As of today Russia remains one of investment attractive countries offering a great range of business solutions for foreign entrepreneurs. The process of establishing a business in Russia is comparatively easy – in order to start operating it is enough to comply with general incorporation requirements. Below is a brief summary of requirements which shall be taken into account when deciding to launch a business in Russia. 1
Types of corporate entities in Russia
The principal forms of business structure in Russia are: (A)
Legal entity
According to recent amendments to the Civil Code of Russia commercial legal entities are commercial corporations, which may be public and non-public. As a general rule legislative regulation of public commercial corporations is stricter than regulation of non-public ones. Commercial corporations can be established, inter alia, in the form of a: (i)
Joint Stock Company (JSC), which may be public or non-public; and
(ii)
Limited Liability Company (LLC), which is non-public.
All these forms are regulated by the Civil Code of Russia, the Federal Law “On Joint Stock Companies” (No. 208-FZ dated 26 January 1995) (“Law on JSC”) and the Federal Law “On Limited Liability Companies” (No. 14-FZ dated 8 February 1998) (“Law on LLC”) respectively. (B)
Branches and representative offices
A foreign company which is properly registered in its home country may do business in Russia through a registered branch or representative office. A representative office or a branch of a foreign legal entity is not considered a Russian legal entity, but rather a body representing the interests of a foreign legal entity in Russia. Heads of representative offices and branches are appointed by the company that they represent and act under powers of attorney. A representative office is entitled to promote the business, represent and protect interests of the foreign founder. A branch is a subdivision of a foreign legal entity, which may fulfill all or part of the functions of its foreign founder.
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Branches are required to be accredited by the State Registration Chamber of the Russian Ministry of Justice (by the Federal Tax Service since January 1, 2015). In the case of representative offices, the registering state authorities may differ depending on the nature of the head office’s activity, but it is typically either the State Registration Chamber of the Russian Ministry of Justice or the Russian Chamber of Commerce. Besides accreditation, the Registration process for both branches and representative offices includes registration with the tax authorities, the State Statistical Fund and the State Social Fund and opening bank accounts. (C)
Joint activity agreement (simple partnership) (JAA)
JAA may be implemented by two or more parties which may be individuals (having a status of individual entrepreneur) and/or companies through (i) a legal entity (full or limited partnership); OR (ii) through an agreement on joint activity. (i)
Full or limited partnership. In full partnership participants, in accordance with a contract concluded between them, do business on behalf of the partnership and are liable for its obligations with their own property. In a limited partnership, in addition to the participants who do business on behalf of the partnership and bear the risk of losses with their property (general partners), there are one or more investor-participants (limited partners). Limited partners are only liable for the obligations of the partnership to the extent of their contributions. Foreign companies may participate in a JAA with a local partner. One of the partners is usually appointed for bookkeeping and statutory reporting purposes. In the case of international partnerships, one Russian partner is required for Russian tax purposes, to undertake bookkeeping and to organize payment of taxes.
(ii)
Agreement on joint activity represents the pooling of assets for the common conduct of specific business agreed by the parties without foundation of a legal entity.
Below are the main features with brief description highlighting the incorporation requirements for the most common forms of business structure in Russia: joint-stock companies, limited liability companies, branch and representative offices.
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No. 1
Issue General
Joint-Stock Company
Limited Liability Company
Branch office / Representative office
A joint stock company issues common or preferred shares in order to raise capital for its activities. A shareholder in a joint stock company is not generally liable for the obligations of the joint stock company, and bears the risk of any loss only up to the amount paid by it for the shares.
LLC is a more commonly found form of legal entity with greater flexibility and the least burdensome statutory obligations since there is no need to issue shares. The owners’ equity participation is determined by their capital contribution. Its capital is divided into “units” which, since they are not actually “shares”, fall outside the scope of Russian securities law and therefore are not subject to registration as securities with respective governmental authority.
A Branch office is a subdivision of a foreign legal entity, which may fulfill all or part of the functions of its foreign founder.
