Investor’s Guidebook

A branch of a foreign legal entity is its separate unit not being an independent legal entity. A branch is set up to carry out activities of a foreign legal entity (a parent organization) outside the Russian Federation and is liquidated by the resolution of such entity.

A branch undertakes its activities in accordance with the Branch Regulations approved by the parent organization and exercises all or part of the functions, including representation, on behalf of the parent organization, provided the objectives and activity of such organization are of commercial nature, it also bears direct property liability for assumed obligations associated with the operation in the Russian Federation.

A branch can exercise entrepreneurial activities in the Russian Federation upon its accreditation and ceases entrepreneurial activities upon divestiture of accreditation. The accrediting authority for branches of foreign legal entities is the State Registration Chamber under the Ministry of Justice of the Russian Federation.

Document List

The list of documents required for accreditation and registration of branches of foreign legal entities with the state register:

• written application for accreditation of a branch of a foreign legal entity and its registration with the State Register in compliance with the Law on Foreign Investments;
• file “Accreditation details...” sealed by a foreign legal entity or its authorized representative (2 copies);
• statement from the trade register of the country of origin of a foreign legal entity or other document certifying registration of a foreign legal entity in compliance with the legislation of its host country;
• Articles of Association of a foreign legal entity (if the laws of the country of incorporation do not stipulate the articles of association, there shall be a document certifying such legal provision issued by the competent authority of the country of incorporation);
• statement of solvency of a foreign legal entity issued by a servicing bank;
• resolution on the branch setup;
• Branch Regulations — the original and a notarized copy;
• certificate of registration (a notarized copy);
• tax certificate (a copy);
• letter of the Federal State Statistics Agency (the Russian State Statistics Committee) on code assignment (a copy);
• bank statement on opening of accounts (a notarized copy);
• balance-sheet for the previous accounting period marked by the tax agency (a copy signed by the head of the branch and sealed);
• power-of-attorney issued to the head of the branch of a foreign legal entity on vesting him with relevant authorities;
• power-of-attorney issued to an authorized person for management of affairs with the State Registration Chamber (the original copy);
• expert reports in cases stipulated by the legislation of the Russian Federation (original or notarized copies).

All foreign documents shall bear consular legalization or apostille with attached translation into Russian certified by a notary or a consular institution, unless excused from such procedures by the international agreements of the Russian Federation.

A representative office of a foreign legal entity is its separate unit not being an independent legal entity. Unlike the foreign legal entity, a representative office is always located in the territory of Russia, represents and protects interests of a foreign legal entity without performance of production and commercial operations.

Compared to other business entities, representative offices of foreign legal entities enjoy the following benefits:

1. simpler registration procedures compared to entities with foreign funds;
2. accredited representative offices of foreign legal entities and their employees enjoy preferential value-added tax treatment (VAT) for office lease;
3. compared to Russian legal entities and legal entities with foreign funds, today representative offices are not obliged to keep full-scale accounting records; tax authorities only need full bookkeeping allowing to calculate tax liabilities;
4. accredited representative offices carry out temporary importation of vehicles, office appliances and other property free from customs clearance charges;
5. existence of a representative office plays an important role, since this is the very case when a foreign company can enjoy benefits and preferences under the relevant tax agreements.

However, if the tax authority defines the taxable status of a representative office as “permanent representation”, such representative office shall be subject to tax payments similar to the Russian companies.

Legalization:

To make the operation of a representative office of a foreign legal entity legal in the Russian Federation, it shall be legalized by registration (registration with the consolidated state register) and accreditation (permit for operation in the Russian Federation).

Document List

The list of documents required for accreditation and registration of representative offices of a foreign legal entity with the state register:

• state registration certificate of a foreign legal entity or a statement from the state register of the country of origin of a foreign legal entity or similar certification of a legal status of a foreign investor in compliance with the legislation of its host country;
• constituent documents of a foreign legal entity;
• minutes of the meeting of founding members (shareholders), board of directors with the resolution on setup of a representative office;
• reference letter from the bank of a foreign legal entity in the country of incorporation certifying its solvency;
• certificate issued by a tax (financial) or other authority on assignment of a tax identification code or statement of such authorities on non-assignment of a tax identification code;
• resolution of a foreign company on setup of a representative office and appointment of the Head of a representative office;
• power of attorney for the Head of a representative office. The power of attorney shall specify all powers granted to the Head of a representative office;
• By-Laws of a representative office;
• name of the bank where accounts are open (with details);
• passport copy of the Head of a representative office;
• passport details of the chief accountant of a representative office;
• documents on location of a representative office (contract of lease, subtenancy contract and other document certifying the right of enjoyment).

All foreign documents shall bear consular legalization or apostille with attached translation into Russian certified by a notary or a consular institution, unless excused from such procedures by the international agreements of the Russian Federation.

