Russia Holding Company

The holding companies in Russia are preferred because of the smaller administration prices and the facilities offered for using them. There are two types of holding companies: pure holding companies and operating holding companies.

The pure holding company is the one where the investors are acting only through the foreign company where the stocks are invested, while the companies that also conduct business by themselves, along with the company where the stocks are invested, are called holding-operating companies.

At least half of the value of the company’s outstanding stocks must be owned for more than a half of the financial year by another company in case of a holding company. Usually, the term used for the company that owns the majority of the stocks in another company is “the parent company”, while the term used for the company where the parent company has the majority of stocks is the subsidiary.

A major advantage of a holding company in Russia is that if the subsidiary is considered bankrupt, the parent company is not considered liable for the loss if it didn’t sign the debt. The only thing that the company is losing is the invested money.

Below, our lawyers in Russia explain the main characteristics of holding companies. We can also assist those interested in setting up holding companies in Russia.

Types of holding companies in Russia

There are two forms of accepted holding companies in Russia: the limited liability companies and the joint stock companies.

A limited liability company and a closed joint stock company require at least 10,000 rubles to be registered, while the open joint stock company requires at least 100,000 rubles.

There are many reasons why a foreign entity is willing to open a holding company in Russia:

•          - establishing or improving a foreign company’s image abroad through a holding;
•          - tax optimization – holding companies can benefit from various tax incentives;
•          - strengthening the safety and security of business assets and the corporate governance,
•          - cut the general expenses – the expenses related to the administration of a holding company are usually lower;
•          - safeguard of shareholders' interests – holding companies can be used for enhanced privacy;
•          - tracking the financial transactions and for growth and keeping the company’s capital.

 

Special laws were adopted lately to encourage the foreign investors to open a business in Russia. If special sectors are approached by the foreign business, the investors may take advantage of some special regulations.

The following sectors are considered strategic by the Russian Strategic Investments Law:

•          - military industry,
•          - the nuclear industry,
•          - transport services (rail roads, the aviation industry, airports and marine ports, space activities),
•          - mass media.

 

Industrial activities, such as the development of subsoil fields, natural monopolies (oil and gas pipeline), are also under the Strategic Investment Law regulations.

Our law firm in Russia can offer more information on the Strategic Investment Law.

We can also help trading companies with the EORI registration process in Russia.

Share capital requirements for holding companies in Russia

Russian holding companies can take the form of private limited liability or joint stock companies which fall under the same regulations imposed by the Company Law. This is why the same share capital requirements apply, just like in the case od the types of entities mentioned above. However, the parent company will decide if additional amounts of money are necessary in order to complete its activities in Russia.

Our attorneys in Russia can offer more information on the share capital requirements for opening a holding company.

The video below shows the steps for opening a holding company in Russia:

 

Setting up a holding company in Russia

The main laws regulating the establishment of holding companies are the Russian Civil Code and the Joint Stock Company Law and the Limited Liability Law, depending on the type of structure selected. In both cases, the liability of the shareholders is limited to the amount of money they have contributed with at the registration of the business. This is one of the main reasons Russia is an advantageous destination for setting opening a holding company. The joint stock company must have a board of directors made up of at least 5 members and its name must state it is a public entity. Holding companies established as limited liability companies have a limited number of 50 shareholders.

The following steps need to be completed in order to register a holding company in Russia:

1. the parent company needs to have the holding’s Articles of Association drafted and notarized;
2. the documents need to be filed with the Trade Register in Russia which will issue the Certificate of Registration;
3. holding companies need to register for taxation purposes with the tax authorities in Russia;
4. in case the holding company will have foreign employees, their hiring must be approved by the Russian Chamber of Commerce and Industry;
5. the company must also register with the Statistics Committee and the Social Insurance Fund.

 

It is important to note that the registration of a Russian holding company does not differ from that of a local company.

Taxation of holding companies in Russia

The following tax regulations apply to Russian holding companies:

1.     a 13% corporate tax rate applies if the shareholder is a Russian entity or resident;
2.     a 20% corporate tax rate applies to foreign shareholders controlling Russian holding companies;
3.     the holding company can benefit from the Russian double taxation agreements, as long as their shareholders are residents of one of the signatory countries;
4.    according to the Controlled Foreign Companies regulations, holding companies can benefit from certain tax exemptions under certain conditions.

 

Legislation on multinational companies in Russia

Considering the appeal Russia has started exercising on foreign investors in the last few years, the government has proposed a package of 6 laws which provide for advantageous conditions for those interested in setting up multinational companies.

Considering holding companies can acquire the status of multinational companies, these laws addresses them. One of the laws provides for the creation of special administrative districts in Kaliningrad and Primoyre in which such companies can run various operations. Another law provides for private and public companies to obtain the status of multinational or international holding companies in Russia.

International holdings could also benefit from special tax and currency regulations and will also obtain the right to register ships in Russia. These ships would then be registered in an Open Registrar of Ships which is yet to be created.

In order to become an international holding company, a private limited liability company or a joint stock company would have to meet the following requirements:

• - it must complete various activities in more than one country (one of the countries must be Russia);
• - it must also have operations in one of the special administrative areas;
• - it must enter an agreement with a local company to invest in Russia or;
• - it has given a notice of intention of investing in Russia or;
• - it has entered a special investment agreement, a concession contract or a public-private partnership with the municipalities.

 

A Russian company would be given a period of 6 months to change its status into a holding company, according to the new law.

Other provisions of the proposed law cover various taxation and currency issues. With respect to the taxation of holding companies, these would benefit from special rules if registered in one of the special administrative zones. Under this law, the holding companies would be treated as tax resident companies, while the foreign companies holding them would be treated as foreign companies for taxation purposes.

With respect to the currency, the new law proposes for multinational companies to be allowed to undergo re-domiciliation procedures in Russia which would grant them the status of non-resident companies.

It is important to note that the law is currently under debate, therefore it has not entered into force. Our Russian lawyers can offer more information on the legislation currently in place with respect to holding companies.

Why set up a holding company in Russia?

Thanks to its geographical position and size, Russia has many investment possibilities and foreign investors can take advantage of them by setting up holding companies. Apart from these, the Russian economy, even if it has its ups and downs, remain stable and has good outlooks, considering that:

• - in 2018, the real Gross Domestic Product registered an increase of 2.3% compared to 2017;
• - in 2019, the Russian economy is expected to increase by 1.2%;
• - 2020 is also expected to bring a moderate economic growth of 1.8%, according to the World Bank;
• - the World Bank mentions Russia’s potential economic growth is of 1.5% per year.

 

Our lawyers in Russia will help you open a holding company and they will handle the entire procedure of registering the company, so do not hesitate to contact us.