Two types of joint stock company exist in Russia since September 1, 2014: ü
ü
2
Scope activity
of
Public joint stock companies (PJSC) (open subscription to the shares issued by PJSC, which are freely traded under the conditions established by the law and other legal acts);
A Representative office is a subdivision of a foreign legal entity entitled to promote the business, represent and protect interests of the foreign founder.
Participants are liable for the LLC’s obligations only to the extent of the nominal value of their units of participation.
Non-public joint stock companies (JSC) (shares are only distributed among its founders or other predetermined group of persons. Shareholders have pre-emptive rights of purchase).
A joint stock company can engage in any activities specified in its Charter. Some types of activities are to be licensed.
A LLC can engage in any activities specified in its Charter. Some types of activities are to be licensed.
A Branch / Representative office can engage in the activities specified in the Regulations hereof. The scope of activity of a Branch office may include conducting the business activity but
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such activity cannot extend the activity of a foreign company. Representative office can not be engaged in the commercial activity, it is only entitled to promote the business, represent and protect interests of the foreign founder. 3
Incorporation decision
A joint stock company is established on the basis of a Resolution of the Sole founder or Minutes of the General meeting of founders.
A LLC is established on the basis of a Resolution of the Sole founder or Minutes of the General meeting of founders.
A Branch / Representative office is established on the basis of a Resolution of a Head company.
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Required documents to establish an entity
1) Documents of a Founder – foreign legal entity:
1) Documents of a Founder – foreign legal entity:
1) Documents of a Head company – foreign legal entity:
ü
Extract from the Trade (Commercial) Register OR other similar document;
ü
Extract from the Trade (Commercial) Register OR other similar document;
ü
Extract from the Trade (Commercial) Register OR other similar document;
ü
Charter OR Articles of Association OR Memorandum of Association;
ü
Charter OR Articles of Association OR Memorandum of Association;
ü
Charter OR Articles of Association OR Memorandum of Association;
ü
Reference letter from the bank on the good standing of the Founder-foreign legal entity;
ü
Reference letter from the bank on the good standing of the Founder-foreign legal entity;
ü
Reference letter from the bank on the good standing of the Head company - foreign legal entity;
ü
Certificate of registration of the Founder-foreign legal entity as a taxpayer with respective tax or fiscal authorities OR Certificate of tax residency of the Founder-
ü
Certificate of registration of the Founder-foreign legal entity as a taxpayer with respective tax or fiscal authorities OR Certificate of tax residency of the Founder-
ü
Certificate of registration of the Head company - foreign legal entity as a taxpayer with respective tax or fiscal
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foreign legal entity in the country of incorporation. ü
Corporate documents which confirm appointment (election) of the Chief Executive Officer, director(-s) or other officer(-s) authorized to sign documents on behalf of the Founder-foreign legal entity.
Please note that the above documents shall be legalized and translated to Russian. 2) Documents to be drafted/issued:
foreign legal entity in the country of incorporation. Corporate documents which confirm appointment (election) of the Chief Executive Officer, director(-s) or other officer(-s) authorized to sign documents on behalf of the Founder-foreign legal entity.
ü
2) Documents to be drafted/issued:
Charter;
ü
Charter;
ü
Resolution of the Sole founder or Minutes of the General meeting of founders;
ü
Resolution of the Sole founder or Minutes of the General meeting of founders;
Application on state registration (to be signed in presence of a notary public);
ü
Foundation agreement (in case if a joint stock company is established by more than one founder);
ü
ü
ü
Application on state registration (to be signed in presence of a notary public); Foundation agreement (in case if a LLC is established by more than one founder).
Report on the results of issue, 5
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ü
Please note that the above documents shall be legalized and translated to Russian.
ü
ü
authorities OR Certificate of tax residency of the Head company - foreign legal entity in the country of incorporation. Corporate documents which confirm appointment (election) of the Chief Executive Officer, director(-s) or other officer(-s) authorized to sign documents on behalf of the Head company foreign legal entity.
