate and Registered Address Certificate. If these are not available any official documents containing this information are acceptable.
  • Company’s Resolution on forming a Russian company (this is not obligatory but is recommended)
  • Power of Attorney for the Russian resident signatory (only if there aren’t any Shareholders residing in Russia)

If a ready-made Russian Company is acquired the following documents are required:

  • Memorandum and Articles of Association
  • A Letter of Recommendation provided by banks (to prove its Good Standing)

List of Documents required for an Individual forming a Resident Company:

  • Passport;

These documents must be legalized and translated into Russian with the signature of the translator notarized.

Representative Office and Branch – Stages of Registration:

  • Registration with Tax Authorities (14-21 working days)
  • Company Stamp (2-5 working days)
  • Registration in the State Statistics Committee (2-5 working days)
  • Registration in the Extra-Budgetary Funds (Pension Fund, Insurance Fund and Social Insurance Fund )
  • Opening of Bank Account (dependent on bank)

List of documents required from the Non-Resident Company:

  • Memorandum and Articles of Association
  • Certificate of Incorporation / Extract from the Trade Register
  • A letter of recommendation provided by banks (to prove its Good Standing)
  • Company’s Resolution to set up a Representative Office or Branch and the Appointment of the Director;
  • Power of Attorney, this office director or affiliate;
  • Certificate of registration with Tax Authorities with Tax Code of a foreign company.

These documents must be legalized and translated into Russian with the signature of the translator notarized.