Starting A Business In Russia Successfully - This Is What You Need To Know

Russia is a large economy and the European Union is Russia's most important foreign trade partner. In the first half of 2013 imports from European countries to Russia increased by 3.6 percent. Every year new foreign companies step into the Russian market to sell their products and services to increase their revenues and profits. This article is intended to give you a rough overview about corporate forms that can be established in Russia and their specifics and can be used as a first orientation on the way of choosing the optimal corporate form for the Russian market.

To establish a business in Russia, foreign companies can choose between a representative office, a branch or a subsidiary. There are advantages and disadvantages between these corporate forms and choosing the right one is essential to have in the long term a company available that fits your needs. In Russia, it is complicated to change from one corporate form into another one.

At the end of the century, the representative office foreign companies chose mainly the representative office for market entry. After Russian law representative offices are conceived a taxable long-term establishment of a foreign company in Russia. They are usually used to execute marketing activities in Russia and arrange for agreements between a Russian local firm and the mother company abroad. Usually representative offices do not execute business activities like import and trade. Russian local businesses perceive the representative office as giving only a minor priority of a foreign mother to the Russian market. This and a large bureaucracy related to currency control make the representative office rather unpopular between local firms.

The branch is another corporate form. Being also considered to be a foreign entity established in Russia it usually has business activity, can import goods and have trade activity in Russia. Representative offices and branches are subject to currency control as they are considered as foreign companies. That means that any business with local companies exceeding USD 5.000 must be comprehensively documented and reported by the local Russian company. This process is very unpopular.

The most popular corporate form in terms of business appearance and operability is the subsidiary, which can appear as a Limited Liability Company (LLC) or Joint Stock Company (JSC). Between those, the LLC is regularly the preferred form as it is easy to register and the capital requirement is low (RUB 10.000 or USD 350). A subsidiary is a company by Russian law and, therefore, not subject to currency control. It can import goods and have trade activity. Between local businesses, the subsidiary is the preferred corporate form to do for doing business.

All permanent corporate establishments in Russia, like representative offices, branches and subsidiaries, are taxable, social security fees need to be calculated, financial accounts have to be issued, and up to 15 different reports have to be provided to various Russian authorities on a quarterly basis.

The start-up financing of representative offices and branches is easy as are considered as foreign companies. Cash transfers can be done without complication. However, the subsidiary as a corporate form by Russian law is subject to currency control. Cash transfers and payments from outside Russia need to have a legal reason as loan- or dividend payment. They also take much longer as documents have to be prepared for the currency control and banks have to check those. Incorrect documents may lead to reject of cash transfers.

Prior to establishing a company in Russia there are several other factors that should be considered before making a final decision for the establishment of business in Russia. You also might want to discuss your case with a Russia business consultant.