What You Need To Know For A Successful Business Start-Up In Russia

Russia is the largest European foreign trade partner. During the first six months of year 2013 imports to Russia grew by 3.6 percent. Year by year new companies enter the Russian market to sell their good and services with the aim to increase profits and revenues. With this article we want to give you a first rough overview about the mostly used corporate forms for establishing a business in Russia. It shall give you an orientation which path to go towards your new company in Russia.

A foreign company wishing to be present in the Russian market can do so by choosing different corporate forms. The most popular choices are the foundation of a representative office, a branch or a subsidiary. With respect to the foundation of a company in Russia you can say: "What you have you can hardly change later." Therefore choosing the optimal legal form from the very beginning is essential to make your business development and strategy fit with the legal structure you chose in the long term.

About 10 years ago the representative office was the most popular choice for foreign companies opening a business in Russia. Representative offices are considered as a permanent establishment of a foreign company in Russia. They are no Russian companies and usually have no business activity. Nowadays the perception of the local market participants is that a foreign company gives the Russian market only a minor priority and is not sure about the long-term business strategy in Russia.

The second corporate form here to mention is the branch. As the representative office the branch is not a separate legal entity but is a part of the foreign company. Branches usually have business activity and they can import goods to execute trade activities in Russia. As representative offices and branches are considered as a part of a foreign company they are subject to a currency control mechanism. All payments for goods and services to local businesses exceeding USD 5.000 require comprehensive documentation to be issued by the Russian company. This makes representative offices and branches quite 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). The 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 business with.

All permanent corporate establishments in Russia, like representative offices, branches and subsidiaries, are taxable, social securities 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 financing of representative offices and branches at start-up stage differs from the financing of subsidiaries. Representative offices and branches can be financed easily from the mother company abroad as they are considered foreign establishments and are not subject to currency control. However, cash flows between the foreign mother company and the subsidiary are subject to currency control and there has to be legal reasoning like re-payment of loans or payment of dividends.

Depending on your products and services and your derived business strategy for the Russian market the one or the other corporate form might more fit into your business plans. Besides of choosing the right legal form, there are other considerations that have to be done before starting your business in Russia and it is recommended to visit a a business consultant in Russia as well. Want to find out more about the business formation in Russia, please visit our website, subscribe to our mailing list and receive our free eBook "Business Establishment in Russia 2014" which contains a detailed overview of the corporate forms and captures issues with bookkeeping and accounting in Russia as well as the process of company registration and receipt of work permissions.

Want to find out more about the start-up of a business in Russia, then visit our site at www.rusconsult24.com and get ready for the company formation in Russia.

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