Representative
office of a foreign company in Russia
Introduction
Legal status
Tax status
Currency control considerations
An alternative
Accreditation procedures
Registration procedures
Disclaimer
Contacts
Introduction
Any foreign company carrying on commercial activity in
Russia must, quite naturally, comply with Russian legal
requirements. Normally the company, for conducting its business,
establishes some kind of an office in Russia. In accordance
to the law, this office should be accredited (permitted
to act by the state) and registered (for tax purposes).
In this paper we give a short description of the relevant
procedures and requirements, and of the legal and tax status
of such an office in Russia.
Legal status
First of all, let us give a short introduction
to the legal background and the terminology involved.
In accordance to the Russian Civil Code,
any legal entity can have a separate division in a place
other than its principal place of location. The Code stipulates
two types of such divisions, namely the representative
office and the branch. (This refers to both Russian
and foreign companies.)
According to the Code, a representative
office is a division representing and protecting interests
of the legal entity, whereas a branch is a division exercising
any or all functions of the legal entity, including the
functions of a representative office. None of the two, however,
is a legal entity separate from the parent company: any
assets or liabilities related to a division are those of
the parent company itself.
As we see, the branch is understood as
a division possessing generally more powers of the parent
entity, as compared to the representative office's powers.
However, a representative office is allowed to be involved
into commercial activity also. Normally establishing a representative
office of a foreign company is sufficient for doing business,
though establishing a branch is also possible.
Tax status
The tax status of foreign companies in
Russia is determined by the Russian Tax Code. In accordance
to the Code, there are two different ways for a foreign
company to derive income from the territory if Russia: carrying
on business through a permanent establishment or
without such a permanent establishment.
A permanent establishment of a foreign
organisation in Russia is understood as any fixed place
of doing business. According to the Code, this may be a
branch, a representative office, a bureau, an office, an
agency, another separate division or place of business,
through which the organisation regularly carries on entrepreneurial
activity on the territory of Russia. This notwithstanding,
even if the foreign company has no office in Russia, but
appoints a person (called a dependent agent) for
carrying on business in Russia on behalf of the company,
it results in deemed creation of its permanent establishment
for tax purposes. An independent agent (e.g. a broker)
is not deemed to create a permanent establishment.
The profits derived by a foreign company
through a permanent establishment are taxed in Russia at
the usual profit tax rate (currently 24%). This rate also
applies to regular Russian companies. Generally, the principles
of taxation applicable to a permanent establishment of a
foreign company in Russia are basically the same as the
ones applicable to a regular Russian company, mutatis
mutandis. They are both subject to the profit tax, the
VAT, the property tax, payroll taxes, regional taxes, etc.
They are also both subject to Russian accounting and reporting
rules.
Income derived by a foreign company without
a permanent establishment is normally one of a passive character,
i.e. dividends, interest, royalty, etc. It is usually subject
to withholding tax.
As we see, both a representative office
and a branch generally constitute a permanent establishment
of the foreign company for tax purposes. However, there
may be situations in which the actual activity of the division
does not result in deemed creation of a permanent establishment
in the tax sense (e.g. short-term construction in accordance
with the terms of a tax treaty between the two countries).
But anyway the office should be accredited and registered
in the first place for commencing any activity.
(Note there is some mess in the Russian
terminology: the civil law term "representative office"
and the tax law term "(permanent) establishment"
are one and the same word in Russian: predstavitel'stvo,
while being different in their respective meanings. This
unfortunate circumstance leads to quite a few confusions,
misunderstandings, and even collisions.)
Currency control considerations
Russia has currency control legislation
in force, designed with a view to protect the national currency
from supposedly harmful influence of the outside financial
world. For this purpose, Russian residents are legally restricted
in their operations with foreign currencies, whereas non-residents
are restricted in their rouble operations.
As we mentioned above, a representative
office of a foreign company in Russia is in no way a separate
Russian legal person. The accounts the company may open
with Russian banks to do business through such an office
are still accounts of a non-resident. As such, they are
subject to currency control regulations applicable to non-residents.
This means that company's foreign currency (US Dollar, Euro,
etc.) accounts are operated without substantial restrictions,
and once the money is on the foreign currency account, the
whole amount may be freely sent abroad. At the same time,
company's rouble accounts are subject to strict control
rules.
Specifically, the regulations stipulate
two major types of rouble accounts of a non-resident company:
Type "K" (convertible) and Type "N"
(non-convertible). As it follows form the accounts' respective
names, rouble amounts on a Type "K" account may
be converted into a foreign currency (and further repatriated)
without restrictions; but the amounts on a Type "N"
account may not be converted - lest they are first blocked
on the account for one year.
Currency control regulations specify the
exact list of operations allowed to be executed through
each type of the accounts. Generally, most transactions
with Russian residents may be channelled through a Type
"K" account, unless the operation is related to
obtaining a loan from a resident, or to selling anything
to a resident on long-term prepayment terms. In the both
latter cases, the money must be credited to a Type "N"
account. In case the foreign company wishes to acquire shares
in a Russian company, it may do it using the funds on a
Type "K" account, but not on a Type "N"
account.
An alternative
There is yet another way for a foreign
organisation to do business in Russia. The organisation
may establish a Russian subsidiary company, which would
further operate in Russia on its own behalf. This is a completely
different case not covered by this paper. In this case generally
no permanent establishment of the foreign company is deemed
to be created, and the Russian subsidiary is taxed and otherwise
treated as a regular Russian resident company, perhaps with
minor reservations.