Please note that the above documents shall be legalized and translated to Russian. 2) Documents to be drafted/issued: ü
Application on accreditation;
ü
Resolution on establishment of the Branch / Representative office;
ü
PoA in favor of the Head of the Branch / Representative office;
ü
Regulations for the Branch / Representative office;
ü
Information
sheet
for
the
decision on approval of the results of the issue, other related documents required for registration of the share issue and report on share issue. 5
6
Actions to be taken to register the entity
accreditation authority.
ü
Drafting and signing the constituent documents;
ü
Drafting and signing the constituent documents;
ü
Drafting and signing the constituent documents;
ü
Signing and notarizing application on state registration;
ü
Signing and notarizing application on state registration;
ü
ü
Payment of state duty for registration;
ü
Payment of state duty for registration;
Filing a complete set of documents for state accreditation to appropriate state authority;
ü
Filing a complete set of documents for state registration with tax authority;
ü
Filing a complete set of documents for state registration with tax authority;
ü
Payment of accreditation fee;
ü
Manufacturing of a seal;
ü
Manufacturing of a seal of a joint stock company;
ü
Manufacturing of a seal of a joint stock company;
ü
Submission of the documents registration with tax authority;
ü
Registration of a joint stock company with the Pension Fund of the Russian Federation and the Fund of Social Security;
ü
Registration of a LLC with the Pension Fund of the Russian Federation and the Fund of Social Security;
ü
Registration of a LLC with the Pension Fund of the Russian Federation and the Fund of Social Security;
ü
Opening bank accounts;
ü
Opening bank accounts;
ü
Notification of the tax authority and state funds about the opened accounts.
ü
Notification of the tax authority and state funds about the opened accounts.
Minimum share capital requirements: 10 000 Rubles (approx. 150 EURO);
−
Accreditation office:
ü
Opening bank accounts;
ü
Notification of the tax authority and state funds about the opened accounts;
ü
State registration of the share issue and the report on shares issue with the Bank of Russia.
Costs of − establishment
Minimum share capital requirements: − PJSC – 100 000 Rubles (approx. 1500 EURO); JSC – 10 000 Rubles (approx.
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fee
for
for
Representative
150 EURO); −
−
State duty for registration of a joint stock company: 4 000 Rubles (approx. 60 − EURO);
State duty: 4 000 Rubles (approx. 60 EURO);
ü
1 year accreditation – 35 000 Rubles (approx. 540 EURO)
Associated expenses (notary fees etc.)
ü
2 years accreditation – 65 000 Rubles (approx. 1 000 EURO)
−
State duty for registration of share issue: 20 000 Rubles (approx. 310 EURO);
ü
3 years accreditation – 80 000 Rubles (approx. 1 240 EURO)
−
Associated expenses (notary fees etc.)
ü
Additional urgency fee (irrespective of the term) – 15 000 Rubles (approx. 230 EURO)
−
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Time
of
The whole procedure will take not less than 1.5 months (excluding the term for
The whole procedure will take not less than 7
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Accreditation fee / state duty for Branch office: ü
1 year accreditation – 20 000 Rubles (approx. 310 EURO)
ü
2 years accreditation – 35 000 Rubles (approx. 540 EURO)
ü
3 years accreditation – 50 000 Rubles (approx. 780 EURO)
ü
5 years accreditation – 75 000 Rubles (approx. 1160 EURO)
ü
Additional state duty for accreditation 120 000 Rubles (approx. 1 850 EURO) (irrespective of the term)
Associated expenses (notary fees etc.)
The whole procedure will take not less than
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establishment
registration of shares issue/report on share issue).
1.5 months.
2 months.
Share Capital
Minimum share capital requirements: PJSC – 100 000 Rubles (approx. 1500 EURO); JSC – 10 000 Rubles (approx. 150 EURO).
