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Why you need a representative office in Russia?

calendar 8/20/2020 8:00:00 AM
author Andrey Financial and banking

When you think about a millenary culture, with a vast population, and a major role in the world's economy, Russia comes to mind.

It is the largest country in the globe and has a population of 143 million. Also, Russia has the 7th largest domestic market in the world and the first in Europe. All these are just a few general reasons to consider opening a representative office in Russia.

First, Russia presents several unique opportunities that could make the right company's international expansion extremely successful. For instance, it has established 28 'special economic zones' to encourage investment from foreign companies and provide reduced administrative barriers. Besides this, they have created a great infrastructure for business development and they have improved access to qualified personnel.

Along with its eleven time zones, Russia holds a multitude of environments and a rich cultural mixture. Since the dissolution of the Soviet Union in 1991, we have seen the Russian Federation introduce new legislation and their transition towards a more favorable environment for business.

 

Business environment in Russia

Russia's middle class is rapidly increasing in size. Therefore, many foreign businesses are finding that Russian consumers are highly receptive to their brands, particularly in the sector of luxury goods and food and drink. Depending on your industry, you might find that Russia is home to the perfect market for your company.

Also, Russia has initiated new investment programs to encourage foreign investment, which could prove beneficial for businesses looking to find funds and continue their expansion process. Now, maybe you're thinking "how can I overcome the challenge represented by logistics in a huge country like this?" No problem with that. Though logistics and supply chains can be challenging due to Russia's size, recent developments in transport links and infrastructure have greatly improved the logistical efficiency of doing business in Russia. Besides, international expansion to Russia could open up opportunities to export to other countries in the Commonwealth of Independent States.

An example of an investment opportunity that you might find interesting is the Bronka Industrial Park, which is only half an hour away from Saint Petersburg, the second-largest city and economic center of Russia, and 5 kilometers away from the Bronka port.

At Mundo, we're selling the land lots of the Bronka Industrial Park, and we'll explain to you why this is one of the best industrial investment opportunities in Russia in this article.

All of this only means that companies that can balance the risks and rewards of setting up a business in Russia could find measurable success there, and it all can start with establishing a representative office.

 

Advantages of a RO in Russia

If you're thinking about the idea in a more serious way, you must understand that foreign employees of ROs do not need to obtain additional labor permits normally required for foreign workers if they have passed personal accreditation. The only condition is that the number of accredited workers employees must be agreed with the state authority that accredits RO. Further, ROs have the following advantages:

  • A simplified method of accounting and tax reporting;
  • ROs can use a simplified, fast-tracked banking scheme in Russia for withdrawal of finances for the parent entity;
  • ROs may claim back VAT and import duties from any assets and purchases that will be used to run the RO purposes (such as cars, office machines, and equipment).

After setting the goals for your Russian RO you must examine in detail all stages of the opening procedure. This to correctly distribute the existing resources and evaluate the level of the tax burden. A bonus fact is that foreign companies that have accounts in Russia pay no taxes as long as the source of income is not in the country.

Also, ROs are not subjected to government registration. Instead, they need accreditation from the State Registration Chamber at the Ministry of Justice of the Russian Federation. After the State Chamber chooses to accredit a RO, it will issue an initial accreditation certificate, registering it in the State Register of Accredited Representative Offices of Foreign Companies. Something you might find convenient is that this document usually takes about 30 working days to be issued (25 for the process, 5 for the paperwork) from the date of application. 

Considering that this certificate is required for the opening of a bank account in Russia for the RO operations, 21 days is quite speedy to start the process. Then, the applicant party is then provided with the number of bank account for the payment of duty, currently RUB120,000 (US$2,100).

 

Your next representative office should be in Russia

You must know that a representative office is an office of the parent entity that is set up in Russia to represent the interests of that parent. We consider it pertinent to clarify this since people may confuse the term with a separate legal entity. Alongside with this, you must know that as a matter of civil law, a representative office does not have its own separate legal identity. 

A representative office with accredited status is viewed as the simplest form of business presence that a foreign company could establish in Russia.  Even during the USSR's existence, establishing a RO was the only way available to foreign companies to access this market.

In contrast, today, foreigners can set up a wholly-owned subsidiary company and may participate on an equal basis in the various forms of partnership prescribed under Russian law. However, a representative office remains an effective first entry instrument. Some of the reasons for this are explained below.

Setting up a representative office is regularly the first step that foreign companies take when entering the Russian market and may be used for certain service industries on an on-going basis. For companies in many other business sectors, however, a representative office is not enough on its own, although one may form part of a future larger structure.

But this doesn't necessarily mean that a representative office may in practice conduct business in Russia and be treated by the tax authorities as a separate profit center from its parent company. Therefore, this limits the types of business for which a representative office may be useful.  For instance, a representative office may not import goods for purposes other than its own needs, nor may it register title to immovable property in its name.

