Subsidiary vs. Branch Office in Russia
Subsidiary vs. Branch Office in RussiaUpdated on Thursday 07th May 2020
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Russia provides many investment opportunities for foreign businessmen wanting to set up companies in the country. The Russian Civil Code allows foreign investors to set up new companies or to open branch and representative offices. Enterprisers selecting to open subsidiaries may opt for a limited liability company.
Below, our lawyers have made a brief comparison between the subsidiary and the branch office in Russia in order to help the representatives of foreign companies to choose the right structure in accordance with their needs.
Our law firm in Russia can assist foreign companies interested in starting both branches and subsidiaries in this country.
Legislation on setting up a business in Russia
The Civil Code and the Company Act are the two main laws which provides for the conditions related to starting a company in Russia. Both laws provide for local and foreign investors, who can be natural persons or corporations, to open businesses here under similar regulations, however, a few restrictions apply to foreign businesspersons in industries such as mining, oil and gas and forestry.
Foreign companies have several choices with respect to the types of structures they can set up in Russia. Subsidiaries, branches, joint ventures and representative offices are the most common business forms available for those interested in operating on the Russian market.
Among these, the subsidiary and the branch are the most employed because of they are well-regulated, and they cover all the needs of a foreign company seeking to operate in Russia.
Our lawyers in Russia can explain the main differences between a branch and a subsidiary.
You can read about the differences between branches and subsidiaries in Russia in the infographic below:
The subsidiary in Russia
The subsidiary company is one of the preferred business forms of foreign companies entering the Russian market. The main attributes of this type of structure refer to:
- it can be employed in many industries in Russia offering a high degree of independence;
- it can be registered as a private limited liability company or a joint stock company (the last one is seldom used);
- it can have one or more shareholders, therefore it is a very flexible and advantageous business form;
- the subsidiary can also be set up by foreign holding companies seeking to enter the Russian market;
- the share capital of a subsidiary company must be deposited within 4 months from the incorporation.
The establishment of a subsidiary in Russia has many advantages, especially because it is not connected to the parent company when it comes to the activities it can undertake. From this point of view, the parent company can decide if the subsidiary will complete the same activities as the foreign business or other activities. Also, the object of activity of a Russian subsidiary can be altered in time.
Our Russian lawyers can offer more information on the characteristics of subsidiary companies.
What are the requirements for opening a subsidiary in Russia?
The subsidiary is a company in which the majority shareholding votes belong to the foreign entity, usually called parent-company. The major advantage the subsidiary has is that the liability of the shareholders is limited to their capital contributions.
A single shareholder is sufficient to start a subsidiary in Russia. The minimum share capital will depend on the type of structure the foreign investor decides to register. One can choose a limited liability company or a closed joint stock company that require a start-up capital of 10,000 rubles or an open joint stock company that needs a minimum share capital of 100,000 rubles. Certain requirements must also be met with respect to the company’s management structure of these types of companies.
Documents required to register a subsidiary in Russia
Foreign companies establishing subsidiaries in Russia must prepare and file the following documents with the Trade Register:
- the future company’s memorandum and articles of association which must be notarized;
- a registration application form which is issued by the Russian Trade Register;
- information about the parent company, such as its statutory documents and the certificate indicating its tax registration number;
- a statement issued by the parent company’s bank indicating its good financial standing.
Compared to the branch office the registration of a subsidiary in Russia is faster.
The branch office in Russia
The other business form which can be employed by foreign companies entering the Russian market is the branch office. Compared to the subsidiary, the branch will depend entirely on the parent company. This structure is usually employed by foreign banks because its activities will also be restricted to the foreign business’ main object of activity. Another important aspect to consider about the Russian branch office is that it is not an entity itself, therefore it cannot take its own decisions.
If you plan on opening a branch office and need more information or advice related to this business form, our attorneys in Russia can guide you.
What are the requirements to open a branch office in Russia?
According to the Russian Civil Law and Tax Code, the branch office is not a separate legal entity, but an extension of the foreign company in Russia. In case of branch offices, the parent company will be held liable for their obligations and will receive all their profits. In order to be able to conduct business operations, a Russian branch office must register with the State Chamber of Registration and with the Branch Tax Inspectorate within the Federal Tax Service.
Documents required to open a branch office in Russia
The following documents are necessary for registering a branch office in Russia:
- a copy of the memorandum and articles of association documents of the parent company;
- information about the parent company issued by the Trade Register in its country of residence;
- a tax registration certificate issued by the authorities of the parent company;
- the memorandum and articles of association of the branch office to be registered in Russia;
- the regulations under which the branch office will operate in Russia;
- information about the director of the branch and power of attorney for him/her.
The foreign company establishing the Russian branch must also pay an accreditation with the Tax Office in Russia.
Comparison between a subsidiary and a branch in Russia
Compared to the registration procedure of a subsidiary, a branch is more expensive to register in Russia. Branches in Russia cannot apply for certain licenses for business activities, while subsidiaries may apply for many more. In terms of taxation, the subsidiary may benefit from numerous tax advantages mostly due to the extended double taxation network Russia has. However, a Russian branch office will only have to pay taxes on the income it makes in the country.
How to choose between a branch and a subsidiary in Russia
When comparing the branch and the subsidiary in Russia, the representatives of a foreign company should consider the following:
- whether they want to have full control or offer independence to the Russian company;
- the licenses they need to obtain can also influence the choice of one of the two structures;
- the activities to be completed in Russia, and whether these will change in the near future;
- the taxes the parent company needs to pay with respect to the company held in Russia;
- the registration and annual maintenance costs generated by the Russian business form.
The one thing that both Russian subsidiaries and branches have in common is that they need to have a registered address in the city in which they will operate.
Feel free to ask our Russian lawyers for any advice related to choosing between branches and subsidiaries.
Taxation of companies in Russia
No matter the business form chosen, the corporate tax needs to be paid by both branches and subsidiaries in Russia. If the subsidiary will be treated as local companies, the branch office will be taxed on the profits earned here only. The Russian corporate tax rate is 20%.
From an accounting point of view, both branches and subsidiaries will need to file financial statements from their parent companies with the Russian Trade Register.
Choosing between a subsidiary and a branch must be carefully considered by the representatives of foreign companies and the decision should be aligned with the long-term objectives of the parent company.
You can contact our law firm in Russia for more information about opening branch offices and subsidiaries. You can also rely on our Russian attorneys for the company registration procedure.