The Civil Code of the Russian Federation stipulates the list of legal entities entitled to particular activities in the Russian Federation, the most commonly encountered types include:

• Joint-Stock Companies (JSC), both “closed’ and ‘open’;

Joint-Stock Companies (JSC) are subdivided into two categories: closed and open. A joint-stock company where participants can dispose of their shares without sanction of other shareholders is deemed an open joint-stock company. A joint-stock company where shares are allocated only among its founders or other predetermined quarters is deemed a closed joint-stock company.

The minimum capital for setup of an open joint-stock company is 1,000 minimum monthly rates of labor payment (MRLP) as of the day of the company registration. The minimum capital for setup of a closed joint-stock company is 100 minimum monthly rates of labor payment. Regulatory bodies of a joint-stock company include the general meeting of shareholders and the board of directors. The board and/or the chief executive officer control day-to-day operations of a joint-stock company.

• Limited Liability Company (LLC), Additional Responsibility Society;

The minimum capital for setup of a limited liability company (LLC) is 100 minimum monthly rates of labor payment. The number of LLC ‘participants’ shall not exceed 50. Constituent documents of LLC may stipulate certain restrictions to assignment of participants” rights, sale of a share to a third party. A company participant may at any time withdraw from the company without sanction of other participants, at that, such participant shall be paid the value of property equal to his share in the LLC authorized capital. Regulatory bodies of LLC include the general meeting of shareholders, the board and/or the chief executive officer.

• Full Partnership; General Partnership (Partnership in Commendam).

Key features of a partnership include a personal deposit of participants into entrepreneurial activities of the partnership and unlimited liability of, at least, some of the participants. Certain participants of a partnership in commendam bear limited liability. Both full and general partnerships shall file tax statements and pay taxes according to its activities.

Investors can also enter into a joint activity agreement with a Russian company to operate a business in Russia. In this case a foreign company usually makes its contribution in the form of funds, property or know-how, tangible or intangible assets to the joint activity, and in accordance with the agreement has the right to a share of profits from joint activities.

Participation in and sharing of profits from joint activities are stipulated legally by the joint activity agreement and do not need to be pro rata. Taxation of a joint activity takes place at the level of its participants (apart from VAT and taxes on sales). One of the participants shall keep separate bookkeeping of a joint activity. In case of a joint activity agreement, a foreign company does not have to be actually located in Russia. In this case the profits from a joint activity shall be subject to Russian taxes, and taxes shall be deducted at a reduced rate under any of the effective double tax treaties.

A share purchaser must be sure that the shareholder has the right thereto; that shares are legal and executed in compliance with all the requirements and their sale is not in conflict with the Russian legislation or constituent documents and the seller got the sanction of other shareholders to sell his share. When acquiring newly issued shares, the buyer shall verify registration of such shares with the Federal Service on Financial Markets.

1. If a buyer acquires more than 30% of (voting) shares of an open joint-stock company, he shall make a public offering to other shareholders to buy the shares at the market price. If, as the result, a buyer acquires more than 95% of the company shares, he shall, at the request of other shareholders, acquire their shares at the market price. The holder of 95% of the company shares can, in turn, demand from other shareholders to sell their shares.
2. An individual, a legal entity or a group acquiring over 25%, 50% or 75% of shares in a joint-stock company or more than 1/3, 1/2 or 2/3 of shares in a limited liability company shall get an approval of the Federal Antimonopoly Service, if:
• aggregate balance property of a buyer is over 3 bln. rub. and the net assets value of the acquired property exceeds 150 bln. rub.
• aggregate proceeds of a buyer from sales in the previous year exceed 6 bln. rub. and the net assets value of the acquired property exceeds 150 bln. rub.
• a buyer and a company, the share in which he intends to acquire, controls 35% of the relevant market and, hereupon, is included in the relevant state register.
3. Transactions (deals) with shares of a joint-stock company shall be registered with the share register to ensure reliability of their transfer. The transfer is usually registered within one or three days.

Transactions with shares of a limited liability company imply introduction of amendments to the constituent documents with further state registration. This can take from seven to ten days.

Right of property: a buyer shall make a detailed legal evaluation of the seller’s ownership to the sold property, in particular to privatized property. This shall not be limited to verification of state registration documents, patents and trademarks availability, but shall also include review of accompanying documents: contracts, agreements, permits, challenges associated with acquisition of rights to such property.

Antimonopoly permit: a preliminary permit of an antimonopoly service is required for acquisition of assets (property) with value over 20% of the net assets value of tangible and intangible assets of the seller, if:

1. aggregate balance sheet assets of a buyer are over 3 bln. rub. and the net assets value of the acquired assets is over 150 mln. rub.;
2. aggregate proceeds of a buyer from sales in the previous calendar year exceed 6 bln. rub. and the net assets value of the acquired assets is over 150 mln. rub.;
3. a buyer and a company, the share in which he intends to acquire, controls 35% of the relevant market.

Registration of property transactions (deals): property transactions (purchase, lease etc.) are subject to state registration. Registration and further title transfer usually take about 20 to 30 days.