Then, what can you do through a representative office? A RO can carry out representative functions on behalf of its parent, including arranging marketing and advertising in Russia, negotiating the terms and conditions of agreements on behalf of the parent entity, and facilitating the execution of those agreements by the parent company.  It may also help in other commercial and legal transactions between the parent and Russian organizations.

Foreign employees of a representative office may still receive personal accreditation, which confers certain practical benefits such as the right to import and export personal effects free of customs duty and VAT. It also assists with the process of obtaining multi-entry visas.  In practice, having a work permit should avoid difficulties with Russian state and local migration authorities.

Additionally, with a representative office, it's not necessary to be a resident for Russian currency purposes. Consequently, its foreign currency receipts are exempt from the mandatory requirement to convert those receipts into rubles. 

Following this idea, it must be highlighted that a representative office may have several different types of bank account, such as:

  • Foreign currency account
  • Ruble "conversion" account (referred to as a type "K" account)
  • Ruble "non-conversion" account (known as a type "N" account). 

These accounts enable the representative office to make payments in Russia to both residents and non-residents subject to certain currency control restrictions established by the Central Bank regulations and other applicable legislation.

 

Management

There is no requirement for either the Head of the Representative Office or the Chief Accountant to be Russian nationals. Nevertheless, you might need an accountant who understands the intricacies of Russian tax and accounting law.

If you understand all the benefits of establishing a RO in Russia, in the next section, you will find how to register it step by step.

 

How to Register a Representative Office in Russia?

The first step is to prepare the branch (Representative Office) provisions and documents (you can find a list of the most important ones below).

Then, the second step is to decide on actually establishing a branch (Representative Office) in Russia. For that, you will need to collect the incorporation documents of the foreign company and to prepare a notary translation of them.

The third step is to fill out an application form "No. 15АФП", which is the designated for representative offices.

The fourth step is to certify the information on the number of foreign employees of your representative office at the Chamber of Commerce and Industry.

Subsequently, you must pay the state duty for the accreditation of the representative office (branch), which is 120.000 rubles (USD 1,635.60).

Once you've done that, the following steps are submitting documents for the accreditation of the branch (representative office) to the Federal Tax Service. Then, wait 30 working days from the date of documents submission to receive them.

 

What should be done after receiving the accreditation of the RO to the Federal Tax Service?

From 15.03.2019, tax registration of a branch (representative office) of a foreign company is carried out automatically from the date of making an accreditation record. A branch (representative office) only needs to obtain a certificate of registration with the tax authority at its location. The next steps are getting notices and notifications of:

  • registration in the statistics register of branches (representative offices) of foreign companies and statistics codes at Rosstat;
  • about the registration in extra-budgetary funds.

After accreditation, you must register with the Pension Fund of the Russian Federation (PFR), Social Insurance Fund (FSS). That is done by filing applications and documents confirming the status of the branch.

Finally, you need to open a bank account and order a seal (if necessary) and to get a certificate of personal accreditation for foreign employees of a foreign RO. This is to register them for visas to enter into the Russian Federation.

Foreign citizens may be invited to work at a branch or representative office of a foreign legal entity. They are subject to accreditation. The registration is made at the Chamber of Commerce and Industry. The exception is branches (representative offices) of credit institutions. In this case, the Central Bank of Russia draws up accreditation.

The certificate confirming the personal accreditation is subject to mandatory return to the Chamber of Commerce and Industry of the Russian Federation in case of termination of the work of a foreign employee. It also applies in case of the ending of the activities of the established RO. Even the replacement at the end of the certificate validity period, change of address, telephone, fax, e-mail of the RO has to be notified to this entity.

 

What documents should you have for sure in this process?

Some documentation and requirements you will need are the following:

  • A written petition containing all basic details of the parent company (business license, legal address, list of directors and shareholders, business scope).
  • The purpose of setting up a RO in Russia, information on a planned or existing collaboration with Russian companies.
  • A copy from the State Register of Legal Entities from the parent companies (a business license or tax registration certificate will suffice).
  • Notarized Board Resolution authorizing the establishment of a RO in Russia.
  • Bank Reference from the parent company's bank;
  • Power of attorney granted to the person who will submit documents for the company to the State Registration Chamber in Russia, and for the person who will be the Legally Responsible Person. This person does not have to be a Russian resident nor.
  • A lease rental document identifying the RO address in Russia (a letter of guarantee from the lessor for the planned office rental).
  • Any reference letters from Russian business partners or contacts if available.

 

What can we do for you?

Now, with this information, your journey to establish a RO in Russia, and getting into this important business environment, is well set. In Mundo, we offer top-level financial, immigration, investment, and corporate services in this country.

We have a top expert team in Russia that handles top investment possibilities and can offer you excellent tax, corporate, and banking advice.

You can check our Country Focus for more information and, if you have any inquiries regarding our services, CONTACT US RIGHT NOW!

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