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Why you need a representative office in Russia?
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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