Minimum share capital requirements: 10 000 Rubles (approx. 150 EURO).
No share capital.
Contributions to the share capital can be made in cash or in kind. Please note that in case contributions are to be made in kind an independent appraisal shall be involved. 9
Shares
A Charter of a joint stock company shall indicate the number and nominal value of the shares acquired by the shareholders as well as the rights granted by such shares. A Charter can indicate the number, nominal value, categories (types) of shares a company might place additionally to the outstanding shares (declared shares) and rights provided by such shares. On absence of such provisions in the Charter the company is not entitled to place additional shares.
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Corporate Bodies
PJSC:
Contributions to the share capital can be made in cash or in kind. Please note that in case contributions are to be made in kind an independent appraisal shall be involved.
The amount of the participatory share is determined in percentage (%) or decimal (/). The amount of the participatory share of the participant shall correspond to the balance between nominal value of its share and the total amount of the charter capital. The actual value of the participatory share of the participant corresponds to the part of net assets value in proportion to the amount of its share.
LLC:
Branch / Representative office:
ü
General meeting of shareholders (obligatory);
ü
General meeting (obligatory);
ü
Collective management body (Board of Directors and/or Advisory Board) (obligatory, the number of members
ü
General Director (obligatory);
ü
Collective management body (Board of Directors and/or Advisory Board) 8
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No share capital.
of
participants
ü
Head of Branch / Representative office (obligatory)
shall be not less than 5 persons);
(optional);
ü
Collective executive body (optional);
ü
Collective executive body (optional);
ü
General Director (obligatory);
ü
Revising commission (optional).
ü
Revising commission (obligatory).
Since September 01, 2014 more than 1 General Director can be appointed. Please note that it is obligatory to appoint an auditor to conduct annual examination of the company’s financial statements. JSC: ü
General meeting of shareholders (obligatory);
ü
General Director (obligatory);
ü
Collective management body (Board of Directors and/or Advisory Board) (optional);
ü
Collective executive body (optional);
ü
Revising commission (optional).
Since September 01, 2014 more than 1 General Director can be appointed. An auditor might be appointed to conduct annual examination of the company’s financial statements. The Civil Code of Russia provides for certain issues which fall within exclusive competence of the General meeting of participants. The Charter can extend the exclusive competence of the General meeting of participants. Competence of the Board of Directors and General Director shall be determined in the Charter.
Since September 01, 2014 more than 1 General Director can be appointed. Please note that it is obligatory to appoint an auditor to conduct annual examination of the company’s financial statements. The Civil Code of Russia provides for certain issues which fall within exclusive competence of the General meeting of 9 6160933_5
shareholders. The Charter of JSC can extend the exclusive competence of the General meeting of shareholders (extension of exclusive competence of the General meeting of shareholders in PJSC is prohibited). Competence of the Board of Directors and General Director shall be determined in the Charter. 2
Legal framework which favors (foreign) investments
Foreign investment is regulated by Federal Law “On Foreign Investments in the Russian Federation” (No. 160-FZ dated 9 July 1999). It is not applicable to investments of foreign capital in banks and other credit organizations, insurance companies or non-commercial organizations and relationships on founding and winding-up of foreign banks’ representative offices in the territory of Russia. According to the Federal Law the legal regime for foreign investments is generally the same as the regulation of national (local) investors’ investment activities to the extent specified in federal laws. Restrictive exceptions for foreign investments may only be introduced to protect constitutional fundamentals, morality, health and the rights of other persons or in order to ensure state security and defense. In particular, it is prohibited for foreign companies to own agricultural or near-border land plots either directly or by being a majority shareholder/participant of a Russian company owning such land plots. Foreign investors are fully protected against nationalization or expropriation unless such action is mandated by a federal law, in which case foreign investors are entitled to receive compensation for any investment and other losses. Affiliated and dependent companies of a commercial organization with foreign investment do not enjoy the legal protection, guarantees and privileges established by the Federal Law. The Federal Law provides for a number of guarantees for foreign investors. For instance, it guarantees the right of foreign investors to make investments in any forms permitted by the law, to acquire private and government securities, to take part in privatization, to acquire land plots, subsoil resources, buildings, other immovable property, etc. Recently new the novel to the Federal law was adopted under which foreign legal entities in field of civil aviation are subject to control by relevant state authorities, including, but not limited to, state accreditation.
