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URC Group

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Business in Russia

Setting up and Doing Business in Russia

All conditions, necessary for doing business in Russia, had been made available to foreign investors, in particular:

  1. the Federal Law “On Foreign Investments in the Russian Federation” had been adopted;
  2. the Russian Centre for the Development of Foreign Investments had been set up under the Ministry of Economic Development of the Russian Federation;
  3. the Advisory Council for Foreign Investments in Russia had been set up and is now administered by the Prime Minister of the Russian Federation.

Foreign investors are given the following rights and guarantees in the territory of the Russian Federation:

  • full and absolute protection of their rights and interests;
  • rights of indemnity as to losses, which have resulted from unlawful acts (or omissions) made by public authorities, local authorities or their officials;
  • right to invest, in the territory of the Russian federation, in any form which is not prohibited by the legislation of the Russian Federation;
  • guarantee against adverse changes in the legislation of the Russian Federation;
  • the assets of a foreign investor or a company with foreign investments are not subject to compulsory seizure, including acts of nationalization and requisition, except when such cases and grounds are established by federal laws or international conventions of the Russian Federation;
  • in the event of requisition, a foreign investor or a company with foreign investments shall be entitled to repayment of the amount representing the value of assets being requisitioned;
  • in the event of nationalization, a foreign investor or a company with foreign investments shall be entitled to compensation of the amount representing the value of assets being nationalized plus other damages.

As Russia is becoming increasingly attractive for foreign investments, the investors from abroad are frequently setting up representative or branch offices of their companies in Russia or establish Russian legal entities with foreign participation.

An incorporation of a Russian company with foreign capital is one of the services being in demand at the present time.

In compliance with the existing legislation of the Russian Federation, legal entities can be incorporated in the following forms:

  • Limited Liability Company, LLC (Russian acronym for a LLC is “OOO”);
  • Corporations of 2 types: Public and Close (Russian acronyms “OAO” and “3AO” accordingly)*;
  • General Partnership;
  • Limited Partnership (partnership in commendam);
  • Superadded Liability Company, the Russian acronym for which is “ODO”;
  • Production Cooperative.

Considering that a business is always dedicated to a maximum profit with minimum risk, the most common forms of incorporation are a Limited Liability Company and a Close Corporation.

This is related to the following:

  • the founding shareholders may be either individuals or legal entities, including foreign persons and companies, the total number of which shall not be more than 50;
  • the liability of a Limited Liability Company or a Close Corporation before the third parties shall be limited by an amount of shareholders' equity interest;
  • the minimum sum required to form a charter capital is RUR10,000 (ten thousand rubles), not only monetary resources can be used, a charter capital may be formed by means of securities, other tangible assets or rights of property, the monetary value of which can be determined.

The difference between a Limited Liability Company and a Close Corporation is virtually not considerable and is that an equity interest in a Limited Liability Company does not represent a security but a share of a Close Corporation does. Also, an incorporation and maintenance costs of a Close Corporation are substantially higher than those of a Limited Liability Company because of a mandatory procedure of recording of shares by the Federal Service for Financial Markets what shall require additional expenses on stamp duties and lawyers' fees. In addition to, a Close Corporation is obliged to notify the Federal Service for Financial Markets of certain actions, e.g. reductions in charter capital, additional issue of shares, changes of an address or a name. Also, a Close Corporation is to provide information as to its net asset value on a quarterly basis to a registering body.

The cost of incorporation of a Limited Liability Company or a Close Corporation is:

  1. Authentication of a signature on an Application for Incorporation by a notary public – from RUR1,200;
  2. Stamp duty for incorporation – RUR4,000;
  3. Stamp duty for the state registration when the shares are issued – RUR20,000 (for a Close Corporation only).

Let us turn our attention, in details, to the case when a Limited Liability Company with foreign participation is established.

The first case: a Limited Liability Company is established by a foreign legal entity (hereinafter referred to as “the Founder”).

For the purpose of registration of a Limited Liability Company the Founder shall be required to submit to the registering body of the Russian Federation a statement from the Register of companies of a relevant country or other, equally legal, evidence of a legal status of a company, which is acting as the Founder.

It is commonly required to submit the following documents:

  1. Articles of Association (Memorandum of Association);
  2. a statement from the Register of companies of the Founder's country of origin or other document, which shall confirm that such company has been registered in conformity with the laws of a country in which the Founder is a resident;
  3. Certificate of Incorporation;
  4. a document confirming the powers of the executive officer or of the authorized representative of a foreign legal entity.

All above documents shall be with genuine stamps of consular legalization or with an Apostille attached to them unless otherwise stated by international conventions of the Russian Federation. Also they shall be translated into Russian and such translation is to be notarized or certified by a consulate.