In particular, subsidiary's profits are
taxed at the usual rate (24%), and the dividends distributed
to the foreign parent are subject to the withholding tax
(currently at 15%, if no tax treaty is in place between
the two countries). No currency control restrictions are
applicable to rouble accounts of the resident company, but
to make a payment from its foreign currency (e.g. US$) account,
the company must comply with relevant regulations.
Accreditation procedures
Accreditation means obtaining a permission
from a government authority to establish a representative
office (or a branch) of a foreign company in Russia. Accreditation
provides an official status for the company and allows it
to carry on commercial activity in Russia. Besides that,
accreditation grants the company a right for visa support
from the Ministry of Foreign Affairs. This means that invitations
and long-term visas are granted for expatriate employees
of the representative office, as well as for their family
members.
The major agencies authorised to accredit
representative offices of foreign companies are the State
Registration Chamber of the Ministry of Justice of the Russian
Federation and the Chamber of Trade and Industry of the
Russian Federation, though in certain cases accreditation
with other ministries may be possible. As for branches,
the only agency authorised to accredit them is the State
Registration Chamber - such discrimination originates from
mostly historical rather than logical reasons.
The documents required from a foreign
company to accredit its representative office in Russia
are as follows.
1. An application of the company for accreditation
(a specific wording is required).
2. The certificate of incorporation (or excerpts from a
commercial register) confirming registration of the company.
3. The statutes of the company (e.g. its Memorandum and
Articles of Association).
4. A reference letter from the company's bankers.
5. A resolution of the company to establish a representative
office in Russia.
6. A power of attorney for the head of the representative
office.
7. A power of attorney for the person (if different from
the above) authorised to apply for accreditation on behalf
of the company.
8. The statutes of the representative office.
9. A confirmation of the address of the representative office.
10. Reference letters from Russian commercial partners of
the company (at least two).
11. An agreement of local authorities (only if the representative
office is not in Moscow).
12. Information about the representative office (in a specific
form).
The documents No. 1-6, that is ones of
the foreign origin, must be specifically certified. That
is, they should be either apostilled by a government
authority in the country of origin, or legalised
by the Russian consulate or embassy, also in the country
of origin of the company. For either of the two, the documents
are normally required to be certified by that country's
notary first. ("Apostille" is an internationally
accepted form of certification prescribed by the Hague Convention
of 1961, which Russia is a party to.) The documents should
be further furnished with a Russian translation, which should
be certified (usually by a Russian notary).
(The documents required for accreditation
of a branch are basically the same.)
The state accreditation fees should be
paid at this point. Those depend on the term the representative
office is accredited for (US$1,000-2,500 for 1-3 years).
The procedure of accreditation normally takes 21 working
days, though acceleration to 7 days is possible at US$500
in extra costs. (The quoted fees are those of the State
Registration Chamber.)
On obtaining the permission for establishing
a representative office or a branch - that is, on accreditation
- the company may apply for personal accreditation of its
expatriate personnel in Russia (by default, up to 5 persons)
and their family members, which grants them a right for
the visa support.
Registration procedures
On being accredited, the representative
office (or a branch) must be registered with a relevant
tax authority. In Moscow, this will be the Inspectorate
No. 38 of the Ministry of Taxes of the Russian Federation.
For tax registration, the following documents are required.
1. An application of the company for registration
(in a specific form).
2. The certificate of incorporation (or excerpts from a
commercial register) confirming registration of the company.
3. A certificate of the tax registration of the company
in its country of origin.
4. A resolution of the company to establish a representative
office in Russia.
5. A power of attorney for the head of the representative
office.
6. A power of attorney for the person (if different from
the above) authorised to apply for registration on behalf
of the company.
The documents No. 2-5 must again be apostilled
or legalised and furnished with a certified translation.
Note that now we need an additional required foreign certified
document as compared to the previous lists, namely, the
tax registration certificate. It is usually advisable to
obtain it beforehand and include in a single set of documents
to be apostilled. Then it is possible to pass the original
apostilled set to the State Registration Chamber, and its
notarised copy to the Tax Inspectorate.
The procedure of tax registration officially
takes 5 working days, though delays are unfortunately possible.
Besides the above, the representative
office (or a branch) must be registered with various other
government agencies, such as the Pension Fund of Russia,
the Social Security Fund, the Fund of Obligatory Medical
Insurance, and the State Committee for Statistics. This
may take another week.
On completion the registration procedures,
the company may open bank accounts in Russian banks. Several
different types of accounts are available for a foreign
legal entity, including the "Type N" (non-convertible)
rouble account, the "Type K" (convertible) rouble
account, and the foreign currency account, each having its
specific regime in terms of the currency control legislation.
On finishing all the above, the company's
representative office may at last commence its actual business
activity.
Disclaimer
This paper contains only a general sketch
of the legal and taxation issues relating to the status
and accreditation/registration procedures of a foreign company's
representative office in Russia. We recommend you to seek
advice and/or assistance of a Russian professional firm
in any specific case.
Contacts
Roche & Duffay
Moscow office
Tel. +7 495 926-2990
UK Fax +44 207 6812623
US Fax +1 978 359-8182
Email roche.duffay@pobox.com
Web http://www.roche-duffay.ru
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