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Please note that at the same time there are certain restrictions on foreign investments. In particular, the Federal Law No. 57-FZ dated 29 April 2008 “On Procedures for Foreign Investments in Companies of Strategic Importance for National Defense and State Security” provides for the necessity to obtain a special regulatory approval in order invest in companies which are of strategic importance for national defense and security (nuclear and weapons; aviation and space; natural resources etc.). In order to promote investments in Russia specific special economic zone (“SEZ”) were established in accordance with the Federal Law “On Special Economic Zones in the Russian Federation” (No.116-FZ dated July 22, 2005). A SEZ is a territory within Russia defined by the Russian Government where a special business regime is introduced and a free customs area may be applied. The Russian Government selects geographical locations in various parts of Russia to establish four types of SEZ: •
Industrial Zones (“IZs”)
•
Technological Innovation Zones (“TIZs”);
•
Tourism and Recreation Zones (“TRZs”);
•
Port and Logistics Zones (“PLZs”).
Russian legal entities or individual entrepreneurs interested in participating in a SEZ (foreign investors receive benefts only upon establishing Russian subsidiary) should obtain the status of a SEZ resident by registering on the SEZ territory and entering into the appropriate agreement. The general tax benefits for SEZ residents are: •
Full exemption from Corporate Property Tax for the first 5-10 years depending on the particular SEZ, starting from the moment when assets are booked in the SEZ resident’s accounts;
•
Full exemption from Land Tax for the first 5-10 years depending on the particular SEZ, starting from the moment when the right of ownership of land plots is acquired (applicable only to land plots located within the territory of the SEZ);
•
The total Profits Tax rate may be reduced by regional laws to 2% - 15.5% rather than the usual 20% rate, depending on the particular SEZ;
•
The right of immediate write-off of Research and Development expenditure;
•
A special customs regime (Free Customs Zone regime) is applicable within the territory of a SEZ and provides a number of benefts to SEZ residents. For example, including foreign goods imported into the territory of the zone are exempt from import taxes and duties (subject to certain conditions), and Russian 11
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goods may be delivered to the territory of the Zone and processed within the Zone under export customs regime conditions without payment of export customs duties (except for excise tax); •
Tax legislative acts that worsen the taxpayer’s position are not applied to SEZ residents during the term of the special agreements with the Federal SEZ Management Agency.
Special tax benefits for residents of particular SEZs: •
Residents of IZs and TRZs may apply an accelerated depreciation coeffcient (up to 2);
•
TIZ residents may apply reduced rates of social contributions payable on the salaries of employees working within the territory of the TIZ;
•
Work done and services provided by residents of a PZ within the PZ is exempt from VAT;
•
There are special benefts and regulations for SEZ residents in the Magadan and Kaliningrad regions.
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Italian – Russian bilateral agreements
As of the date of this Article the following bilateral agreements concerning tax relations were concluded between Italy and Russia: •
"Agreement between the Government of the Russian Federation and the Government of the Italian Republic on cooperation and mutual assistance in the field of foreign exchange control, control of export-import operations in the field of anti-money laundering or other property acquired by illegal means" (Rome, 29.07.1996);
•
“Convention between the Government of the Italian Republic and the Government of the Russian Federation on the avoidance of double taxation with respect to taxes on income and on capital and the prevention of fiscal evasion” (Rome, 09.04.1996);
•
"Agreement between the Government of the Russian Federation and the Government of the Italian Republic on the incentives and mutual protection of investments" (Rome, 09.04.1996).
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