If a Limited Liability Company is established by a foreign individual then a notarised copy of his/her passport with translation into Russian shall be required.

It is important, when the documents for registration are being prepared, to decide what type of taxation is to be chosen as the Russian tax legislation has provided for, apart from general taxation system, a number of preferential tax policies. An application for the preferred type of taxation is to be submitted together with an Application for Incorporation.

It has to be noted that the documents shall be submitted to a registering body by any of the founders of a Limited Liability Company personally e.g. if a sole founder of a Russian Limited Liability Company is a foreign company then the director of the latter shall have to visit a relevant registering body in Russia him/herself to submit all necessary documents. However, no letter of attorney shall be accepted in this case. It is fairly common, for the purpose of avoiding such travel, to include a Russian legal entity or an individual in the list of founding members (for example, it can be a person to be in the position of the Director General of such Russian Limited Liability Company) with a minimum equity interest.

Because a number of active campaigns dedicated to the elimination of so-called short-lived companies are being carried out and taking into account that such legal entities are being registered in bulk at the addresses where they are never domiciled, it should be considered that an address for a Limited Liability Company future office should be chosen with due care. The acquisition of virtual addresses, what is common in other countries, may lead to rejection at the stage of state registration.

As soon as the future office address is found and such arrangements are made, a letter of intent should be received from a premises owner, in which it should be stated that such owner shall enter into a lease contract with a Limited Liability Company shortly after the registration of the latter is finalized. One copy of this letter should be enclosed to the documents, which are submitted to a registering body, the other copy is to be kept by a person who has received the letter and who will sign such contract of lease.

A Limited Liability Company is registered within 7 business days by a registering body. However, for doing business, a company must have a seal as, according to the Russian legislation, there must be a round seal, which is to comprise a company's full name in Russian and its address. Such seal may also have a name of a company in any foreign language.

When the seal is ready, it shall be necessary to obtain Certificates of registration of the company in the Federal Service for Statistics and in extrabudgetary funds.

As soon as all documents, as described above, are complete, it will be possible to open bank accounts.

Therefore, a comprehensive service for the registration of a Limited Liability Company shall take, approximately, 30 days.

For the purpose of doing business in Russia, a foreign investor may accredit his/her branch or representative office with the Ministry of Justice of the Russian Federation and register such office with the tax authorities.

The following documents shall be required for such accreditation:

  1. a statement from the Register of companies of the company's country of origin or other document, which shall confirm that such company has been registered in conformity with the laws of a country in which the company is a resident;
  2. Articles of Association (Memorandum of Association) of a foreign legal entity. If these documents are not required, and therefore they do not exist, in a country in which such legal entity is a resident, then a relevant document confirming such provision and issued by a regulatory body of the country of origin shall be submitted;
  3. a reference letter from a foreign bank, which is providing service to a company subject to accreditation, confirming the solvency of a company. Such reference letter is valid within 6 months from the date when it has been issued;
  4. a notarised copy of the general letter of attorney, in which necessary powers are given to the executive officer of a foreign legal entity while acting in the Russian Federation;
  5. document confirming the address of the representation office of a foreign company in the Russian Federation (either a letter of intent to sign a lease contract as described above or a lease contract itself; in case of sublease, a relevant sublease agreement is to be submitted);
  6. letters of recommendation issued by Russian business partners (not less than two letters, in free form, on letterheads with companies' full details, duly sealed and signed by their executive officers).

These foreign documents shall be with genuine stamps of consular legalization or with an Apostille attached to them unless otherwise stated by international conventions of the Russian Federation. Also they shall be translated into Russian and such translation is to be notarised or certified by a consulate. They remain valid within one year from the date when they have been issued.

The stamp duty for the accreditation of branch offices of foreign companies in the territory of the Russian Federation is RUR120,000 for each branch office. In addition to, the following branch accreditation charges are to be applied: USD500 per 1 year; USD1,000 per 2 years; USD1,500 per 3 years; USD2,000 per 5 years.

For the accreditation of a representation office no stamp duty shall be applied. The accreditation charges are: USD1,000 per 1 year; USD2,000 per 2 years; USD2,500 per 3 years.

The period of processing of accreditation documents is not more than 18 days; there is an option of fast track service (7 days), an additional fee of which is USD500.

In addition to the accreditation, it shall be necessary to register with the tax authorities and extrabudgetary funds, to have a round seal made and to obtain a Certificate from the Federal Service for Statistics.

The Group of companies “URC Group” is providing all of the above services in a prompt and responsible manner.

Our experts are available to advise on all matters concerning what to start with.
14 Bldg. 4 Novaya Basmannaya, Moscow, 107078, Russia
+7 (495) 929-71-21
mail@urcgroup.ru

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