Opportunities for Foreign Businesses in Russia: Five Effective Methods
The Russian market has always been and remains attractive to foreign investors, both individuals and companies.
While planning a business, foreign entrepreneurs primarily consider the form of doing business.
We will review the main ways to conduct business in Russia below:
1. Establishing a Company
Foreigners or foreign companies can establish a Limited Liability Company (LLC).
For LLCs with foreign founders, there are restrictions on certain types of activities (e.g., handling radioactive waste).
A foreign investor can own 100% of the shares in an LLC.
If the foreign company’s share exceeds 25%, the simplified taxation system (STS) can not be applied, and the general taxation system (GTS) must be used, which may be less advantageous.
And if the foreign company’s share exceeds 49%, the company loses small business benefits.
Foreign nationals can serve as directors of an LLC if they have:
– Russian citizenship,
– Temporary Residence Permit (TRP) or Permanent Residence Permit (PRP),
– Work permit
– Patent.
To open a company, foreign investors must submit the following additional documents:
– For an individual: A notarized translation of their passport.
– For a foreign company:
– Extract from the commercial register,
– Certificate of incorporation,
– Business certificate (if applicable),
– Notarized translation of the director’s passport.
The first three documents must be apostilled or legalized through a consular procedure.
The LLC registration package can be submitted in the following ways:
– Through a notary,
– In person at the tax office
– By mail.
The LLC registration process takes 3 business days (the day of submission is not counted).
Upon registration, the tax authority issues:
– A record sheet confirming the LLC’s creation,
– Taxpayer Identification Certificate
– LLC Charter.
2. Acquiring a Share in an Existing LLC
A foreign individual or company can acquire a share in an existing LLC. It allows them to integrate quickly into a business with some established operations. Moreover the participants of an existing LLC might have knowledge of Russian legislation.
However, restrictions may apply, especially for businesses operating in areas of strategic importance to the government.
The LLC’s Charter may prohibit selling shares to third parties. In this case, amendments must first be made to the Charter and registered with the tax authority. Only after that the share purchase agreement can be concluded.
While drafting the agreement it is necessary to consider the Charter’s requirement regarding the right of first refusal for the purchase of a share. For LLCs with multiple shareholders, consent from other shareholders to acquire the share is usually required.
In some cases, foreigners need approval from the Federal Antimonopoly Service to purchase a share in an LLC.
A foreign investor can acquire a share via a representative through a notarized power of attorney, eliminating the need to visit Russia in person.
This power of attorney must be apostilled or legalized.
3. Establishing a Branch or Representative Office
Foreign companies can establish a branch or representative office in Russia. In these cases, no legal entity is registered, and the company does not join an existing LLC.
– Representative Office: Represents the company’s interests in Russia. Activities include market expansion, buyer searching and advertising.
– Branch: Has broader powers and can engage in commercial activities similar to those of the parent company.
Opening branches or representative offices increases mobility, reduces costs, and boosts profitability for foreign companies.
To operate legally, accreditation must be obtained from the Interregional Inspectorate of the Federal Tax Service No. 47 in Moscow.
– Accreditation requires a large document package, all of which must be apostilled or legalized.
– The state fee for accreditation is 120,000 RUB per branch or representative office (4,000 RUB for companies from EAEU countries).
– The process takes 15 business days from the submission of documents.
This option is not suitable for companies planning to import/export goods, obtain licenses, or operate in regulated industries. In such cases, establishing a legal entity is necessary.
4. Registering as an Individual Entrepreneur (IE)
Foreigners, like Russian citizens, can register as individual entrepreneurs (IEs) in Russia.
This option is available to foreigners with citizenship, TRP, or PRP. Those with a “temporarily staying” status cannot register as an IE.
IEs can choose between the STS or GTS.
If a foreign citizen lacks Russian citizenship, PRP, or TRP, they can still open a company, as these documents are not required for LLC registration.
5. Partnering with a Russian Distributor
This approach involves finding a partner in Russia who will purchase and distribute the foreign company’s products in the Russian market. A dealer agreement is concluded between the foreign company and the Russian partner.
This is the most convenient and cost-effective option, as it does not require registration with government agencies. Additionally, it eliminates the need for initial capital, state fees, office rent, employee salaries, or tax payments.
Conclusion
Foreign companies and individuals have various opportunities to conduct business in Russia. From establishing an LLC to registering as an IE or partnering with distributors, the choice depends on the business goals, resources, and circumstances.
It is crucial to consider legal requirements and restrictions associated with each option to ensure compliance and maximize business potential in Russia. With the right approach, foreign enterprises can successfully integrate into the Russian market and seize numerous opportunities for growth and profit.