Prospects and advantages of joining a foreign company to a Russian LLC

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Joining a foreign company to a Russian limited liability company (LLC) is one of the ways to develop business in Russia. Such a move could bring significant benefits to both parties by opening new markets, providing access to technology and expertise, and fostering mutually beneficial cooperation.

In this article, we will look at the prospects and benefits of joining a foreign company to a Russian LLC.

Peculiarities of joining a company with a Russian legal successor

As a rule, the purpose of such reorganizations and mergers is to:

• Tax-free transfer to Russia of profits received from exports or imports.
• Tax-free change of property owner.

It is important to know that the reorganization of a company is considered completed if a corresponding entry appears in the Unified State Register of Legal Entities.

Benefits of merger transactions.

• Access to the Russian market. The accession of a foreign company to a domestic legal entity allows you to introduce your products and introduce the services provided by this or that company in one of the largest markets in the world. Russia has a huge potential for the development of various industries. An external partner can take advantage of this to expand their business. Thanks to the local knowledge and experience of a Russian LLC, a foreign company can successfully adapt its strategy to the requirements of the local civil market and achieve competitive advantages.
• Technological exchange. The accession of a foreign company to a Russian LLC can be useful not only for access to the Russian market, but also for the exchange of technological knowledge and innovations. The foreign partner can not only provide new technologies but can also benefit from the existing technologies and experience of the Russian LLC. This exchange can increase the efficiency and competitiveness of both companies.
• Local resources and partners. The deal allows a foreign company to gain access to local resources and partners, which is one of the most important advantages. In addition, a Russian LLC can provide infrastructure and business connections.
• Improvement of business reputation. The process of accession will positively affect the business reputation of both parties. Collaboration with a local LLC can remove some of the barriers and create trust with customers and partners in the Russian market. The local company may have a better understanding of being more knowledgeable and competent in understanding local norms and culture and cultural aspects, which will help the foreign partner to successfully do business in Russia.
• Expansion of geographical coverage. The deal will pave the way for the foreign company to further expand into other regions of Russia and the CIS countries. A local LLC has a local presence, presence and market knowledge that can help a foreign company penetrate, expand into new regions, and establish long-term partnerships.
• Simplification of the establishment procedure. The merger of a foreign company with a Russian LLC can simplify the procedure for establishing and reduce administrative barriers. A Russian LLC already has an established structure and registration, which reduces the time and financial costs associated with the creation of a new legal entity.
• Improvement of financial possibilities. Through cooperation, a foreign firm can gain access to additional financial opportunities. As a result of cooperation with a local LLC, a foreign partner may become the owner of a preferential loan or a state support program.

Tax preferences from accession.

Usually, in the case of the reorganization of two companies – a resident and a non-resident – the Russian LLC also benefits. It may include certain tax benefits:

• The transfer of fixed assets, intangible assets, and other property, as well as the property rights of the company to its legal successor in the process of reorganization, is not recognized as a sale. Thus, there is no obligation to pay VAT and recover tax previously accepted for deduction.
• The value of property acquired through succession in a company reorganization is not recognized as income. Accordingly, no income tax is payable.
• Assignees do not have to pay fines that are imposed on the reorganized firm even after the completion of the reorganization procedure. However, it should be borne in mind that the remaining amounts are paid in full. This applies to additional taxes, penalties, as well as sanctions that were imposed before the reorganization.
• After the reorganization, the successor company does not have to pay taxes other than those directly transferred on the separation balance sheet. However, if after the completion of the procedure, the original company cannot pay taxes in full, then the court can oblige all reorganized firms to do so. It is important that in this case the legal successor is a Russian legal entity.
• In case of complete liquidation of a company because of reorganization, its last tax period is the date of liquidation. The declaration for the final period must be submitted at the location of the assignee within the standard reporting deadlines. If the successor is a foreign person, then it will be difficult to collect the debt.

Results

The accession of a foreign company to a Russian LLC presents significant prospects and advantages. It opens access to the Russian market, allows the exchange of technologies and experience, improves business reputation, and creates opportunities for expanding geographical coverage.

However, foreign legal entities often face problems when reorganizing and creating a single legal entity. In this case, experienced lawyers will help you understand the intricacies of Russian legislation. VALEN experts will help you draw up the documentation correctly and advise on any issue.